March 17, 2025

Activities of microfinance organizations in the legislation of the Republic of Kazakhstan

THE CONCEPT OF MICROFINANCE ACTIVITIES AND THE CHOICE OF THE ORGANIZATIONAL AND LEGAL FORM OF A LEGAL ENTITY

According to paragraph 1 of Article 11 of the Law on Microfinance Activities [1], a microfinance organization (with the exception of a credit partnership) is created in the organizational and legal form of a joint-stock company or business partnership .

The activities of microfinance organizations are the activities of providing microloans to individuals and (or) legal entities with or without security in an amount not exceeding twenty thousand times the monthly calculation indicator established for the relevant financial year by the law on the republican budget.

Microfinance organizations have the right to carry out only the following entrepreneurial activities:

• attracting loans (except for attracting money in the form of a loan from citizens as an entrepreneurial activity ) from residents and non-residents of the Republic of Kazakhstan;
• investing own assets in securities and other financial instruments;
• provision of consulting services on issues related to the provision of microcredit;
• leasing (renting) of one’s own property;
• sale of own property;
• implementation of leasing activities;
• implementation of specialized literature on the activities of microfinance organizations on any type of information carrier;
• performing the functions of a payment agent and payment subagent;
• conclusion of insurance contracts on behalf of and on behalf of insurance organizations – residents of the Republic of Kazakhstan as an insurance agent;
• implementation of the functions of an agent of the electronic money system in accordance with the legislation of the Republic of Kazakhstan;
• factoring operations: acquisition of rights to demand payment from the buyer of goods (works, services) with acceptance of the risk of non-payment;
• forfaiting operations (forfeiting): payment of a debt obligation of a buyer of goods (works, services) by purchasing a bill of exchange without recourse to the seller;
• issuance to legal entities of guarantees, sureties and other obligations requiring execution in monetary form.

Requirements for the organizational and legal form of a microfinance organization.

Joint-Stock Companies (JSC)

A joint-stock company is a legal entity that issues shares in order to raise funds to carry out its activities. The risks of shareholders are limited to the value of the shares they own.

To form the authorized capital, JSC issues shares and registers them with the state at the Agency for Regulation and Supervision of the Financial Market and Financial Organizations.

In all JSCs, a three-level system of management bodies is required to be created:

–           General meeting of shareholders/Sole shareholder (supreme body);

–           Board of Directors (a body that carries out general management, for example, determining the priority areas of the company’s activities and the company’s development strategy or approving the company’s development plan). To consider the most important issues and prepare recommendations for the board of directors, the company must create committees of the board of directors;

–           A sole or collegial executive body (a body that manages the current activities of a JSC).

JSC provides for reporting and notifications on the performance of any significant actions and (or) the occurrence of important events (financial reporting, reporting on the placement of shares, notifications on corporate events that have occurred, etc.). The financial reporting of JSC is subject to mandatory external audit, among other things, this is a mandatory condition for the payment of dividends to shareholders.

Business partnerships

A business partnership is a commercial organization that is a legal entity with an authorized capital divided into contributions (shares) of founders (participants), and whose main goal of its activities is to generate profit.

Business partnerships can be created in the form of a general partnership, a limited partnership, a limited liability partnership, or a partnership with additional liability.

Limited Liability Partnership (LLP)

LLP is the most common form of legal entity in Kazakhstan. State registration, corporate issues and transaction approval procedures in LLP are less complicated than in JSC.

A limited liability partnership is a legal entity established by one or more individuals (people) or legal entities (companies), the authorized capital of which is divided into shares. The shares of all participants in the authorized capital and, accordingly, their shares in the value of the property of the limited liability partnership (share in property) are proportional to their contributions to the authorized capital, unless otherwise provided by the constituent documents. The obligations of the participants and the limited liability partnership are separate from each other: the limited liability partnership is not liable for the obligations of its participants, and the participants are liable for the obligations of the limited liability partnership only to the extent of the value of their contribution to the authorized capital.

When selling a share in the authorized capital of an LLP to third parties, the participants must take into account the preemptive right of purchase of their share by other participants. The constituent documents of an LLP may establish restrictions or conditions for the alienation of a share in the LLP to persons who are not its participants.

