On the Concept for the Development of the Financial Sector of the Republic of Kazakhstan for 2007-2011

Resolution of the Government of the Republic of Kazakhstan dated December 25, 2006 No. 1284

SAP of the Republic of Kazakhstan, 2006, No. 50, Art. 534

In order to further develop the financial sector of the Republic of Kazakhstan and bring the monetary and credit policy of the Republic of Kazakhstan into line with international standards, the Government of the Republic of Kazakhstan DECIDES:

Approve the attached Concept for the Development of the Financial Sector of the Republic of Kazakhstan for 2007-2011 (hereinafter - the Concept).
The National Bank of the Republic of Kazakhstan, together with interested state bodies, shall submit to the Government of the Republic of Kazakhstan an agreed plan of measures for the implementation of the said Concept within two months from the date of adoption of this resolution.
This resolution shall enter into force from the date of signing.

Acting Prime Minister of the Republic of Kazakhstan

Approved
By Resolution of the Government of the Republic of Kazakhstan of December 25, 2006 No. 1284

Concept for the Development of the Financial Sector of the Republic of Kazakhstan for 2007-2011

Contents

Introduction

Main results of the implementation of the Concept for the Development of the Financial Sector of the Republic of Kazakhstan
1.1. Improvement of monetary and credit policy instruments and their alignment with the standards of European Union countries
1.2. Liberalization of currency relations
1.3. Creation and development of a unified supervisory authority for the activities of financial market participants
1.4. Development of credit institutions
1.5. Optimization and expansion of housing mortgage lending
1.6. Creation of a credit bureau
1.7. Development of the system of mandatory guaranteeing of deposits of individuals in second-tier banks
1.8. Development of the insurance market
1.9. Development of the securities market
1.10. Increasing the accessibility and quality of pension services
1.11. Development of the postal savings system
1.12. Development institutions
Priorities for the development of the financial sector for 2007-2011
2.1. Long-term vision for the development of the financial sector of the republic in the context of the strategic goals of economic development of Kazakhstan
2.2. Goals and objectives for the development of the financial sector for the period 2007-2011
2.3. Development of the regional financial center of the city of Almaty
State policy in the field of regulation of the financial sector of the Republic of Kazakhstan
3.1. Strengthening and improving the quality of state management of the financial sector
3.2. Interaction of state bodies and institutions of the financial sector
3.3. Balanced monetary and fiscal policy and increasing the effectiveness of their main instruments
3.4. Development and improvement of the accounting and financial reporting system in Kazakhstan
3.5. Improvement of taxation of participants in the financial market and financial instruments
3.6. Development of payment systems
3.7. Improvement of corporate governance quality
3.8. Increasing the level of public awareness of sector services and financial services and increasing their accessibility
3.9. Training of professional personnel for the financial market
3.10. Deepening international relations of the financial sector of Kazakhstan within the Eurasian Economic Community and other integration unions
Main directions for the development of the financial sector
4.1. Development of credit organizations
4.1.1. Banking sector
4.1.2. Non-bank organizations sector
4.2. Accumulative pension funds
4.3. Insurance sector
4.4. Currency market and securities market
4.4.1. Currency market
4.4.2. Securities market
4.5. Microfinance: tasks and development of the sector as part of the financial system of the Republic of Kazakhstan
Financial leasing

Introduction

This Concept for the Development of the Financial Sector of the Republic of Kazakhstan is developed for 2007-2011 for the purpose of defining:

directions and approaches to state regulation of the financial sector;
priority directions for the development of the financial sector;
necessary measures for their implementation.

This Concept for the Development of the Financial Sector of the Republic of Kazakhstan is developed for 2007-2011 and defines the main priorities for the development of the financial sector, as well as directions and approaches to state regulation of its individual sectors.

The priorities of state policy set out within this Concept are formed in accordance with the strategic goal of entering the Republic of Kazakhstan into the top 50 most competitive countries in the world, as stated by the President of the Republic of Kazakhstan N.A. Nazarbayev in the Address to the People of Kazakhstan of March 1, 2006 "Strategy for Kazakhstan's Entry into the Top 50 Most Competitive Countries in the World. Kazakhstan on the Threshold of a New Leap Forward in its Development".

In this direction, an important aspect is the need to increase the competitiveness of financial organizations and the financial sector of Kazakhstan by forming conditions for the functioning of the financial system that meet the needs of the real sector of the economy for financial resources and provide quality services by financial institutions under conditions of free competition.

At the same time, the Concept takes into account the principle of consistency and continuity of state policy in the field of development and regulation of the financial sector and the continuation of initiatives previously outlined by the Government of the Republic of Kazakhstan, the National Bank of the Republic of Kazakhstan, and the Agency of the Republic of Kazakhstan for Regulation and Supervision of Financial Markets and Financial Organizations.

Main results of the implementation of the Concept for the Development of the Financial Sector of the Republic of Kazakhstan, approved by Resolution of the Government of the Republic of Kazakhstan of July 28, 2003 No. 753

The main goal of the Concept for the Development of the Financial Sector was the formation of a stable and efficiently functioning financial system that meets the needs of the real sector of the economy for financial resources and provides quality services by financial institutions under conditions of free competition. In this regard, the following main measures were carried out, based on the goals and objectives of the Concept.

1.1. Improvement of monetary and credit policy instruments and their alignment with the standards of European Union countries

In order to improve the instruments of monetary and credit policy and bring them into line with the standards of European Union countries, the National Bank of the Republic of Kazakhstan implemented the following main measures.

The practice of quarterly review and establishment of the official refinancing rate was introduced, which began to be used as one of the main instruments for regulating currency liquidity, inflation, etc.

Thus, since July 1, 2006, the refinancing rate is at the level of 9%, and the rate on deposits attracted from second-tier banks is 4%.

As a result of the increase in rates on National Bank operations, an increase in rates in the interbank money market and on bank loans is expected, which, in turn, should lead to a slowdown in the growth rates of credit activity and monetary aggregates and, ultimately, to a reduction in the level of inflation.

Methodologies for calculating minimum reserve requirements have been improved. On May 27, 2006, the Board of the National Bank of the Republic of Kazakhstan adopted resolutions "On Approval of the Rules on Minimum Reserve Requirements" and "On Establishing Minimum Reserve Requirement Norms" in a new edition.

Compared to the previous edition, changes are provided in the part of the structure of liabilities for which second-tier banks are obliged to meet minimum reserve requirements and the procedure for submitting reports.

By decision of the Board of the National Bank of the Republic of Kazakhstan, minimum reserve requirement norms for second-tier banks were established at the level of 6% for the bank's internal liabilities and at the level of 8% for other liabilities of the bank.

It is assumed that the specified measures to tighten minimum reserve requirements will have a positive impact on ensuring the financial stability of banks and the development of the country's domestic debt market.

1.2. Liberalization of currency relations

In order to transition to the principles of full convertibility of the national currency and develop the country's currency market, in 2003, the Program for Liberalization of the Currency Regime in the Republic of Kazakhstan for 2003-2004 was adopted, approved by Resolution of the Government of the Republic of Kazakhstan of January 29, 2003 No. 103, which defined the removal of certain restrictions on the most attractive and economically justified currency operations.

The successful completion of the first stage and the preservation of economic prerequisites for continuing the started process of lifting restrictions on capital movement operations allowed in 2005 to move to a more active liberalization of the currency regime within the second stage. Measures for the liberalization of the currency regime, defined by the Program for Liberalization of the Currency Regime for 2005-2007, approved by Resolution of the Government of the Republic of Kazakhstan of June 25, 2004 No. 705, were implemented in the new Law of the Republic of Kazakhstan "On Currency Regulation and Currency Control", which entered into force on December 18, 2005.

With the introduction of the Law:

licensing of direct investments, investments abroad carried out by banks and insurance organizations was canceled;
the procedure for carrying out investments abroad through organizations carrying out professional activities in the securities market was significantly simplified;
the process of canceling the licensing of legal entities opening accounts in foreign banks abroad was started;
licensing regarding the provision of financial loans to non-residents, as well as transfers to non-residents for payment of property rights to real estate, was canceled.

At the same time, in conditions of increasing capital mobility and the vulnerability of the economy to internal and external shocks, the Government of the Republic of Kazakhstan and the National Bank retain the tool of responding to emergency situations of an economic nature through the legislatively established right to introduce a special permit regime for currency operations.

1.3. Creation and development of a unified supervisory authority for the activities of financial market participants

Within the framework of reforming the system of state regulation of the financial market, based on the Law of the Republic of Kazakhstan of July 4, 2003 "On State Regulation and Supervision of the Financial Market and Financial Organizations", a unified state supervisory authority for the activities of financial market participants was created - the Agency of the Republic of Kazakhstan for Regulation and Supervision of the Financial Market and Financial Organizations (hereinafter - the Agency).

1.4. Development of credit institutions

In order to further develop the banking sector, as well as to implement the goals and objectives of the Concept for the Development of the Financial Sector, the following measures were carried out in the field of banking activity.

In order to stimulate small business and micro-business to come out of the shadow, within the framework of the development of credit institutions, a three-tier lending system was built, consisting of banks, organizations carrying out certain types of banking services, and microcredit organizations; necessary legislative acts regulating their activities were adopted.
Operations carried out by microcredit organizations were excluded from licensed types of activity, which gave a positive impulse to the development of microcredit.
In order to increase the level of competition in the market of banking services, measures were carried out to liberalize the regulation system for non-bank organizations, which generally provide for issues of reducing excessive state influence on their activities, including in terms of licensing. Procedures for issuing preliminary consent by the Agency (with the condition of mandatory notification) for the opening of branches of banks, representative offices of resident banks, and representative offices of non-resident banks were canceled, which simplifies the procedures for their opening.
The Law of the Republic of Kazakhstan of December 23, 2005 "On Amendments and Additions to Some Legislative Acts of the Republic of Kazakhstan on Issues of Licensing and Consolidated Supervision" was developed and brought into force. This Law introduced regulation of "banking conglomerates" to limit risks that may affect the bank and other participants of the conglomerate related to it; requirements for acquiring the status of a major participant in a bank and a banking holding were strengthened, including requirements for the transparency of the ownership structure of a major participant and a banking holding; the investment activity of a bank and a banking holding was limited; subordinate normative legal acts necessary for the implementation of the provisions of the Law on consolidated supervision were adopted. These measures contribute to ensuring the stability of the banking sector and the financial system of Kazakhstan as a whole.
In order to increase the transparency of the banking system's activities, a Memorandum on Cooperation and Interaction on Issues of Increasing the Transparency of Bank Activities was developed and offered to banks for signature, which provides for banks to disclose information about the real owners of the bank, the list of organizations controlled by the bank, affiliated persons of the bank and transactions made with them, and the bank's business development strategy for the next five years.

The Memorandum was sent by the Agency for consideration to 17 second-tier banks. As of July 1, 2006, the Memorandum was signed with 16 second-tier banks.

This contributes to increasing the level of transparency and publicity of the ownership structure of second-tier banks and is an important aspect in increasing the level of stability of the financial sector.

In order to contribute to the creation of a strong financial infrastructure and increase confidence in the national financial system, a Scheme of Operational Actions in Case of Increasing Systemic Risks in the Financial Market was developed and approved by the Agency at the end of 2004.

Taking into account European Union standards and the further implementation of international banking supervision standards of the Basel Committee on Banking Supervision, the International Association of Insurance Supervisors, and the International Organization of Securities Commissions, normative legal acts were adopted, including in the part of prudential regulation of the activities of financial organizations, risk management systems in these organizations, and consolidated supervision.

