December's Featured Essay: Kazakhstan

Donors and international NGOs realized the potential of the informal finance sector that developed in the 1990s after the collapse of the Russian centralized economy, and built a microfinance industry around it by the mid-1990s. Simultaneously, they began lobbying for changes to the legal and regulatory framework that would facilitate its growth. In this essay, Janice Stallard, Chief of Party for the USAID Central Asia Microfinance Alliance (CAMFA) project, explores the history of Kazakhstan’s legal and regulatory reform—focusing on its impact on the Kazakhstan Loan Fund—and makes suggestions for reforms still needed in Kazakhstan.

Additionally, Stallard discusses two regulations in Kazakhstan in relation to one MFI’s strategic planning. The first, a central bank regulation approved and passed by the Kazakhstan Government in 1997, allowed local legal entities to apply for non-bank financial institution (NBFI) licenses, enabling the first microfinance organizations in the country to apply for and secure licenses. The second, passed in 2003, allowed for-profit and non-profit organizations to register with the Ministry of Justice to conduct micro-lending. This "Law on Micro-lending Organizations" was created to alleviate the central bank’s concern about regulating a sector that would be operating in remote—and therefore difficult to audit—regions of the country. In this essay, Stallard advocates for an all-encompassing law that allows for a range of microfinance activities within varying degrees of supervision.