The founders of a limited liability company may be both resident individuals and legal entities, as well as non-resident individuals and legal entities.

In a limited liability company, unlike a joint-stock company, a two-level system of management bodies is required to be created:

–           General meeting of participants/Sole participant (supreme body);

–           Sole and/or collegial executive body (the body that manages the current activities of the LLP).

The charter of the LLC may provide for the creation of a supervisory board and (or) an audit commission (auditor).

Based on our experience, in the vast majority of cases, a company that is just starting its operations in Kazakhstan creates a subsidiary in the form of an LLP.

It should be noted that LLP is quite flexible and is not burdened with the need to perform a large number of control measures. And if the legislation does not strictly require the creation of JSC, then LLP is the most convenient business organization in Kazakhstan.

Founders and shareholders of the microfinance organization

A major participant in a microfinance organization is recognized as an individual or legal entity that owns, directly or indirectly, ten or more percent of the shares in the authorized capital or voting (excluding preferred) shares of an organization that carries out microfinance activities.

A major participant in a microfinance organization cannot be appointed (elected) to the position of head of the executive body of the microfinance organization.

A person who: cannot be a major participant in a microfinance organization.

• is an individual who has an outstanding or unremoved criminal record;
• has registration, place of residence or location in offshore zones, the list of which is established by the authorized body;
• is a legal entity whose founder (shareholder, participant) or executive employee was previously the first director or founder (participant) of a microfinance organization for a period of no more than one year prior to the adoption by the authorized body of a decision to revoke the license of this microfinance organization to carry out microfinance activities on the grounds provided for by the Law on Microfinance Activities.
• was or is previously a major participant – an individual or the first director of a major participant – a legal entity and (or) an executive employee of a financial institution, director or deputy director of a branch of a non-resident bank of the Republic of Kazakhstan, a branch of a non-resident insurance (reinsurance) organization of the Republic of Kazakhstan, a branch of a non-resident insurance broker of the Republic of Kazakhstan for a period of no more than one year prior to the adoption by the authorized body of a decision to classify the bank, branch of a non-resident bank of the Republic of Kazakhstan as an insolvent bank, branches of non-resident banks of the Republic of Kazakhstan, to revoke the license of the financial institution, branch of a non-resident bank of the Republic of Kazakhstan, branch of a non-resident insurance (reinsurance) organization of the Republic of Kazakhstan, branch of a non-resident insurance broker of the Republic of Kazakhstan, or the entry into force of a court decision on the forced liquidation of the financial institution or recognition of it as bankrupt in accordance with the procedure established by the legislation of the Republic of Kazakhstan, or the entry into force of a court decision on the forced termination of the activities of a branch of a non-resident bank of the Republic of Kazakhstan, branch of an insurance (reinsurance) organization non-resident organizations of the Republic of Kazakhstan in cases established by the laws of the Republic of Kazakhstan.

The list of offshore zones for the purposes of banking and insurance activities, activities of professional participants in the securities market and other licensed activities in the securities market, activities of joint-stock investment funds and activities of organizations engaged in microfinance activities was approved by the Resolution of the Board of the Agency of the Republic of Kazakhstan for Regulation and Development of the Financial Market dated February 24, 2020 No. 8 .

The legislation of the Republic of Kazakhstan does not regulate the minimum number of shareholders in a joint-stock company and participants in an LLP. According to the legislation, the founder of a JSC or LLP can be one person. At the same time, an LLP cannot have another business partnership consisting of one person as its sole participant.

Requirements for registration of a microfinance organization

Requirements for registration of a microfinance organization:

• the name of a microfinance organization must necessarily contain the words “microfinance organization” or the abbreviation “MFO”;
• availability of a legal address for the microfinance organization being created;
• paid-up authorized capital in the amount established for microfinance organizations;
• a package of documents from the founders;
• a package of documents for the microfinance organization being created (charter, memorandum of association, order for the director, minutes of the general meeting of founders on the creation of a limited liability partnership);
• conclusion of an office lease agreement;
• opening a bank account in a second-tier bank.

PROCEDURE FOR OBTAINING A LICENSE

A legal entity applies to the authorized body for a license to carry out microfinance activities within six months from the date of its state registration. The authorized body (Agency of the Republic of Kazakhstan for Regulation and Development of the Financial Market) issues a license to the microfinance organization to carry out microfinance activities within thirty working days from the date of receipt of the full package of documents.