In order to bring the regulation of the banking sector of Kazakhstan into line with international standards, work was carried out to transition the banking system of Kazakhstan to the new Basel Committee on Banking Supervision capital adequacy agreement "International Convergence of Capital Measurement and Capital Standards" (Basel II).

1.5. Optimization and expansion of housing mortgage lending

In order to solve the tasks of increasing the accessibility of mortgage lending and housing construction savings for the broad layers of the population, the State Program for the Development of Housing Construction in the Republic of Kazakhstan for 2005-2007 was adopted, approved by Decree of the President of the Republic of Kazakhstan of June 11, 2004 No. 1388.

Within the framework of the specified program, the Joint Stock Company "Kazakhstan Mortgage Company" (hereinafter - KMC) adopted a Special Program for Affordable Housing Mortgage Lending. This special program regulates issues of further interaction between KMC and banks and non-bank organizations within the framework of the implementation of the state program.

In general, mortgage loans have become more accessible to the population. As a result, loans to individuals for the purchase of housing increased from 37.7 billion tenge to 275.3 billion tenge, respectively, in the period from January 1, 2004 to January 1, 2006. At the same time, the total loan portfolio of mortgage companies increased from 16.7 billion tenge as of January 1, 2004 to 68.3 billion tenge as of January 1, 2006.

As of January 1, 2006, 7 mortgage organizations were functioning in the financial market of the republic. An increase in the main indicators characterizing the activities of mortgage organizations occurred. As of January 1, 2006, the amount of total assets was 75.3 billion tenge, total liabilities reached 62.0 billion tenge, and the size of equity capital was 13.3 billion tenge.

1.6. Creation of a credit bureau

To solve issues of increasing the level of banking services, public trust in banks and other financial organizations, creating guarantees for the protection of the interests of borrowers and banks, and reducing risks in the credit services market, in accordance with the Law of the Republic of Kazakhstan of July 6, 2004 "On Credit Bureaus and Formation of Credit Histories in the Republic of Kazakhstan", the first credit bureau in the republic was created and is functioning. Thus, to a certain extent, problems of greater transparency and reliability of the credit services market, as well as a reduction in borrowers' costs for credit organizations related to information collection when obtaining a loan, have been solved.

1.7. Development of the system of mandatory guaranteeing of deposits of individuals in second-tier banks

Increasing the level of protection of depositors' interests became possible due to the more efficient functioning of the deposit guarantee system in second-tier banks. For these purposes, on July 7, 2006, the Law of the Republic of Kazakhstan "On Mandatory Guaranteeing of Deposits Placed in Second-Tier Banks of the Republic of Kazakhstan" was adopted, which defines unconditional guarantees for the return of deposits to individuals who are depositors of a bank being forcibly liquidated. The minimum amount of guarantee compensation was increased in accordance with the recommendations of the International Monetary Fund (IMF).

Currently, 33 second-tier banks are participants in the system of collective guaranteeing (insurance) of deposits of individuals of the Republic of Kazakhstan; public trust in the banking sector has increased, contributing to an increase in the deposit base of banks: since the beginning of 2004, the volume of individual deposits in banks has increased by 73.8% and as of January 1, 2006, amounted to 596.8 billion tenge. At this stage, the deposit protection system meets almost all main international standards for deposit insurance, in particular those recommended by the IMF and the Financial Stability Forum.

1.8. Development of the insurance market

In the field of development of the country's insurance market, a number of mandatory types of insurance were introduced, a fund for guaranteeing insurance payments was created, a state annuity company was established, a state corporation for insuring export-import credits was created, and the possibility of foreign presence in the domestic insurance market was expanded.

As a result, as of January 1, 2006, 37 insurance (reinsurance) organizations, 12 insurance brokers, and 30 actuaries were operating in the financial market of the republic.

The total assets of insurance organizations compared to indicators as of January 1, 2003, increased 5.9 times, amounting to 73.3 billion tenge as of January 1, 2006; insurance reserves increased 2.5 times (32.1 billion tenge).

The volume of insurance premiums as of January 1, 2006 amounted to 67.1 billion tenge, exceeding the indicator as of January 1, 2003 by 2.9 times. At the same time, the volume of insurance premiums for mandatory insurance increased 10.8 times (13.0 billion tenge), for voluntary life insurance - 4 times (7.8 billion tenge), and for voluntary property insurance - 2.4 times (46.3 billion tenge).

The amount of insurance premiums transferred to reinsurance amounted to 26.7 billion tenge or 39.7% of the total volume of insurance premiums, of which 35.2% of the total volume of insurance premiums was transferred to reinsurance to non-residents (as of January 1, 2003 - 68.1%).

As of January 1, 2006, 2,698.6 thousand insurance contracts were in effect, 61.0% of which are contracts for mandatory types of insurance. The total volume of obligations (insurance sum) under existing insurance contracts amounts to 13,883.8 billion tenge.

Currently, 31 insurance (reinsurance) organizations participate in the system of guaranteeing insurance payments.

1.9. Development of the securities market

In order to develop the securities market and expand investment opportunities, by Resolution of the Government of the Republic of Kazakhstan of December 24, 2004 No. 1385, the Program for the Development of the Securities Market of the Republic of Kazakhstan for 2005-2007 was approved, providing for the improvement of mechanisms for attracting population savings (non-professional investors) through collective forms of investment.

Laws of the Republic of Kazakhstan of July 2, 2003 "On the Securities Market" and of May 13, 2003 "On Joint Stock Companies" were adopted in a new edition. The adoption of the normative legal base ensured the expansion of investment opportunities in financial instruments, and new financial instruments appeared.

In the corporate securities market, the number of joint stock companies with active issues as of January 1, 2006 amounted to 2,300 companies; the market also has 62 broker-dealers, 18 registrars, 11 custodian banks, 10 organizations carrying out investment management of pension assets, and 28 investment portfolio managers.

The number of registered mutual investment funds increased from 2 to 45 during the period from January 1, 2005 to January 1, 2006. At the same time, the total assets of mutual investment funds increased 32 times during the considered period and amounted to 12,311 million tenge.

1.10. Increasing the accessibility and quality of pension services

In order to increase the accessibility and quality of pension services for the entire population of Kazakhstan, protect the rights of depositors and recipients, and increase the range of financial instruments for investing pension assets, by Resolution of the Government of the Republic of Kazakhstan of December 24, 2004 No. 1359, the Program for the Development of the Accumulative Pension System for 2005-2007 was approved.

During the implementation of the Program, the following results were achieved. As of January 1, 2006, 14 accumulative pension funds were functioning in the republic, which have 77 branches and 77 representative offices in the regions of the republic.

Investment management of pension assets of accumulative pension funds is carried out by 11 organizations, of which 3 accumulative pension funds have a license for independent management of pension assets.

The number of individual pension accounts (hereinafter - account) of depositors (recipients) for mandatory pension contributions in the period from January 1, 2003 to January 1, 2006 increased by 41% and amounted to 7,613,369 units. The number of accounts of depositors (recipients) for voluntary pension contributions amounted to 32,336 units with a total amount of pension savings of 479.9 million tenge.

As of January 1, 2006, pension savings of depositors (recipients) amounted to 648.6 billion tenge, increasing 2.4 times during the period from January 1, 2003. The amount of "net" investment income from investing pension assets (minus commission fees), distributed among individual pension accounts of depositors (recipients) as of January 1, 2006, amounted to 155.1 billion tenge, which is 2 times more than the indicator as of January 1, 2003. In the total amount of pension savings of depositors (recipients), the share of "net" investment income is 23.91%.

At the same time, as of January 1, 2006, the weighted average coefficient of nominal income of pension assets of accumulation pension funds for the period from June 2003 to June 2006 amounted to 18.92%. At the same time, the accumulated level of inflation for the specified period amounted to 22.62%.

Thus, an important task remains to increase the profitability of pension asset management in accordance with the permissible level of risk, so work in this direction will continue within the upcoming period.

1.11. Development of the postal savings system

In order to modernize postal communications and form the postal savings system of the country, by the Decree of the Government of the Republic of Kazakhstan dated October 20, 2004 No. 1077, the Program for the Development of the Postal Savings System of the Republic of Kazakhstan for 2005-2010 was approved.

The goal of the Program is the restructuring of the postal industry and the formation of a postal savings system in order to transform the industry into a commercially oriented and competitive one through the introduction of new technologies and an effective information management system. In recent years, positive dynamics of growth in postal exchange has been achieved. In the financial sector, there has been a significant increase in the volume of services provided.

1.12. Development institutions

In order to improve and increase the efficiency of state investment activity and to facilitate the attraction of external and internal investments into the country's economy, development institutions were created.

Such financial and service development institutions have been created as joint-stock companies "Bank of Development of Kazakhstan", "Investment Fund of Kazakhstan", "National Innovation Fund", "Fund for the Development of Small Business", "State Insurance Corporation for the Insurance of Export Credits and Investments", "Center for Engineering and Technology Transfer" and "Center for Marketing and Analytical Research".

As of July 1, 2006, the total authorized capital of development institutions (JSC "Bank of Development of Kazakhstan", JSC "Investment Fund of Kazakhstan", JSC "National Innovation Fund", JSC "Center for Engineering and Technology Transfer", JSC "State Insurance Corporation for the Insurance of Export Credits and Investments") amounts to 144,199.9 million tenge. As of July 1, 2006, the portfolio of investment projects of institutions consists of 136 projects approved for financing with a total amount of 3,632.0 million US dollars, with the participation of development institutions 1,012.7 million US dollars. Financing of 109 projects has begun, with a total cost of 2,560.1 million US dollars, with the participation of development institutions 792.6 million US dollars.

In general, the tasks set within the framework of the Concept for the Development of the Financial Sector for 2003-2006 have been completed. Remaining individual problems, as well as issues of the emergence of additional risks in the financial sector, will be resolved within the framework of new initiatives of the Government, the National Bank of the Republic of Kazakhstan, the Agency, and necessitate the development of a concept for the development of the financial sector for the next medium-term period until 2010.

Priorities for the development of the financial sector for 2007-2011 years

2.1. Long-term vision for the development of the financial sector of the republic in the context of strategic goals of economic development of Kazakhstan

Further development of the financial sector of the Republic of Kazakhstan, increasing the efficiency of its components is one of the most important tools in implementing the task of ensuring the entry of the republic into the number of 50 most competitive states in the world, designated by the President in the Address to the people of Kazakhstan dated March 1, 2006 "Strategy for the Entry of Kazakhstan into the Number of 50 Most Competitive Countries in the World. Kazakhstan at the Threshold of a New Leap Forward in its Development".

In this regard, the main directions of development of the Kazakh economy are:
modernization of intra-economic systems of Kazakhstan; ensuring regional economic leadership of Kazakhstan and its establishment as a business center of the CIS and Central Asia; increase in the export orientation of the republic's economy, including the export of financial services.

Accordingly, the long-term vision of the Government for the development of the financial sector is: "The Establishment of the Republic of Kazakhstan as the main financial center of the region, providing efficient redistribution of financial flows within the CIS and Central Asia region".

