Credit guarantees can boost business resilience in Central Asia

In April 2024, devastating floods swept through the North Kazakhstan region, leaving a trail of destruction. Among the hardest hit was Zhanna Sadykova, a thriving individual entrepreneur from Petropavlovsk, who was running a workshop for producing and selling upholstered furniture in the Kosogor area, employing over 10 people.

The floodwaters completely submerged her enterprise, causing her to lose both her business and her home overnight. Despite her proven track record, local financial institutions viewed the business as too risky, leaving Zhanna without the means to secure credit to rebuild.
 

The Costs of Inaction Are High

Unfortunately, Zhanna’s story is not unique. Across Central Asia, firms in disaster-prone regions — especially small- and medium-sized enterprises (SMEs) — struggle to secure the financial support they need to invest in disaster preparedness and risk mitigation, and to recover and rebuild from such shocks.  

This must change. For Central Asia, where disasters are both frequent and costly, building resilience is essential for prosperity. Resilient businesses contribute to job protection, community stability, and reduced economic recovery costs.
 

_{Table 1: Frequency of Disaster Types and Total Costs between 2000 and 2023}

^{Source: Own elaboration on EM-DAT.
Note: No information is available for Turkmenistan.}

Physical asset damages from climate-related events (excluding earthquakes) affect about four percent of firms in the region, a share that rises to more than 12 percent in the Kyrgyz Republic (Figure 1, panel (a)), where damages amount to 11 percent of firms’ sales on average. 

Industries like manufacturing and trade (Figure 1, panel (b)), and small businesses are particularly vulnerable (Figure 1, panel (c)). Disaster-affected firms are those that often lack the financial resources to prepare for or recover from disasters (Figure 1, panel (d)). 

This gap in business resilience undermines regional economic stability. 

^{Source: Own elaboration on World Bank Enterprise Surveys.
Note: Excluding agriculture.}

Limited Access to Finance is a Key Challenge for Building Business Resilience

Lack of awareness, weak incentives, and policy and regulatory gaps are obstacles to firms’ ability to build resilience. But limited access to affordable financing for resilience is one of the biggest constraints.

The availability of credit may shape firms’ adaptation to climate shocks. However, banks are typically reluctant to lend. Recent research has shown that banks tend to limit lending in disaster-prone areas. Banks often face loan distress and increased delinquencies following natural disasters.

Moreover, banks are more likely to exit markets affected by natural disasters if they are not native to the region. When loans are available, they often come with high interest rates due to perceived risks.
 

Credit Guarantees Offer a Path to Resilience

Credit Guarantee Schemes (CGSs) offer a solution to these financial barriers by reducing risks for lenders and encouraging banks to provide loans to disaster-affected or high-risk businesses.

CGSs may give firms access to funding needed to prepare for disasters, recover quickly, and build long-term resilience, including for:

• Mitigation and Preparedness: CGSs may enable businesses to invest in infrastructure improvements, adopt climate-friendly technologies, and develop Business Continuity Plans (BCPs).
• Response and Recovery: In the aftermath of a disaster, CGSs can facilitate quick access to capital, helping firms restore operations and maintain their market presence.

In Central Asia, Kazakhstan (Damu), Kyrgyz Republic,(Guarantee Fund) and Uzbekistan (Entrepreneurship Development Company) have established CGSs tailored to support SMEs. With World Bank support, Tajikistan is in the process of setting up its own CGS.

CGSs in Central Asia have started offering “green” guarantees, encouraging businesses to adopt sustainable practices, such as renewable energy and resource-efficient technologies, which can contribute to climate change mitigation.

CGSs can be leveraged to support firms’ resilience too. CGSs can effectively mobilize adaptation finance by supporting firms investing in climate-resilient measures, such as disaster-resistant infrastructure or inventory management for supply chain resilience.

Key strategies may include prioritizing guarantees for firms in regions at risk, offering flexible terms and conditions to incentivize resilience investments, and conditioning guarantees to the adoption of — or commitment to adopt — BCPs.

While CGSs are a powerful tool to facilitate access to finance for climate adaptation, they are not panacea. Building resilient businesses in Central Asia will require collaboration among stakeholders representing diverse interests, a variety of disaster risk financing models, advance planning, and investment in innovation.
 

Leveraging World Bank Expertise

The World Bank is supporting the development and enhancement of CGSs worldwide, including in Central Asia. Drawing on its experience, the World Bank has created guidelines to ensure CGSs are effective and sustainable, and to integrate climate-related considerations in their business models. These guidelines emphasize:

• Governance: Operating CGSs within a sound legal framework, which ensures independence and professionalism.
• Risk Sharing: Structuring guarantees to balance risks between public and private sectors.
• Monitoring and Evaluation: Implementing robust mechanisms to assess the performance and impact of CGSs over time.

In addition to providing technical expertise, the World Bank offers financial and policy support to help countries design and implement effective CGSs.

The World Bank can help countries in Central Asia develop business resilience strategies, including designing and implementing CGSs for adaptation finance, ultimately supporting the regional business community in their journey to resilience.