DKIB SME Loan

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	27329
Company name	Demir Kyrgyz International Bank
Country	Kyrgyz Republic
Sector	Finance & Insurance
Environmental category	FI
Department	Global Financial Markets Group
Status	Pending Disbursement

Date SPI disclosed	September 19, 2008
Projected board date	November 5, 2008
Previous Events	Signed: June 19, 2009 Approved: June 17, 2009

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The proposed transaction is a loan of up to $5.0 million to Demir Kyrgyz International Bank (“DKIB” or the “Bank”), an existing IFC client. The proposed loan will be used to onlend to micro, small, and medium-sized enterprises (“MSME”).

Demir Kyrgyz International Bank is a closed joint-stock company, which was incorporated in the Kyrgyz Republic in 1997. DKIB is the 6th largest bank in Kyrgyz Republic in terms of assets, amongst 21 banks with a network of four branches and total assets of US$.80.9 million as of June 30, 2008. Total equity of the Bank stands at $12.3 million as of June 30, 2008.

DKIB’s vision is to have 250,000 active customers in 2010 with efforts of strong management and continuously developing team, by means of effective technologies, products and services which make life easier for customers.

This loan would be a repeat transaction with DKIB. In September 1997, IFC made an equity investment in the Bank, representing 15% shareholding.

Anticipated development impact of the project

IFC’s proposed investment in DKIB is expected to support the MSME lending activities of the Bank in the country. Kyrgyz Republic is a frontier market for IFC, a primary focus area. Banking penetration is very low in the country, and banking activities are focused on large corporates as well as large cities. MSMEs’ access to finance, especially long-term finance is very limited.

DKIB’s vision is to become a customer-oriented SME bank, and increase its branch network to reach underserved segments of the country, which are not using a wide array of banking products. By providing long term funding to DKIB, the proposed transaction will enable penetration into the segment to serve a larger number of MSME clients. Increased MSME lending by the Bank is expected to stimulate employment generation.

The project is also expected to contribute to the increased competition in the financial sector and create a demonstration effect for other investors to invest into the MSME segment.

IFC's expected development contribution

IFC has an important and highly developmental role by supporting DKIB during its strategy to increase lending to the MSME sector. Through this proposed project IFC would open up financing channels with additional longer term resources to an underserved market segment of the Kyrgyz economy.

IFC’s expected development contribution can be summarized as below:
Longer Term Funding: Through this proposed loan, IFC would play an important developmental role by providing DKIB with long term resources for on-lending to MSMEs, thereby ensuring the Bank’s further growth, loan portfolio diversification while supporting the Kyrgyz MSME sector. IFC’s longer term funding will enable DKIB to grow its MSME lending with a matched maturity funding base.

Catalyzing Growth of MSMEs: IFC would help catalyze the growth of the MSME sector by providing term funding to DKIB, which is key to alleviate poverty in the country.

Promotion of Environmental and Social Standards of Excellence: IFC, being a global leader for sustainable environmental and social banking practices, continues to be positioned well to help the Bank further develop in this regard as part of the loan approval and supervision process, thereby catalyzing industry improvements in the Kyrgyz Republic.

Environmental and social issues - Category FI

This project has been classified as a Category FI project according to IFC’s Environmental and Social Review Procedure.

During appraisal, IFC will analyze DKIB’s portfolio and the activities proposed to be supported with IFC financing for types of transactions, size, tenor and industry sectors and determine the Applicable Performance Requirements, if any, that would include a combination of:

- The IFC FI Exclusion List and/or
- The applicable National Social and Environmental Laws and regulations and/or
- The IFC Performance Standards

IFC will also review the capacity of the Bank to manage social and environmental risks and to establish and maintain a Social & Environmental Management System (SEMS). If required, IFC will suggest Supplemental Actions to address any gaps in the SEMS.

Based on the review, DKIB will be required to:

- Develop, or upgrade, if necessary, any existing SEMS prior to disbursement to the satisfaction of IFC
- Identify responsible, qualified persons to manage and implement the SEMS
- Commit to implement the SEMS, to ensure that its investments/activities supported by IFC financing are in compliance with the Applicable Performance Requirements
- Submit a periodic report to IFC as per a format to be provided by IFC.

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