The implementation of the long-term vision for the development of the financial sector can be ensured by achieving leading regional positions in individual segments of the financial sector:
establishment of the Kazakhstan securities market as the most liquid and accessible market in the CIS and Central Asia; establishment in Kazakhstan of the most liquid currency market for major types of currencies; establishment of Kazakh financial institutions (banks, pension funds, insurance companies and other financial institutions) as the largest regional financial organizations capable of meeting the needs of the CIS and Central Asia region for financial resources, as well as supporting and promoting investments and interests of Kazakh enterprises in regional markets; achieving by the financial sector of Kazakhstan standards of economically developed countries in terms of: stability, sustainability, transparency, as well as leadership in the CIS and Central Asia in terms of level, quality and diversity of financial products.

At the same time, in the conditions of Kazakhstan's upcoming accession to the World Trade Organization, one of the important tasks is to maintain stable positions and competitiveness of financial institutions in the event of the arrival of foreign companies.

Implementation of the plans of the Government of the Republic of Kazakhstan for the implementation of the long-term vision for the development of the financial sector will be achieved through the implementation of sequential medium-term plans, the first of which is the Concept for the Development of the Financial Sector of the Republic of Kazakhstan for the period 2007-2011.

2.2. Goals and objectives for the development of the financial sector for the period 2007-2011

To achieve regional leadership of Kazakhstan in the CIS and Central Asia in the financial sector, in the first stage in the period 2007-2011, the main efforts will be directed towards strengthening the financial sector of Kazakhstan, increasing its stability, expanding the coverage of enterprises and the population with financial sector services, further development of its individual segments, which should strengthen the positions of Kazakh financial organizations in the domestic market and become a foundation for its establishment as a financial center of attraction in the region and large-scale regional expansion.

In this regard, being one of the most competitive sectors of the Kazakh economy, the role of the financial sector in the context of increasing competitiveness is much wider and should be defined from the position of an important participant in the modernization of economic relations in Kazakhstan.

Thus, in the context of the strategic task of increasing the competitiveness of the Kazakh economy and implementing the long-term financial sector, further development of the financial sector of the republic will be directed in the period from 2007 to 2011 at the following:
increase in stability and stability of the financial sector and its institutions; improvement of the quality of financial sector services and their accessibility; formation of a liquid stock market and its components; improvement of regulatory standards for the financial sector; liberalization of the financial sector in order to increase competition in the market for financial services.

In addition, it seems expedient to improve antimonopoly regulation of financial organizations, aimed at the development of fair competition in the financial sector, as well as at the protection of the legitimate rights and interests of consumers of financial services.

The solution of the tasks set through the implementation of corresponding measures of state policy should significantly increase the significance and influence of the financial sector on the behavior of economic entities.

2.3. Development of the regional financial center of the city of Almaty

Goals and objectives

The goals of creating a regional financial center of the city of Almaty (hereinafter - the financial center) are the development of the securities market, ensuring its integration with international capital markets, attracting investments into the economy of the Republic of Kazakhstan, and the entry of Kazakh capital into foreign securities markets.

The tasks of the financial center are to attract both foreign and Kazakh investors, issuers and professional participants to a special trading platform of the financial center, to develop and introduce new financial instruments for the effective development of the securities market of the Republic of Kazakhstan, as well as further development of the financial center.

Current state

Currently, in the Republic of Kazakhstan, institutional investors have developed rapidly, represented mainly by accumulation pension funds, the assets of which increase almost twofold every year. Because of this, there is an increased demand for financial instruments, the supply of which is limited, which hinders the full development of the securities market.

On June 5, 2006, the Law of the Republic of Kazakhstan "On the Regional Financial Center of the City of Almaty" was adopted and corresponding changes were made to some legislative acts of the Republic of Kazakhstan. In the same year, the authorized body of the financial center began work - the Agency of the Republic of Kazakhstan for the Regulation of Activities of the Regional Financial Center of the City of Almaty.

In addition, this year, the Decree of the President of the Republic of Kazakhstan dated August 17, 2006 No. 158 "On the Establishment of a Specialized Financial Court in the City of Almaty" was adopted to resolve disputes of participants of the financial center.

At the first stage, sub-legal normative legal acts necessary for the launch of the financial center were adopted.

In order to develop recommendations on the use of world experience in issues concerning the activities of the financial center and the development of the strategy for the development of the financial center at the Agency of the Republic of Kazakhstan for the Regulation of Activities of the Regional Financial Center of the City of Almaty, an International Council was created as an advisory and consultative body.

Main measures

The main measures aimed at the development of the financial center in the medium-term perspective will be the following:
implementation of incentives provided for in the laws of the Republic of Kazakhstan dated June 5, 2006 "On the Regional Financial Center of the City of Almaty" and "On Amendments and Additions to Some Legislative Acts of the Republic of Kazakhstan on Issues of Creation of the Regional Financial Center of the City of Almaty"; implementation of initial public offering (IPO) of shares of national companies and organizations of the banking sector on a special trading platform of the financial center; conducting extensive advertising campaigns of the financial center, conferences, seminars and round tables to attract issuers, investors and professional participants of the securities market to a special trading platform of the financial center; development and introduction of new financial instruments, such as index funds (ETF), securitized assets (SPV), futures, options, Islamic instruments (sukuk, etc.), available to a wide range of investors (both institutional investors and individuals); creation of a new technological infrastructure of the financial center meeting modern international standards of the securities market; signing agreements on mutual recognition of securities with international exchanges; intensification of the participation of the Bank of Development of Kazakhstan in the activities of the financial center; annual issuance by the Ministry of Finance of the Republic of Kazakhstan of state treasury bills; creation of a Kazakh clearing house; maximally utilize internal investment opportunities by involving internal resources of mass investors oriented towards long-term investments; implementation of large investment programs related to the multiplicative effect of economic growth and improvement of the quality of life of the population. It is necessary to bring government project bonds for large domestic investment projects, in which the state participates, to the market and involve institutional investors, in particular accumulation pension funds, in them; creation in the territory of the city of Almaty of a business center, which would include organizations of the infrastructure of the financial market, regulatory bodies, professional participants of the securities market, etc.; provision of tax benefits in the future for insurance of risks of issuers, investors and participants of the financial center; permission for accumulation pension funds to create subsidiary organizations for registration as participants of the financial center.

Implementation of these measures will contribute to the solution and depend on the fulfillment of corresponding tasks of the Program for the Development of the Securities Market, the Program for the Development of the Insurance Market, the Program for the Development of the Accumulation Pension System, the medium-term Program for the Development of the City of Almaty.

State policy in the field of regulation of the financial sector of the Republic of Kazakhstan

The financial sector of Kazakhstan is formed and functions under the influence of factors of a systemic nature. The combined influence of various factors creates an environment in which the practice of activities of financial sector institutions is formed and consolidated, and therefore determines the vector and degree of influence of the financial sector on the real sector of the economy and its competitiveness.

In this regard, the priority of state policy should be the improvement of system-forming factors that have a long-term influence on the formation of the practice of activities of financial institutions:
quality of state regulation; quality of corporate legislation; availability of reliable and high-quality information (including financial reporting) of both financial organizations and enterprises of the real sector, the securities of which are in circulation on the securities markets, as well as free access to it; level of development of the infrastructure of the financial sector, degree of trust and awareness of the population about the services of the financial sector; training of professional personnel for the financial market; improvement of accounting and taxation of participants of the financial market and financial instruments.

3.1. Strengthening and improving the quality of state management of the financial sector

Main tasks of regulation and supervision of the financial sector for 2007-2011

The implementation of state regulatory and supervisory functions over the financial sector is assigned to the following state bodies: the Government, the Agency, the National Bank of the Republic of Kazakhstan and the Agency for the Regulation of Activities of the Regional Financial Center of the City of Almaty within the framework of functions and powers legally established for them.

The work of these state bodies will be carried out in the following main directions:
institutional strengthening of the Agency, aimed at increasing the professionalism of employees and creating opportunities for improving the quality of monitoring of financial sector institutions; further implementation of modern risk management systems of financial organizations; improvement of the system of prudential regulation of financial organizations and supervision, by introducing risk-based supervision methods; analysis of possible regulatory risks and reduction of their impact on the financial system; improvement of consolidated supervision; formation of conditions for financial organizations to conduct independent and independent external assessment of internal risk management systems; ensuring the protection of the rights of shareholders and investors; further improvement of the system of accounting and financial reporting in accordance with International Financial Reporting Standards (IFRS) in financial organizations and implementation of IFRS in organizations of the real sector; improvement of the efficiency of management of external borrowing of the banking sector of the country; interaction with international organizations and authorized bodies of other states. Improvement of operations and instruments of monetary regulation.

For the next three years, the National Bank sets itself the task of maintaining a low level of inflation. Such a formulation of the task implies:
necessity of further improvement of methods of monetary regulation and analysis of the financial sector; continuation of preparation for the transition of the National Bank to a monetary policy regime based on the principles of inflation targeting; increase in the regulatory role of interest rates on National Bank operations; close coordination with the Government on issues of maintaining price stability.

Ensuring price stability, being the basis of financial stability, will contribute to the economic development of the country, increasing its competitiveness, thereby preparing the ground for the country's accession to the WTO.

In turn, the deepening of the analysis of the financial sector, the need to obtain a more adequate picture of financial activity in the country require the expansion of the institutional coverage of monetary statistics. In this regard, work is underway to cover the accounts of other (non-bank) financial organizations to compile a more complete overview of the financial sector.

Improvement of the National Bank's policy must be ensured by qualitative and quantitative assessments of changes in the economic climate, as well as by improving the quality of economic analysis and short-term forecasting of main trends, both at the macroeconomic level and at the level of regions and individual industries. For this, the National Bank conducts monitoring of enterprises of the real sector, which will be improved as necessary.

The main problem in solving this task at the current stage is the large excess liquidity of the banking system. In conditions of excess liquidity, it is difficult to influence market interest rates. In addition, the excess liquidity itself contributes to maintaining inflationary pressure. The situation is exacerbated by the insufficiency of the National Bank's portfolio of securities, limiting the full-scale use of open market operations to regulate banking liquidity. An increase in the influence of the National Bank's interest rates can occur in the absence or low level of excess liquidity.

To achieve the set goal, the National Bank will implement the following measures:

Improvement of methods of monetary regulation:
acceptance of further measures to reduce excess liquidity in the financial market by improving monetary policy instruments; further improvement of methods for modeling the influence of monetary policy on macroeconomic indicators, in particular on inflation; development of a scheme for conducting monetary policy using the principles of inflation targeting; interaction with the Government of the Republic of Kazakhstan in forecasting main macroeconomic indicators.
Improvement of monetary statistics
Continuation of work on expanding the institutional coverage of monetary statistics and compiling a more complete overview of the financial sector by including accounts of non-bank financial institutions (insurance (reinsurance) organizations and accumulation pension funds).
Intensification of monitoring of enterprises of the real sector:
improvement of assessments of the state and expected changes in economic processes in the real sector of the economy based on increasing the representativeness of the sample of enterprises; development of generalized indicators as direct guidelines for the current implementation of monetary policy.

3.2. Interaction of state bodies and institutions of the financial sector

An important component of the process of further increasing the competitiveness of the financial sector of the republic, ensuring its high role in the modernization and increasing the competitiveness of the real sector of the economy is the creation of an efficient mechanism for exchanging information between state bodies and institutions of the financial sector.

This task is important in the context of increasing the transparency of decisions taken by state bodies, ensuring a high level of professionalism of the state apparatus and a better understanding by institutions of the financial sector of the new goals and tasks of state policy in the financial sector and its individual segments.

