Larisa Saenko runs a hair and beauty salon in Dmitrievka, a village 30 kilometers from the Kyrgyz Republic’s capital of Bishkek. When the COVID-19 pandemic hit, haircuts suddenly became a luxury, and hairdressers like Larisa who had been in business for years were caught up in forces out of their control.
The COVID-19 crisis has severely impacted the country’s economy. The unemployment rate increased for the first time since 2010, and the percentage of the population living below the national poverty line increased from 20% in 2019 to 25% in 2020. The impacts of the tragic events in Ukraine, rising food prices, and falling remittances are only expected to worsen this in 2022, to an estimated 38%.
Micro, small and medium enterprises (MSMEs) in the Kyrgyz Republic, which contribute 42% of the country’s GDP and play a key role creating employment opportunities, have been hit hard. In mid-2021, JIA, the country’s largest business association, conducted a survey to gauge the pandemic’s impact on the private sector. At least half of the over 600 surveyed MSMEs reported that company operations have been temporarily stopped during the pandemic, with reduced hours, unpaid leave, and partial layoffs commonplace.
“Lockdown became a survival test for my 13-year-old business and for my family too. It was incredibly difficult. My husband had a stroke, so we went through really tough times. Thank God, he has now recovered more or less,” says Larisa. “But back in the spring and summer of 2020, there was no work for nearly four months. Our kids and relatives helped us a lot. But since I became the only breadwinner, it was even more important to maintain my business.”
Through a local branch of a commercial bank, Larisa learned about governmental support to small businesses, becoming one of the first beneficiaries of the World Bank-funded Emergency Support for Micro, Small and Medium Enterprises Project. As a micro entrepreneur, she took reimbursable financial assistance of 100,000 Kyrgyz Soms (approximately $1,200) for 18 months, helping keep her business afloat.
Delivering support when it was needed most
“2020 was the toughest in the 15-year history of our small hotel,” says Jyldyz Niyazalieva, owner of a bed and breakfast in Djalal-Abad. She recalls how stringent restrictions were introduced, borders were shut, and the flow of foreign tourists dried up. Tourism and related industries were brought to the brink: revenue in the hospitality and catering sector dropped by 45%. Jyldyz’s household income—mainly reliant on the operation of her B&B— plummeted.
Jyldyz pivoted to serve other clients: domestic business and leisure travelers. But as she emphasizes, “Our hotel partially recovered due to domestic tourism, but not enough to sustain the business and support the family.”
So Jyldyz started exploring other options, particularly in small retail, to diversify her business. But just like for thousands of other micro and small entrepreneurs, Jyldyz was constrained by low cash flow and a lack of funding.
The $100 million Emergency Support for MSMEs Project, co-financed by the Asian Infrastructure Investment Bank (AIIB), is working to help businesses like Jyldyz’s and Larisa’s survive the economic slowdown, retain employees, and to resume and expand operations.
The Project, implemented by the Ministry of Finance, is providing emergency financial relief and recovery support to MSMEs through reimbursable financial assistance to eligible enterprises to cover operational expenses, working capital, and medium-term investment expenses. Moreover, with access to finance one of the biggest constraints for MSMEs during the recovery, the Project supports credit provision to MSMEs through establishing a Portfolio Risk Sharing Facility, which reduces the risk of financial sector withdrawal from lending to MSMEs.
Building opportunities for thousands of female entrepreneurs
The Emergency Support for MSMEs Project has special provisions to support female entrepreneurs like Larisa and Jyldyz, who often work in sectors hardest hit by the pandemic such as hospitality, tourism, services, and retail.
Less than 20% of women led SMEs have a bank loan or line of credit, and female account ownership at financial institutions is relatively low at 38%. The Project is addressing this gender gap in access to finance through dedicated activities to inform women-led firms about available opportunities and incorporate a gender-related indicator to measure access to finance.
While the Project was approved and signed in summer 2020, full implementation arrangements were established more than a year later due to the turmoil in the country that October and subsequent political and administrative changes. By end of September 2021, the government completed all the necessary arrangements, including signing an agent agreement with the Guarantee Fund to administer the Portfolio Risk Sharing Facility and concluding agreements with selected commercial banks to disburse reimbursable financial assistance.
At the request of the government of the Kyrgyz Republic, the World Bank has allocated $50 million in additional financing to scale up the Project and increase funding for existing beneficiaries. The combined investments of $150 million from the World Bank and AIIB are expected to provide emergency financial relief and recovery support to up to 60,000 MSMEs. Eligible micro enterprises will receive support of up to $3,000, with the possibility to request up to an additional $9,000. And eligible SMEs will receive initial support of up to $12,000, which can be topped up to $46,000 per SME. This additional support is expected to facilitate post-pandemic growth in the medium-term, enabling MSMEs to invest in machinery and equipment, digital upgrades, and green technologies.
“The pandemic has not yet ended, as new difficulties arise,” says Larisa. While she worries about rising prices, instability, and uncertainty, Larisa remains cautiously optimistic. “I really like to help people and see their smiles in my salon. I am so happy and grateful that I received support in time and was able to save my business.”