Qualification requirements for obtaining a license to carry out microfinance activities:

• availability of an information system that ensures automation of accounting;
• availability of personnel necessary for the implementation of microfinance activities;
• payment of the minimum authorized capital;
• compliance with the minimum amount of equity capital;
• the existence of Rules for the provision of microloans that comply with the requirements of the Law on Microfinance Activities;
• fulfillment of the requirement to join the unified information system in the field of combating the legalization (laundering) of proceeds from crime and the financing of terrorism.

The license fee for issuing a license is 30 (thirty) monthly calculation indices.

Formation of the authorized capital of a microfinance organization

According to Article 12 of the Law on Microfinance Activities [2], the founders of a microfinance organization are required to fully pay the minimum amount of the authorized capital of the microfinance organization being created by the time of its state registration (re-registration).

According to paragraph 7 of Article 24 of the Law on Limited Liability Partnerships [3], in order to pay for the authorized capital of a limited liability partnership before its creation by contributing money, the founders of the limited liability partnership may indicate in the founding agreement one of the founders who must open a savings account in a bank in his or her name to transfer the relevant funds to this account.

After the creation of a limited liability partnership and its opening of its own bank account, the founder in whose name the savings account is opened is obliged to transfer money from this account to the partnership account within 5 (five) working days.

According to paragraph 2 of the Prudential Standards [4], the prudential standards and other mandatory standards and limits for microfinance organizations include:

• minimum size of authorized capital;
• minimum amount of equity capital;
• adequacy of equity capital;
• maximum risk per borrower;
• leverage ratio;
• debt-to-income ratio of the borrower.

The minimum size of the authorized capital of a microfinance organization is 200,000,000 (two hundred million) tenge, which amounts to 380,872.6 US dollars on the date of writing this memorandum .

The authorized capital of a microfinance organization is formed exclusively in money in the national currency of the Republic of Kazakhstan – tenge.

Since the amount of the minimum authorized capital exceeds the threshold value for the transfer of money for a foreign exchange transaction subject to notification (clause 1) of clause 8-1 Rules for the implementation of foreign exchange transactions in the Republic of Kazakhstan), the client must provide the servicing authorized bank with the relevant information.

The minimum amount of equity capital is 200,000,000 (two hundred million) tenge, which amounts to 380,872.6 US dollars as of the date of writing this memorandum.

The methodology for calculating prudential standards and other mandatory standards and limits for an organization carrying out microfinance activities is provided for in Resolution No. 192 of the Board of the National Bank “On approval of prudential standards and other mandatory standards and limits for an organization carrying out microfinance activities, and the methodology for their calculation” dated November 14, 2019.

Requirements for the management of a microfinance organization

The executive staff of a microfinance organization are recognized as the first director and members of the executive body (collegial or sole), members of the supervisory board (if any), members of the board of directors (if any), and the chief accountant.

An individual cannot be a manager of a microfinance organization:

• not having higher education;
• not having an impeccable business reputation;
• previously was the head, member of the management body, head, member of the executive body, chief accountant of a financial institution, head or deputy head of a branch of a non-resident bank of the Republic of Kazakhstan, a branch of a non-resident insurance (reinsurance) organization of the Republic of Kazakhstan, a branch of a non-resident insurance broker of the Republic of Kazakhstan, a major participant – an individual, the head of a major participant (bank holding) – a legal entity of a financial institution in the period no more than one year prior to the adoption by the authorized body of a decision to classify the bank, branch of a non-resident bank of the Republic of Kazakhstan as an insolvent bank, branches of non-resident banks of the Republic of Kazakhstan, to revoke the license of the financial institution, branch of a non-resident bank of the Republic of Kazakhstan, branch of a non-resident insurance (reinsurance) organization of the Republic of Kazakhstan, branch of a non-resident insurance broker of the Republic of Kazakhstan, which entailed their liquidation and (or) termination of activities in the financial market, or the entry into force of a court decision on the forced liquidation of the financial institution or recognition of it as bankrupt in the manner prescribed by the legislation of the Republic of Kazakhstan, or entry into force of a court decision on the forced termination of the activities of a branch of a non-resident bank of the Republic of Kazakhstan, a branch of a non-resident insurance (reinsurance) organization of the Republic of Kazakhstan in cases established by the laws of the Republic of Kazakhstan.