In this regard, in the upcoming period from 2007-2011, formalized mechanisms will be developed to ensure constant interaction and information exchange between state bodies and the financial sector, by involving official business associations and associations representing the interests of a wide range of financial institutions in this work.

Within the framework of such a mechanism, work will be carried out on the following main directions:
exchange of views on decisions taken by state bodies regarding the development of the financial sector and the economic policy of the state; conducting joint initiatives for wider promotion and implementation of standards and services of the financial sector in the economy; increase in the accessibility of financial services to the population and improvement of their quality; increase in the level of financial literacy of the population; establishment of Kazakhstan as a regional financial center; promotion of Kazakh financial institutions in regional markets; ensuring stability and stability of the financial sector.

Planned work will be implemented by holding regular forums, round tables, and possibly the formation of a standing working group on financial sector issues, with the participation of representatives of state bodies, business associations of the financial sector and representatives of financial institutions. Also, in accordance with the Law dated January 31, 2006 "On Private Entrepreneurship", work will continue on the expertise of draft normative legal acts with accredited associations of entrepreneurs, conducted by expert councils on entrepreneurship issues at state bodies.

In terms of improving the interaction of development institutions and financial organizations, work on information exchange between them will be intensified. In particular, a system of information exchange will be established between development institutions and second-tier banks, leasing and insurance companies, venture and investment funds included in the Association of Financiers of Kazakhstan, regarding the price list of services of financial organizations, about the possibilities for joint implementation of large investment projects with the involvement of both domestic and foreign investments.

3.3. Balanced monetary and fiscal policy and increasing the efficiency of their main instruments

Coordination of monetary and fiscal policies should be carried out in several areas.
First, the main condition for implementing these policies is adherence to a single long-term goal or benchmark. This goal may be Kazakhstan's entry into the top 50 most competitive countries in the world. To achieve this goal, specific tasks must be implemented, such as maintaining high and sustainable GDP growth, reducing inflation, improving population welfare, reducing the budget deficit, etc., through appropriate state policy. Second, for close coordination of fiscal and monetary policies, it is necessary to align the key assumptions and premises underlying the forecasts of major macroeconomic indicators, as well as the adjustment of these forecasts. Often, discrepancies in assumptions and premises regarding indicator trends lead to significant differences in forecasts and, ultimately, discrepancies in the direction of measures taken. Thus, in recent years, on the one hand, an expansionary budget policy aimed at significant growth in budget expenditures has been conducted, and on the other hand, a restrictive monetary policy characterized by tightening measures. The divergent nature of these policies does not allow for a reduction in the inflation rate.

Nevertheless, the coordination of monetary and fiscal policies does not imply their subordination to each other. The independence of the National Bank from the representative and executive authorities is enshrined in the Law of the Republic of Kazakhstan of March 30, 1995 "On the National Bank of the Republic of Kazakhstan".

Main tasks for 2007-2011
In order to conduct a balanced monetary and fiscal policy, the following measures are planned:

determination of a single long-term goal of state economic policy and short-term goals with the establishment of their priority;
compliance with the subordination of lower-level goals to higher-level goals;
improvement of the mechanism for aligning unified assumptions and premises underlying the forecasts of major macroeconomic indicators and parameters of the medium-term social and economic development plan, medium-term fiscal policy, and the main directions of the monetary policy of the National Bank, as well as the adjustment of these forecasts;
determination of the list of indicators and parameters that will be published within the framework of the medium-term social and economic development plan, medium-term fiscal policy, and the main directions of the monetary policy of the National Bank;
improvement of the interaction mechanism between the National Bank and the Ministry of Economy and Budget Planning to take coordinated measures to achieve goals.

3.4. Development and improvement of the accounting and financial reporting system in Kazakhstan
Current situation
Since 2003, all financial organizations have been maintaining accounting records and preparing financial statements in accordance with IFRS, as confirmed by the opinions of independent audit firms. IFRS are recognized as one of the most effective tools for assessing, disclosing, and managing financial risks, since the main goal of the standards is transparency and reliability of the prepared financial statements. Consequently, for domestic financial institutions, the issue of interaction with foreign investors is significantly simplified due to the use of recognized approaches to information presentation.

Main tasks for 2007-2011
In order to further develop the accounting and financial reporting system in the financial sector of the republic, a number of measures aimed at:

improving the qualification level of accountants in the financial sector, young university graduates, and the training of certified accountants; increasing publicly available educational, practical materials, and documentation on the application of IFRS;
developing requirements regarding the accounting for a certain range of operations carried out by financial organizations due to the specifics of the Kazakh economy and legislation, which are not regulated by IFRS but fall within the concepts and principles defined by them;
increasing the level of automation of accounting and financial reporting in accordance with IFRS, control systems for the reliability and quality of financial reporting, and eliminating the "human factor".

In order to improve the qualification level of specialists in accounting, efforts are planned to be directed towards the implementation of programs to improve the qualifications of accountants in financial organizations by conducting conferences, seminars, and training on the topic "IFRS", as well as stimulating and supporting specialists in obtaining professional certification both within the Republic of Kazakhstan and abroad through international organizations (CIPA, ACCA, CMA). In addition, it is planned to introduce requirements for the presence of a professional accountant certificate for holding the position of chief accountant of organizations of public interest.

One of the priority areas is the training of young specialists at the universities of the republic, the development of necessary methodological and educational materials for students, as well as practical materials for professional accountants, which will be disseminated using publicly available telecommunications means.

The next direction in development for the coming years is the further adaptation of IFRS to the conditions of the Kazakh financial system. Today, the dynamic development of the domestic financial system has led to the emergence of a whole range of institutions with specifics based on the features of the Kazakh economy and legislation. One example is the accumulated pension funds, built on the principles of the Chilean system, and accordingly requiring the development of special accounting procedures, since IFRS, representing a set of flexible conceptual foundations for financial reporting, cannot be used without appropriate adaptation to domestic economic conditions. In addition, due to the insufficient activity and development of the Kazakh securities market and other financial instruments, the issue of adequate valuation of assets of financial institutions of the republic is very acute. Thus, the subjectivity of the used valuation leads to a distortion of the efficiency of financial organizations' activities, as well as the impossibility of objective comparison and comparison of their financial indicators. In order to solve this problem, it is planned to conduct targeted work on studying the experience of various countries with developed economies, foreign financial reporting standards, and conducting consultations with experts in the field of accounting. Based on the results of the work, various options for building the methodology for valuation and accounting of financial instruments will be proposed.

Also, an especially important issue is the process of automation of information systems in terms of accounting and financial reporting. In order to implement the process of automation of accounting in organizations, it is planned to further improve the requirements for maintaining auxiliary accounting and the General Ledger, implemented in the automated information systems of organizations.

For the successful development of the securities market, a key factor is the implementation of IFRS in enterprises of the real sector. In this regard, accelerated implementation of IFRS is required; however, in order to avoid repeating the situation with the excesses during the transition of real sector enterprises to IFRS, and to ensure an effective transition, it is necessary to improve not only state control by the Government, but also the feedback mechanism based on consultative public organizations.

Additionally, it is necessary to ensure control over the fulfillment of the following requirements:

submission by borrowers, for whom audit is mandatory, of an audit report expressing an opinion on the compliance of financial statements with IFRS for the last financial year when issuing loans, as well as submission of information about issuers of issue securities who have submitted annual financial statements in accordance with IFRS when registering the issuance of issue securities;
analysis of legislation on the regulation of natural monopolies for compliance with IFRS provisions;
training of specialists proficient in the specifics of IFRS: development of textbooks on IFRS; a course "Accounting, Financial Reporting and Audit" in accordance with IFRS and international audit standards has been approved; measures have been taken to train teaching staff and students in IFRS;
conducting explanatory work among joint-stock companies and state enterprises on the necessity of complying with the legislation of the Republic of Kazakhstan on accounting and financial reporting in terms of the transition to IFRS, and presenting information on the state of organizations' transition to IFRS.

3.5. Improvement of taxation of participants in the financial market and financial instruments
Goal and task
The transition to European Union standards implies the abolition of tax benefits and preferences that currently exist for various financial instruments. The introduction of temporary benefits is justified for the purpose of stimulating the development of certain new financial instruments, especially those related to the implementation of state investment policy in priority sectors of the economy, including the financial sector. In the future, these benefits should be abolished after a certain period of time sufficient for the establishment of new instruments in the financial market.

The activation of the stock market of the Republic of Kazakhstan has led to the appearance of new financial instruments for Kazakhstan, such as derivatives. When used correctly, derivative instruments are risk management tools. For their effective use, further work is required to improve the taxation of derivatives.

Currently, work has been done on the reform and liberalization of the financial market; the list of financial instruments with which financial institutions can work and into which assets can be invested is continuously reviewed and expanded. Thus, in accordance with the Agency's resolution, pension funds are allowed to acquire hedging instruments to protect against possible risks of changes in the cost or cash flows of pension assets.

Improvement of taxation of stock issuers
Current state
The current state of the Kazakhstan stock market is characterized by the underdevelopment of the stock market. Controlling blocks of shares are in the hands of strategic investors who are not interested in selling shares to minority shareholders. The volume of freely traded shares (free-float) does not exceed 1%. In addition, more than half of the share transactions conducted on KASE take place in the mode of direct transactions.

Main measures
To stimulate the public offering of shares on the securities market and to ensure the necessary tradability and liquidity of shares, it is proposed, taking into account international experience, to consider the feasibility of introducing benefits for issuers whose shares are traded on KASE and/or a special trading platform of the Regional Financial Center of the city of Almaty and meet the criteria of public companies.

Taxation of income of individuals from deposits and debt securities Current state Currently, remuneration on deposits in banks and organizations carrying out certain types of banking operations, and remuneration on debt securities paid to individuals, are exempt from taxation. This was done to stimulate population investments in the banking system in the absence of other opportunities to attract population funds into the financial system.

Main measures
In the event of the appearance of new financial instruments for the population on the market, it is advisable to consider the issue of optimizing the taxation of income of individuals from deposits and debt securities.

Taxation of remuneration on government and agency securities Current state Currently, operations with government securities (GS) and remuneration on them are exempt from taxation. This makes investing in this financial instrument more attractive. Also, one of the new financial instruments for the financial sector of Kazakhstan, requiring a preferential tax regime to stimulate circulation, is the agency securities of financial agencies. The taxation procedure for agency securities since January 1, 2003, is identical to the procedure applied to GS.

Main measures
In the future, it is possible that remuneration on GS and agency securities, as their market develops, will be subject to income tax at the source of payment, which is characteristic of many developed countries, including practically all countries of the European Union, the USA, and Canada. This will equalize the conditions for various issuers, whether the Government, agencies, or non-state issuers.

As the secondary market develops, the possibility of introducing taxation on capital gains from operations with GS and agency securities should be considered, except for operations of the National Bank to regulate the liquidity of second-tier banks.

Taxation on capital gains from operations with stocks and bonds included in the official list of the exchange Current state The practice of the tax benefit for exemption from taxation of income from capital gains upon the sale of stocks and bonds included in the official list of the stock exchange has led to certain distortions in the indicators of the organized securities market, giving reason to assume the presence of abuses by persons conducting operations with these securities.

Thus, more than half of the share transactions conducted on JSC "Kazakhstan Stock Exchange" (KASE) take place in the mode of direct transactions, as such transactions are a convenient tool for tax planning.

There is a decrease in the transparency of prices of stocks and bonds included in the official list of KASE, and the possibility of freely manipulating their prices is allowed.

In order to exclude abuses of tax schemes by conducting "direct" transactions on KASE and speculative influence from such operations on market prices of securities, amendments and additions have been made to the Code of the Republic of Kazakhstan "On Taxes and Other Mandatory Payments to the Budget" (Tax Code), providing for exemption from taxation of income from capital gains upon the sale by open trading on the stock exchange of stocks and bonds that are in the official lists of the stock exchange on the day of sale in the highest and next highest listing categories. This change comes into force on January 1, 2007.

Main measures
Consideration of the issue of the possibility of optimizing taxation on income from capital gains from operations with stocks and bonds of listing companies of categories "A" and "B".

Improvement of taxation of derivative instruments Current state Derivative instruments are an effective financial tool used worldwide for attracting capital, hedging risks, increasing profitability, and diversifying investment portfolios. The financial instruments market in the Republic of Kazakhstan is in the stage of formation, characterized by the appearance of the first products, such as forwards, swaps, dollar/tenge options, etc., with low liquidity and the absence of active market participants. For the further development of this market, changes are required today in the current legislation on the definition of concepts of derivatives, the development of a system for their valuation taking into account the specifics of market development in Kazakhstan, their circulation, and the methodology of accounting, on which the taxation system of derivative instruments will subsequently be based.

Main measures
In order to further develop the market of derivative financial instruments, a working group will be created with the participation of representatives of the Association of Financiers of Kazakhstan, financial organizations, and the Agency, to develop the necessary changes in the current legislation of the Republic of Kazakhstan, relying on the experience of countries with developed stock markets.

Improvement of the taxation system of accumulated insurance and improvement of actuarial assessment for the long term Current state Accumulated life insurance is one of the tools for accumulating population savings, however, the level of development of this market segment is incomparable with the banking sector.

The successful implementation of mechanisms aimed at the development of accumulated life insurance in the country will be beneficial not only for policyholders themselves but also for the state as a whole, which will allow a transition from state-social protection to measures oriented towards individual conscious economic motivation.

Currently, in connection with the activation of the activities of insurance organizations operating in the "life insurance" industry, the issue of the necessity of making changes and additions to tax legislation to increase the attractiveness of accumulated life insurance as a tool for savings and accumulation of the population of the republic is relevant.

Main measures
In particular, the possibility of creating conditions for the taxation of investment income for clients of insurance organizations operating in the "life insurance" industry, equal to the conditions for the taxation of investment income for clients of banks, pension funds, mutual funds, and investment funds, will be considered. Also, the issue of taxation of insurance payments will be worked out. At the same time, all positive and negative aspects of such changes, as well as the best international experience, should be taken into account.

3.6. Development of payment systems
Current situation
Currently, the payment systems of Kazakhstan ensure the needs of the real sector of the economy, banks, and other participants of the financial market in the timely conduct of payments and money transfers, and also contribute to the effective implementation of the state's monetary policy and the execution of the state budget. Today, the payment systems of Kazakhstan meet all the requirements imposed by international financial organizations on the payment systems of developed countries. At the same time, the regulatory framework and technologies used in payment systems are constantly improving.

It should be noted that since the creation of payment systems, there has been a trend of growth in the number and volume of payments processed by the systems. Thus, in 2005 compared to 2002, the number and volume of non-cash payments increased by 2 times and 3.3 times, respectively. At the same time, considering that the entire volume of non-cash payments in the country passes through the payment systems of Kazakhstan, it is necessary to note their important role for the effective development of the economy of Kazakhstan.

Along with the steady growth of payment flows in payment systems, there was also a significant increase in the number and volume of payments by payment cards, which are the most common and convenient tool for the population to make non-cash payments. Thus, in 2005 compared to 2002, the growth in the number and volume of transactions by payment cards amounted to 2.4 times and 3.4 times, respectively. At the same time, the payment card market is one of the most dynamically developing segments of the country's financial market. The number of cards in circulation, cardholders, and the infrastructure of the payment card market are growing annually. It is important to note that today 45% of the economically active population of the country is already involved in the payment card market, whereas 3 years ago this ratio was 20.4%.

But at the same time, there are currently certain problems associated with the predominance of cash turnover in the retail trade sector, as well as the insufficient development of infrastructure for servicing payment cards. In addition, one of the issues requiring resolution within the framework of adopting measures to further increase the operational reliability and security of payment systems is the construction of a new Reserve Center of payment systems, which is associated with the insufficient distance between the locations of the main and reserve centers of payment systems (in the city of Almaty).

Main tasks for 2007-2011
The main task of the National Bank in the field of development of payment systems in the medium term remains maintaining the operation of payment systems at a high technological level, ensuring the safe and timely conduct of payments and money transfers between various subjects of the economy of Kazakhstan.

At the same time, for the period from 2007 to 2011, the National Bank plans to develop payment systems according to the following main directions.

Further improvement and modernization of the technical infrastructure of existing payment systems. Within the framework of this policy, work will be carried out to create a new Reserve Center of payment systems. One of the main tasks of the National Bank to ensure the functioning of payment systems is to maintain its continuous and efficient operation. Under these conditions, the issue of creating a new Reserve Center of payment systems, which will ensure the functioning of payment systems in the event of emergencies in the area of the main center of payment systems, is of extremely important importance for the effective fulfillment of the National Bank's task to ensure their uninterrupted functioning.

Work will also continue on the further expansion of retail non-cash payments. Special attention will be paid to creating the necessary conditions for the development of infrastructure and the wide application of payment cards in settlements for goods and services.

Priority areas in the field of development of retail non-cash payments should be:

expansion of the range and improvement of the quality of retail banking services for the population;
elimination of legal obstacles to the development of the payment services market and the introduction of innovative technologies;
encouragement of competitive market conditions;
development of necessary infrastructure and creation of appropriate conditions for the use of payment cards.

In order to develop retail non-cash payments, work will continue on improving the regulatory framework, facilitating the introduction and expansion of non-cash payments based on the application of modern technologies - payment cards, Internet banking, mobile banking, etc.

The expansion of the sphere of retail non-cash payments and the development of new progressive types of banking products depends on the active activity of banks in this direction. In this regard, to reach a fundamentally new level of providing retail banking services, banks need to focus their efforts on building a developed infrastructure of the payment card market, expanding the service of services provided to payment card holders, implementing and developing innovative technologies and remote access systems based on ATMs and self-service information kiosks, mobile communication means, and other innovations.

At the same time, within the framework of further development of the card market, the implementation of the "payment gateway" project is planned, which ensures the integration of the banking system with the created "electronic government" system to solve the following tasks:

implementation of non-cash online payment for "electronic government" services at the expense of funds of the population and legal entities placed in accounts in second-level banks;
use of the terminal network of banks for servicing payment cards to access "electronic government" services.

Within the framework of general trends in the integration of the financial system of Kazakhstan with the financial systems of other countries, participation in work on building a common payment system among the countries of the Eurasian Economic Community (EurAsEC), based on national gross settlement systems in real-time mode, will continue. The National Bank will also study possible ways to integrate the SWIFT system with the payment systems of Kazakhstan to provide users with additional channels for receiving and transmitting messages into the payment system through the SWIFT system. Further development of the SWIFT service bureau with the connection of new financial institutions is planned.

To popularize the payment systems of Kazakhstan, further development of relations with international institutions in the field of the World Bank Initiative on payment systems and securities settlement systems of the CIS countries (CISPI) and exchange of experience in building payment systems is planned.

3.7. Improving the quality of corporate governance

An important task in the context of increasing the efficiency of the financial system, increasing its influence on the development of economic processes, and promoting international corporate standards in the business environment is the conduct of a new stage of improving corporate governance in the republic.

The goal of the planned work on improving corporate governance should be the formation of a comprehensive and effective system that contributes to increasing the competitiveness and investment attractiveness of Kazakh enterprises, as well as ensuring transparency and transparency of corporate relations.

At the same time, the improvement of corporate governance should be aimed at maximum convergence with the standards of international legislation, and in particular with the OECD Principles of Corporate Governance.

Problems of corporate governance in Kazakhstan

A review of the current state of corporate relations and corporate governance in the republic allows identifying a number of main problems hindering the increase in the investment attractiveness of Kazakh companies and the further formation of the financial sector as an effective agent of distribution of financial resources in the economy:

weak protection of the interests of company owners from illegal seizure, associated with insufficient effectiveness of judicial control;
lack of elaboration of mechanisms of personal responsibility of members of the governing bodies of legal entities;
absence in the legislation of clear criteria for contestability and invalidity of corporate decisions and transactions, which leads to significant falsifications and abuses, in particular to illegal withdrawal of assets, etc.;
the need to improve information disclosure requirements (including in financial reporting), both with regard to joint-stock companies and other types of legal organizations;
the system for preventing the use of insider information, market manipulation, and financial fraud is not elaborated;
the sphere of regulation of integrated business structures (holding companies) is not elaborated in terms of transparency of asset movement, decision-making procedures, etc.

In addition, it is important to note that the predominant legal form for creating a business legal entity in Kazakhstan is a limited liability company, which is associated with soft requirements for these organizations in the field of information disclosure, corporate governance, and legal organization, while they enjoy almost the same opportunities in the field of capital attraction as joint-stock companies.

The existing situation increases the risks of investing through formal mechanisms of the financial sector, increases transaction costs, restricts the dissemination of reliable information for participants in corporate relations, and hinders the development of the stock market.

Main tasks for 2007-2011

In this regard, for the upcoming period, the main directions for the development of corporate governance, which will be reflected in the corresponding legislative work of the Government, the National Bank, and the Agency, will be:

Improvement of legislation in the part of regulating intra-corporate conflicts and disputes, prevention of illegal seizures of corporate property and assets.
Improvement of corporate governance in the sphere of the structure of company governing bodies, distribution of competence and responsibility of members of governing bodies.
Creation of legal norms regulating the procedure for considering contested corporate decisions and transactions, compensation for damage to shareholders and other persons caused by unlawful actions of governing bodies.
Establishment of criteria for public companies and formation of the corresponding regulatory system.

3.8. Increasing the level of public awareness of financial sector services and increasing their accessibility

Increasing the level of public awareness of financial sector services

Goal and task

Issues of the development of the financial sector and its competitiveness are closely related to the need to increase the level of financial literacy of the population, as the main consumer of financial services. Increasing financial literacy is one of the main tasks at the current stage of development.

The solution of this issue can be ensured by a number of measures, including increasing the educational level of users of financial services, mobilizing individual savings of the population, by training investors - physical persons in the Kazakh securities market, including through the system of collective investment, propaganda of financial culture through mass media.

Main measures

Increasing the educational level of users of financial services

To implement this issue, it is necessary to determine the main indicators (criteria) characterizing the activities of all participants of the financial market, with subsequent activation of the use of this information among the population and business entities.

In addition, for the purposes of informing consumers of financial services, an information campaign will be conducted among the population, both by market participants and state bodies, using available means of information dissemination.

Mobilization of individual savings of the population, by training investors - physical persons in the Kazakh securities market, including through the system of collective investment

It is known that a high level of investor confidence in stock market instruments is one of the most important characteristics of developed financial markets. Therefore, in order to mobilize individual savings of the population, stimulation of the development of the collective investment industry, propaganda of collective forms of investment as an effective mechanism for reducing risks for small private investors, and wide information to the population about the possibilities of the stock market will be carried out.