The specified requirement shall apply for five years after the authorized body has made a decision to classify a bank, a branch of a non-resident bank of the Republic of Kazakhstan as an insolvent bank, a branch of a non-resident bank of the Republic of Kazakhstan, or to preserve an insurance (reinsurance) organization or to forcefully buy out its shares, to revoke the license of a financial organization, a branch of a non-resident bank of the Republic of Kazakhstan, a branch of a non-resident insurance (reinsurance) organization of the Republic of Kazakhstan, a branch of a non-resident insurance broker of the Republic of Kazakhstan, which entailed their liquidation and (or) termination of activities in the financial market, or the entry into force of a court decision on the forced liquidation of a financial organization or declaring it bankrupt in accordance with the procedure established by the legislation of the Republic of Kazakhstan, or the entry into force of a court decision on the forced termination of the activities of a branch of a non-resident bank of the Republic of Kazakhstan, a branch of a non-resident insurance (reinsurance) organization of the Republic of Kazakhstan in cases established by the laws of the Republic of Kazakhstan;

• whose consent to appointment (election) to the position of an executive in this and (or) another financial institution, this and (or) another branch of a non-resident bank of the Republic of Kazakhstan, a branch of a non-resident insurance (reinsurance) organization of the Republic of Kazakhstan, a branch of a non-resident insurance broker of the Republic of Kazakhstan has been revoked. The specified requirement shall apply during the last twelve consecutive months after the authorized body makes a decision to revoke consent to appointment (election) to the position of an executive;
• who has committed a corruption crime or was subject to administrative punishment prior to the date of appointment (election) for committing a corruption crime;
• previously was the head, member of the management body, head, member of the executive body, chief accountant of a financial organization, a major participant (major shareholder) – an individual, head, member of the management body, head, member of the executive body, chief accountant of a major participant (major shareholder) – a legal entity-issuer that defaulted on the payment of coupon interest on issued securities for four or more consecutive periods, or whose amount of debt on the payment of coupon interest on issued securities, on which the default was allowed, is four times and (or) more the amount of coupon interest, or the amount of default on the payment of the principal debt on issued securities is an amount that is ten thousand times greater than the amount of the monthly calculation indicator established by the law on the republican budget on the date of payment. The specified requirement shall apply for five years from the date of occurrence of the circumstances provided for in this subparagraph.

INTEREST RATE (CHARGES) POLICY .

The size of the annual effective interest rate on a microloan must not exceed the maximum amount determined by Agency Board Resolutions No. 62 and No. 45 [5].

Maximum annual effective interest rate limits:

• for microloans provided by organizations engaged in microfinance activities – 46 (forty-six) percent;
• for microloans provided by organizations engaged in microfinance activities, for a period of up to forty-five calendar days, in an amount not exceeding forty-five times the monthly calculation indicator established for the relevant financial year by the law on the republican budget – less than 0.3 (zero point three) percent per day, but not more than 179 (one hundred seventy-nine) percent.

When distributing and/or placing advertisements containing information on the amount of remuneration for a microloan, a microfinance organization is required to indicate the annual effective rate of remuneration.

The information is current at the time of publication. If you have any questions, please contact Azizov & Partners Law Firm LLP

[1]Law of the Republic of Kazakhstan dated November 26, 2012 No. 56-V “On microfinance activities”

[2]Law of the Republic of Kazakhstan dated November 26, 2012 No. 56-V “On microfinance activities”

[3]Law of the Republic of Kazakhstan dated April 22, 1998 No. 220-I “On limited and additional liability partnerships”

[4]Resolution of the Board of the National Bank of the Republic of Kazakhstan No. 192 “On approval of prudential standards and other mandatory standards and limits for an organization carrying out microfinance activities, and methods for calculating them” dated November 14, 2019

[5]On determining the maximum annual effective interest rate Joint Resolution of the Board of the Agency of the Republic of Kazakhstan for Regulation and Development of the Financial Market dated August 16, 2024 No. 62 and Resolution of the Board of the National Bank of the Republic of Kazakhstan dated August 19, 2024 No. 45