Increasing the insurance culture of professional participants of the insurance market, business entities, and the population of the country

To increase the insurance culture of the population, it is necessary to conduct measures to popularize insurance, especially life insurance, taking into account that life insurance organizations will play a significant role in the social life of society within the framework of pension provision (pension annuities), as well as mandatory insurance of civil liability of the employer.

One of the reasons for the low demand of the population for insurance services is insufficient information of consumers of insurance services about most of the services provided by insurance organizations and insurance products, as well as about their financial condition.

Insurance organizations and their associations need to activate interaction with mass media, organize educational and training programs for wide layers of the population, study the demand of the population for insurance services, and ensure the development of new insurance products.

In addition, transparent and clear criteria for information disclosure will be developed. Information transparency of the insurance industry should ensure the availability of information about the activities and financial stability of insurance organizations for the majority of the population; information should be presented to consumers in an accessible and understandable format.

The solution of these problems of insurance organizations should serve the adoption of the Code of Ethics of Insurers, the basis of which should be the principles of honest business conduct, ensuring the quality of provided services, as well as the protection of the interests of consumers of insurance services.

Propaganda of financial culture through mass media

Mass media play an important role in issues of increasing financial culture: newspapers, magazines, television, radio. In this direction, work on propaganda and explanation of the goals of legislation in the field of the financial market, reforms being carried out in it, and implementation of other measures aimed at protecting consumers of financial services will be strengthened.

Ensuring the accessibility of financial sector services for the population

Goal and task

The need to ensure the accessibility of financial sector services for the population is one of the key tasks on the way to achieving the strategic goal designated by the Head of State.

The solution of this task lies in eliminating the regional imbalance in access to services for the population, which, in turn, will contribute to increasing competition in the financial services market taking into account the expansion of their list, as well as increasing the quality of these services. Important directions in solving these issues are the transition to electronic forms of service in the financial sector, the development of credit cooperatives, microcredit organizations, insurance organizations, transfer-agent activities, improvement of collective forms of investment, stimulation of the development of new types of services in the financial market of the republic.

Main measures

Transition to the use of electronic digital signature in the work of professional participants of the securities market

The Law of the Republic of Kazakhstan "On Electronic Document and Electronic Digital Signature" was adopted on January 7, 2003, but it is currently difficult to fully use its advantages. For transferring money for management through electronic communication means, the procedure for confirming the authenticity of the client's signature is extremely important.

In order to increase the accessibility and quality of services of professional participants of the securities market, a mechanism for implementing an electronic digital signature in the work of professional participants of the securities market will be developed.

Transition to an electronic system for serving the population in the pension sector

Within the framework of the implementation of state programs, including the program for the creation of the "electronic" government, work will be organized to transition to providing accessible electronic financial services for the entire population, including remote regions, based on an electronic card, and, as one of its basic applications, provide electronic services for pension provision of citizens. This will allow identifying the depositor and providing him with pension services for the design of a pension agreement on pension provision, for regular information about the state of individual pension savings, for organizing transfers and payments within electronic services.

Improvement of collective forms of investment

In his Address to the People of Kazakhstan "Strategy for Kazakhstan's entry into the number of 50 most competitive countries in the world. Kazakhstan on the threshold of a new leap forward in its development" dated March 1, 2006, President of the Republic of Kazakhstan N. Nazarbayev noted that it is necessary to develop the rental housing market in the country in accordance with world standards and make it transparent for the state and interesting for business.

Currently, the Law of the Republic of Kazakhstan dated July 7, 2006 "On Amendments and Additions to Some Legislative Acts of the Republic of Kazakhstan on the Issue of Developing the Rental Housing Sector" has been adopted. In order to implement this Law, it is planned to adopt a normative legal act defining the list of financial instruments constituting the assets of real estate funds.

In terms of the development of investment funds, further improvement of legislation and elimination of legislative norms hindering the creation and development of investment funds is planned. In particular, admission of shares to trading in the stock exchange trading system, registration of rights of real estate investment funds, rights to land use and subsoil use, as well as shares in business partnerships.

Development of credit cooperatives, microcredit organizations, insurance organizations, transfer-agent activities

Currently, there is a problem of regional imbalance in the development of the financial market, which is expressed in the absence or low accessibility of financial services for the population of certain, often remote regions of the republic. In addition to expanding the branch network of second-level banks, the solution of this problem can be facilitated by the activities of credit cooperatives, microcredit organizations, insurance organizations, the development of transfer-agent activities, thereby stimulating the development of competition in the financial market.

In this regard, in the medium-term perspective, stimulation of the expansion of the range of services provided by credit cooperatives and microcredit organizations, development of the infrastructure of the insurance market, and development of transfer-agent activities are planned.

Stimulation of the development of new types of services

In the traditional understanding, established on international markets, investment banks are broker-dealer companies that provide a full range of services in the securities market in the field of underwriting, dealer and brokerage operations, investment consulting on mergers and acquisitions of companies, and trust management. Investment banks provide these types of services to companies, state bodies, non-profit corporations, and private individuals. An investment bank provides consulting services. As a consultant, it performs a whole range of functions. It is an intermediary in the preparation and issuance of financial instruments (shares, bonds, etc.), organizes the sale and placement of issued financial instruments, gives recommendations on investments depending on the situation in the financial market, conducts necessary financial research.

Regarding the development of investment banking in Kazakhstan in the current period, some changes have been made to the corresponding normative legal acts. At the same time, this work, implemented within the framework of the implementation of the Program for the Development of the Securities Market for 2005-2007, approved by the Resolution of the Government of the Republic of Kazakhstan dated December 24, 2004 No. 1385, will continue, which will be expressed in the improvement of the existing normative legal base for regulating investment banking.

Currently, for participants of the domestic financial market, there is great interest in issues regarding the use of various forms of Islamic finance and the possibility of implementing Islamic banking in Kazakhstan.

The emergence of the Islamic capital market, where investments, financial activities, and financial products are structured in accordance with the principles of Sharia, is the result of natural progress in the growth of the Islamic financial services industry. Today, there is a wide variety of products and services of the Islamic capital market to meet the needs of those persons who seek investments in accordance with the principles of Sharia. This includes Sharia-compliant stocks, Islamic bonds, Islamic funds, and Islamic risk management products. The Islamic capital market has grown and become more developed. Islamic forms of product structuring, project financing, exchange business, asset management, and venture capital services are becoming widely available.

The influence of Islamic finance on the global financial community requires careful and full consideration and study.

In the medium-term perspective, mechanisms for the development of Islamic banking in Kazakhstan will be worked out.

Ensuring the protection of rights and interests of consumers of financial services

In the medium-term perspective, continuity of policy and practice of regulation and supervision of the financial market will be maintained, including in terms of further increasing the level of protection of the rights and interests of consumers of financial services, which will contribute to ensuring the stability of the financial sector and strengthening trust in the financial system as a whole. The role of associations and unions uniting consumers of financial services will be strengthened.

3.9. Preparation of professional personnel for the financial market

In issues of the development of the financial sector, an important role is played by the aspect of training professional personnel in this field. The accelerated development of the domestic financial market and the need for its entry into the global financial space urgently dictate the need to fundamentally improve the professional qualification of personnel of the financial industry.

This implies the preparation of professional personnel taking into account market requirements, which, in turn, will subsequently stimulate the improvement of the quality of financial services and their competitiveness.

In this regard, proposals will be developed for the preparation of professional personnel in the financial sphere in accordance with international standards through the system of secondary and higher professional education, taking into account the revision of educational programs, organization of courses, training centers, educational-practical conferences and seminars, and other forms of training.

Also, the issue of including in the list of priority specialties under the "Bolashak" program, such as finance and banking, financial analyst, risk management in banks, insurance law, insurance business, underwriter, risk management in insurance organizations, financial consultant, will be resolved. However, it is necessary to increase the volume of funding and soften the requirements for candidates under this program.

Training in the insurance sphere should be carried out on the basis of corresponding training programs compiled by the public association of insurers of Kazakhstan. In order to implement this task, it is necessary to consider the issue of creating a training center at the public association of insurers at the expense of the proportional participation of all insurance organizations.

The National Bank will continue to participate in the preparation and retraining of personnel for state bodies and financial organizations through the Master's program in the MBA program of the T. Ryskulov Kazakh Economic University, created in 2003.

3.10. Deepening international relations of the financial sector of Kazakhstan within the framework of EurAsEC and other integration unions

The consistent conduct of economic reforms has created prerequisites for further deepening multilateral economic cooperation and strengthening integration processes among the countries of the Commonwealth of Independent States.

The acceleration of the formation of a single economic space and the integration of financial systems is oriented towards the use of new, promising forms and mechanisms of interaction, the implementation of joint efforts of common benefits and national interests of its participants.

The main goals for Kazakhstan for the upcoming medium-term period will be the continuation of started economic integration initiatives, the continuation of conducting coordinated policy with countries of the region for the development of national economies, the acceleration of harmonization of legislation of countries of the region, and the continuation of work on removing all sorts of barriers on the path of promoting people and capital.

Effective economic interaction of countries of the former Union develops within the framework of the functioning of such integration associations as the Commonwealth of Independent States (CIS); Eurasian Economic Community (EurAsEC); Single Economic Space (SES); Central Asian Cooperation, which includes the Republic of Kazakhstan, the Kyrgyz Republic, the Republic of Tajikistan, and the Republic of Uzbekistan; the alliance of Georgia, Azerbaijan, Ukraine, Uzbekistan, and Moldova (GUAM).

A new stage of economic integration was laid by the Statement of the Presidents of Belarus, Kazakhstan, Russia, and Ukraine dated February 23, 2003, on the preparation for the formation of the SES.

Many difficulties on the path of regional interaction are associated with the underdevelopment of its "financial component."

In modern conditions, the strengthening of interaction in the field of currency relations is acquiring increasing importance as a factor in the development of the national economies of CIS member states and reducing their vulnerability to external financial shocks. At the same time, the strengthening of interaction in the currency and financial sphere is based on the principle of step-by-stepness.

Issues of currency integration have also been reflected in the priority directions for the development of EurAsEC for 2003-2006 and subsequent years, in which the principles and conditions for the formation of a common financial market and currency integration are defined.

The creation and development of a single economic space and the integration of financial systems should occur step by step and go in the direction of developing trade and economic relations, developing entrepreneurship and investments, developing monetary, credit, financial, and currency relations, sequential harmonization of legislations, and conducting coordinated social policy.

During this period, the implementation of measures to develop the insurance market, to ensure equal conditions for access of business entities of EurAsEC member states to national securities markets, will also continue.

An important stage in the establishment and development of market relations is the creation of the Eurasian Development Bank, the Agreement on the creation of the bank was signed on January 12, 2006.

The strategic goal of the Bank is to facilitate the development of the market economy in member countries, their economic growth, and the expansion of mutual trade and economic relations through investment activities. The Bank is called upon to become a consolidating element of the financial infrastructure of a single economic space, a partner of countries participating in deeper integration processes.

During 2007-2011, work will continue on the creation of a currency union. The prerequisites for this are: coordination of economic policy, removal of all currency restrictions and restrictions on capital movements, and gradual convergence of the economic policies of countries that are potential participants in the currency union.

Main directions for the development of the financial sector
4.1. Development of credit organizations
4.1.1. Banking sector
Goals and objectives
The main goals and objectives for the development of the banking sector in the medium term are:

expanding public access to banking products and improving the level of protection for consumers of financial services;
increasing the level of transparency of the activities of domestic second-tier banks in order to increase public trust in the banking sector;
developing competition and liberalizing access for foreign banks to the domestic financial market;
improving banking supervision based on best international practices and increasing the efficiency of managing external borrowing by the country's banking sector.

Current state
The key role in the path towards closer integration into the global economy is played by the further improvement of the domestic banking system. Liberalization of the banking sector contributes to the introduction of progressive foreign experience in capital management, improving the quality of management, and, consequently, the level of development of the banking system.

The issue of liberalizing the banking sector is considered within the framework of the negotiation process for Kazakhstan's accession to the WTO. In this regard, a number of restrictions on the access of non-residents of the Republic of Kazakhstan to the Kazakh banking market have been removed in order to further liberalize and create equal conditions for their activities on the territory of the Republic of Kazakhstan.

In order to increase the transparency of the banking system's activities, a Memorandum on cooperation and interaction on issues of increasing the transparency of bank activities has been developed and proposed to banks for signature, which provides for banks to disclose information about the bank's real owners, the list of organizations controlled by the bank, affiliated persons of the bank and transactions made with them, and the bank's business development strategy for the next five years.

Continuous economic growth, a favorable investment climate in the country, and the stable development of the banking sector in recent years have contributed to strengthening the confidence of international creditors and, as a result, an active inflow of external borrowings, which, in turn, can lead to an increased dependence of the banking sector on borrowings from abroad.

It should be noted that the growth of external borrowings leads to an increase in the degree of exposure of the banking sector to significant currency risk, the negative impact of which can be caused by the revaluation of banks' currency liabilities, as well as refinancing risks, interest rate risk, and liquidity risk.

It is extremely important to note that Kazakh banks attract external borrowings mainly at floating interest rates. In turn, in the event of a sharp change in the situation in the global market and the terms of credit agreements, banks may be unable to respond to their obligations in a timely manner, which can negatively affect both the rating of an individual bank and the entire banking system of the republic.

In order to limit external borrowings by banks, corresponding indirect prudential measures were adopted this year.

Despite the steps taken to improve the domestic banking system, it is necessary to continue work in this direction.

In order to further develop the banking sector, as well as taking into account Kazakhstan's upcoming accession to the WTO, it is planned to carry out work on further improving banking legislation in accordance with international standards, developing competition and liberalizing access for foreign banks to the domestic financial market, taking measures to improve consolidated supervision based on risk assessment (taking into account existing conglomerates in the Republic of Kazakhstan and the risks arising from this), reducing banking risks associated with banks' expansion into external markets, consumer lending, and small business lending, and improving financial statistics.

Main measures

Liberalization of access for foreign banks to the domestic financial market
Taking into account globalization processes and the prospect of the Republic of Kazakhstan joining the WTO, it seems expedient to continue work on liberalizing and increasing competition in the banking system.

In addition to the already removed restrictions on the activities of banks with foreign participation (regarding the total authorized capital of banks with foreign participation, the composition of the Board, requirements for placing funds in domestic assets, as well as personnel), it is planned to consider the possibility of allowing the activities of their branches in Kazakhstan subject to a transition period and conditions designed to ensure the country's financial stability.

Improving consolidated supervision and ensuring transparency of the national banking sector to accelerate its entry into global markets and active international cooperation
In order to improve consolidated supervision and ensure transparency in the banking sector, banking supervision procedures aimed at ensuring banks' compliance with legislative requirements regarding consolidated supervision, ownership structure, and relationships with affiliated persons will be improved.
Taking measures to reduce banking risks associated with the growth in real estate lending, banks' expansion into external markets, consumer lending, and small business lending, as well as with the development and expansion of the list of banking services
In order to assess the credit risks of second-tier banks, as well as the above-mentioned risks, as necessary and taking into account economic feasibility, existing banking legislation will be improved, especially regarding prudential regulation and the methodology for classifying second-tier banks' assets.
Improving banking legislation in accordance with international standards
In order to bring the regulation of Kazakhstan's banking sector closer to international standards, work will continue on the transition of Kazakhstan's banking system to the New Agreement on Capital Adequacy of the Basel Committee on Banking Supervision "International Convergence of Capital Measurement and Capital Standards" (Basel II). In the medium term, work will be carried out to complete the transition to Basel II, which involves implementing a number of measures, in particular:
1) agree on a transition schedule for the Agency to Basel II with representatives of the Basel II Implementation Group;
2) in order to widely inform and better understand the principles of Basel II, place a Russian-language version of its text on the Agency's official website;
3) send appropriate inquiries to supervisory authorities of countries regarding their intentions and conditions for transitioning to Basel II;
4) consider the feasibility of using the centralized rating method by domestic banks.

In addition, work will continue to increase requirements for bank activities, further improving the risk management system in second-tier banks taking into account international practice.

Interaction with supervisory authorities of foreign states to exchange supervisory information
As part of measures to improve banking legislation in accordance with international standards, especially regarding the transition of Kazakhstan's banking system to Basel II, it is planned to accelerate work on concluding memoranda of cooperation and information exchange with all regulatory authorities of countries whose financial organizations have subsidiary financial organizations in Kazakhstan (in particular, the USA, the Netherlands), and, accordingly, with countries where Kazakhstan's financial organizations have subsidiaries and branches, as well as to develop a strategy for interaction with the supervisory authorities of parent banks having subsidiary banks in Kazakhstan (in particular, the USA, the Netherlands, the United Kingdom) in the application by parent banks of the provisions of Basel II, including establishing relations with the supervisory authorities of foreign countries in the field of technical cooperation.
Improving the development of the mandatory deposit guarantee system
In order for Kazakhstan's deposit guarantee system (hereinafter - the System) to correspond to the best international practice, the following main measures are necessary:

further improvement of the System taking into account the best world experience and recommendations of the International Association of Deposit Insurers (IADI);
implementation from 2007 of a system of differentiated rates of mandatory calendar contributions for banks-participants of the System;
participation in the development of the regulatory legal framework on issues of conducting operations for the simultaneous transfer of part of the obligations and property of a forcibly liquidated bank to another bank (banks).

The possibility of using alternative funding paths for the System will be studied in case of a shortage of funds to pay compensation to depositors of a liquidated bank in the form of reinsuring risks abroad, or using credit derivatives.

Improving the efficiency of managing external borrowing by the country's banking sector
Taking into account the indirect measures adopted this year to limit external borrowings by banks, based on the study of international practice taking into account the recommendations of international financial organizations, in the future, within the framework of the emerging situation, economic feasibility, and the impact of these measures on the volume of external borrowing by the banking sector, it may be necessary to review certain standards and limits in this direction within the framework of improving the prudential regulation of bank activities.
Improving financial statistics
The absence of statistics on long-term lending by the financial sector to the economy does not allow for a proper assessment of investment lending by the banking system for the creation and modernization of industrial fixed assets, which, in turn, requires taking appropriate measures in this direction.

4.1.2. Non-banking organizations sector
Goals and objectives
The goals and objectives in the development and activities of non-banking organizations, both in the Republic of Kazakhstan and abroad, are to provide the population, small and medium-sized entrepreneurs with credit resources, and to increase the competitiveness and financial stability of these organizations.

Non-banking organizations should contribute to filling gaps in the financial services market, possibly created by second-tier banks.

Current state
In ensuring the further development of the non-banking organizations sector, an important role is played by the need to achieve a balance between protecting the financial system from significant risks, and the population from unscrupulous actions on the one hand, and overcoming obstacles to the introduction of innovations and the development of entrepreneurship on the other.

Main measures

Further improvement of the legislative and regulatory framework for regulating the activities of mortgage organizations
In order to ensure the financial stability and risk diversification of mortgage organizations, their prudential regulation is provided, corresponding to the recommendations of the Basel Committee on Banking Supervision and Euro Directives.

It is planned to carry out a phased increase in the authorized and equity capital of mortgage organizations over 3 years, bringing their size to 800 million tenge (equivalent to 5 million euros) by January 1, 2009, as provided by Directive 2000/12/EC of March 20, 2000 for credit institutions. This will allow, at the final stage, to exclude the possibility of participation in the mortgage market by undercapitalized mortgage organizations.

Based on an analysis of the results of the activities of mortgage organizations in the future, in order to create conditions for their effective establishment and functioning, it is planned to improve the legislative and regulatory framework for regulating the activities of mortgage organizations, based on the elimination of regulatory arbitrage and distortions in competition.

In addition, attention will also be paid to issues of improving the risk management system of mortgage companies.

Introduction of restrictions on the list of organizations entitled to provide mortgage housing loans
By the Law of the Republic of Kazakhstan of August 31, 1995 "On Banks and Banking Activity in the Republic of Kazakhstan", a list of organizations entitled to carry out banking lending operations, including providing mortgage loans (banks, mortgage organizations, brokers and/or dealers with the right to maintain client accounts as nominal holders, and legal entities whose sole shareholder (participant) is the state) is defined.

At the same time, for all the above-mentioned organizations, except for state development institutions, prudential regulation is provided taking into account the specifics of their activities. For state development institutions created within the framework of implementing state programs, prudential regulation is not provided, since the introduction of regulatory regulation may hinder the implementation of these programs.

The activity of organizations in one financial services market, for which prudential regulation is provided and for which such regulation is not provided, puts the former in an unequal position. In addition, it is necessary to take into account the specifics of the mortgage lending market, in particular, the high risks characteristic of it associated with borrower insolvency and possible sharp fluctuations in real estate prices, namely in the housing market.

In this regard, at the legislative level, it is necessary to restrict the list of organizations entitled to provide mortgage housing loans, including only second-tier banks and mortgage organizations.

Implementation of a system to curb the volume of speculative real estate transactions
Analysis of the development of the real estate market indicates that in Kazakhstan, the yield on investments in various sectors of commercial (offices, warehouses) and residential real estate averages 12-16% per annum, which exceeds the yield on bank deposits. As of January 1, 2006, the weighted average interest rate on term deposits of individuals in Kazakhstan was 9.4% per annum in tenge and 5.9% in foreign currency, while for the last 2 years, the growth in housing prices was 48% per year.

In addition, when analyzing the yield of real estate rentals, it was determined that the main object of speculation in the republic is real estate worth more than 50 thousand US dollars, which provides the landlord with an average yield of 17.2% per annum.

Such a situation, along with the continuing trend of rising housing prices, stimulates interest in acquiring housing for subsequent sale and extracting income from the increase in value. Real estate speculation, along with such factors as the imbalance between supply and demand for housing, the multitude of intermediary organizations engaged in the purchase and sale of real estate, the lack of strict state control over the activities of intermediary and construction companies, etc., generates the threat of a "bubble" and the danger of a "crash" in real estate prices, which poses a real danger to financial organizations in terms of lowering the value of collateral for mortgage loans.

In order to reduce speculative transactions with real estate, the feasibility of implementing the following measures will be considered:
1) introduction of an additional one-time tax for those acquiring additional housing and/or an increased tax on such property;
2) tightening of taxation (including capital gains) for selling housing within two to three years after its acquisition.

4.2. Accumulation pension funds
Goals and objectives
The main goals and objectives of the accumulation pension system in the medium term are:

developing competition between accumulation pension funds;
increasing the accessibility and quality of pension services for the entire population of Kazakhstan;
increasing the opportunities for accumulation pension funds (APFs) to invest pension assets;
ensuring the preservation of pension savings and further improving mechanisms for protecting the rights of depositors and recipients, the system of pension payments and transfers;
improving the efficiency of the system for paying mandatory pension contributions.

Current state
Currently, pension funds have become one of the largest institutional investors in the domestic securities market. In recent times, a stable trend has been observed in the securities market of the Republic of Kazakhstan towards a decrease in the yield of securities into which pension assets can be invested, against the background of a shortage of attractive, and at the same time reliable and liquid securities.

In accordance with the Program for the Development of the Accumulation Pension System for 2005-2007, approved by the Decree of the Government of the Republic of Kazakhstan of December 24, 2004 No. 1359, the introduction of pension plans differing from each other in the degree of diversification of the investment portfolio, yield, and degree of investment risk is provided for different groups of depositors. In this regard, it is necessary to establish requirements for the list of financial instruments in the portfolio of pension assets of an accumulation pension fund, based on the nature of the chosen investment strategy.

Within the framework of implementing pension plans differing from each other in the degree of diversification of the investment portfolio, it is planned to consider the possibility of attracting non-residents to manage part of the pension assets by establishing a minimum required rating for such portfolio managers.

Main measures

Stimulating competition by implementing the evaluation of APF activities
Currently, except for the indicator of the weighted average nominal yield of the accumulation pension fund, the amount of pension assets, and the number of depositors, there are no clear guidelines for choosing a fund. There is a justified need to develop a system of such indicators that would also allow evaluating portfolio risks. It is planned to consider the possibility of improving the system of indicators for evaluating the efficiency of managing pension assets for depositors in order to maintain the quality of investment portfolios of pension funds differing from each other in the degree of diversification of the investment portfolio, yield, and degree of investment risk, for different groups of depositors, as well as the issue of expanding the depositor's choice of various investment portfolio options.

In addition, introduce indicators reflecting the activities of accumulation pension funds based on the yield and risk of the investment portfolio.

Expanding the range of financial instruments, including for hedging currency and other risks for investing pension assets and creating incentives to increase liquidity in the securities market
Expanding the range of financial instruments, including hedging currency and other risks for investing pension assets and creating incentives to increase liquidity in the securities market, remains an urgent task. In this regard, the use of APF assets to finance priority projects based on government guarantees and/or sureties, securitization transactions, as well as hedging fund assets will correspond to both priority directions of economic development and improve the quality of pension assets. However, to solve these tasks, it is necessary to develop regulatory regulation on the methodology for evaluating and accounting for these products, methodological aspects of the practical mechanism for investing assets in these types of financial instruments, and their practical application.
Creating incentives for participation in the accumulation system in order to expand the coverage of the population, as well as improving the level of social protection
In order to reduce shadow employment, as a social measure, it is planned to form a three-tier social security system, which implies an optimal redistribution of responsibility between the state, employers, and employees, stimulating motivation for employment in the formal sector.

Also, in order to relieve the state and taxpayers of part of the obligations for full social security of citizens of retirement age in conditions of worsening demographic situation, it is necessary to consider providing conditions for the payment of voluntary and voluntary professional pension contributions on behalf of their employees - to all employers, not just a limited list of professions, creating conditions of maximum comfort for depositors of voluntary pension contributions, both for themselves and for third parties. In order to increase the attractiveness of the system of voluntary and voluntary professional pension contributions, it is necessary to consider the issue of preferential treatment for the payment of pension savings formed from voluntary and voluntary professional pension contributions based on the accumulation period.

In order to improve the level of social protection of the population, especially regarding workers employed in industries with an increased level of risk to life, it is planned to consider the possibility of introducing mandatory professional pension contributions.

In the area of increasing public awareness, as well as the transparency of pension fund activities for depositors, it is expedient to introduce requirements for the publication of APF investment declarations and the results of their implementation.

Optimization of payments in the accumulation pension system

Optimization of payments in the contributory pension system for mandatory pension contributions and reduction of agent debt for mandatory pension contributions is carried out jointly with the Ministry of Labor and Social Protection of the Population of the Republic of Kazakhstan by creating a unified accounting center based on the State Center for Pension Payments (SCPP). From July 1, 2006, the transfer of mandatory pension contributions, including arrears, will be made directly to the SCPP. The SCPP transfers mandatory pension contributions to the contributory pension fund in accordance with a single list of individuals who have concluded a pension provision agreement at the expense of mandatory pension contributions. It is assumed that the optimization of payments in the contributory pension system will allow the depositor to exercise the right to independently choose a contributory pension fund to conclude a pension provision agreement; optimize the flow of information and financial flows in the contributory pension system with a reduction in the total costs of the depositor, employer, and professional participants of the pension system; create conditions for the exclusion of duplication of individual pension accounts opened in different contributory pension funds; allow the SCPP to conduct automatic transfers of the depositor's pension savings to the fund with which the last agreement was concluded at the expense of mandatory pension contributions; simplify the procedure for agents to transfer amounts of mandatory pension contributions.

A phased transition to an electronic system for serving the population based on modern technologies is planned, allowing for electronic identification of the depositor when conducting operations for concluding a pension contract, transfers, and payments of savings (implementation of electronic cards as pilot projects).

Increasing the capitalization of contributory pension funds and organizations carrying out investment management of pension assets, depending on the risk of instruments included in the composition of pension assets, as well as the introduction of risk management systems

In order to increase the efficiency of managing pension assets and forming an investment portfolio based on the comparability of risk and yield of instruments, it is planned to consider the possibility of using as selection criteria for investment objects at the expense of pension assets the presence of a minimum rating assessment of the issuer of the security, or of the security itself, and mandatory trading on an organized market of the Republic of Kazakhstan or a foreign state.

Depending on the risk of instruments contained in the investment portfolios of contributory pension funds and management companies, a procedure for forming capital adequate to the specified risks will be introduced. It is planned to further improve the prudential regulation of contributory pension funds and organizations carrying out investment management of pension assets in terms of the solvency ratio, which will be formed depending on the quality of the investment portfolio formed at the expense of pension assets.

It is also planned in the future to improve the risk management system in contributory pension funds and organizations carrying out investment management of pension assets in terms of establishing and regulating procedures related to the adoption of investment and other decisions falling within the responsibilities of these organizations, with an increase in responsibility, both of managers and members of the Board of Directors and shareholders. In addition, it seems expedient to consider the possibility of introducing certain elements of insurance of pension assets.

4.3. Insurance Sector

Goal and Task

The main goals and tasks of the development of the insurance market in the medium term are:
development and implementation of measures to satisfy the need for insurance protection of citizens, legal entities, the state, and accumulation of long-term investment resources for the development of the state economy; development of life insurance as a tool for social protection of the population; improvement of the mandatory insurance system; increasing public trust in insurance organizations and insurance culture of all subjects of insurance relations; improvement of insurance supervision based on best international practices.

Current State

Sustainable economic growth of the republic in recent years and state measures taken to reform the national insurance industry have contributed to the accelerated development of this industry. The dynamics of the main indicators of the insurance market over several years is characterized as positive.

Nevertheless, the life insurance market and other types of savings and long-term insurance are insufficiently developed in the country. The issue of expanding investment opportunities for insurance organizations in life insurance remains relevant. There is insufficient capitalization of insurance organizations, a significant part of the insurance premiums collected by them is transferred through reinsurance channels abroad.

In addition, there are a number of problems in the mandatory insurance system. Thus, the national mandatory insurance system faces a number of problems that do not allow it to fully utilize its potential. Among the main problems reducing the efficiency of mandatory insurance can be attributed:
insufficient level of organization of state control over compliance with mandatory insurance legislation by policyholders and imperfection of existing legislation; the need to restrict the development of sectoral laws containing norms on the application of mandatory insurance.

One of the mass types of insurance is the mandatory insurance of civil liability (CL) of vehicle owners, which affects the interests of vehicle owners and other road users, i.e., practically the entire population of the country. Therefore, the problems of this insurance are most acutely felt in the insurance market.

One of the directions for the development of the insurance market infrastructure in the coming years will be the development of the mutual insurance system. Mutual insurance is one of the elements of the modern insurance market. The need for mutual insurance is due, primarily, to the presence of a large number of risks that commercial insurers refuse to accept for insurance for various reasons: frequent losses, high insurance amounts.

In addition, the risk management system in insurance organizations requires development.

Main Measures

Increasing the level of transparency of the activities of insurance organizations (implementation of consolidated supervision)

Current legislation on consolidated supervision provides for the possibility of identifying the real owner of a financial organization, a group of affiliated persons determining the decisions of a financial organization, and has harmonized insurance and pension legislation with banking in terms of identifying shareholders of financial organizations having a significant influence on decisions made by a financial organization.

The largest insurance organizations bearing systemic risks belong to banking conglomerates, and their regulation on a consolidated basis is carried out through the banking conglomerate. At the same time, the possibility of carrying out prudential regulation on a consolidated basis is hardly applicable to 24 insurance organizations not belonging to a banking conglomerate.

This is largely explained by the fact that among them there are practically no groups of legal entities forming a financial conglomerate.

Thus, the next stage in this direction will be the implementation of prudential regulation on a consolidated basis for these insurance organizations and groups formed by them.

Increasing the efficiency of the mandatory insurance system

Currently, the mandatory insurance system in Kazakhstan is generally formed. The introduced types of mandatory insurance cover a wide range of subjects from various risks, including financial, social, environmental, natural, technological, etc.

At the same time, the national mandatory insurance system faces a number of problems that do not allow it to fully utilize its potential.

In order to more clearly organize and function the mandatory insurance system, a number of measures will be carried out to:
determine the conditions for obtaining a license for insurance organizations to carry out activities in mandatory types of insurance; continue work on improving the forms of financial reporting; take measures by the Government to organize a system of state control over compliance with mandatory insurance legislation by policyholders.

At the same time, it is necessary to take measures to improve legislation on mandatory insurance.

One of the urgent issues of CL insurance of vehicle owners is the issue of adequacy of insurance tariff sizes to the level of road risks in the republic. Due to low profitability, and in some insurance organizations, unprofitability of operations in this type of insurance, there are cases of unjustified refusal by insurance organizations to make insurance payments, evasion of concluding insurance contracts, reduction in the number of agency points, which ultimately negatively affects policyholders and persons injured as a result of traffic accidents.

Taking into account the high level of road accidents, the steady growth of the country's vehicle fleet, and other factors affecting the volume of insurance payments, there is a need to organize constant monitoring of CL insurance of vehicle owners and rapid response to problems related to tariffs.

It is necessary to continue work on improving the legislative act on CL insurance of vehicle owners, including with the aim of simplifying and reducing the procedure for considering an insurance case and making an insurance payment. The possibility of introducing a system of direct settlement of losses will be worked out, taking into account international experience and practice of applying such a system.

In order to implement the Address of the President of the Republic of Kazakhstan to the people of Kazakhstan of March 1, 2006

Taking into account that the activities of insurance organizations are based on uncertainty, insurance organizations must take into account the entire range of possible circumstances that may affect their current and expected future financial position. Therefore, the question of building a risk management system for insurance organizations is currently relevant.

The risk management system includes the development of corresponding corporate policies and procedures, the use of quantitative methods for measuring risks, the assessment of products and services according to their risks, the establishment of risk limits, risk management through diversification and hedging, and the creation of a "safety cushion" (from the side of liabilities and capital) to absorb losses. The application of these tools depends on the type of risk and the supervisory regime.

The main goal of the risk management system of an insurance organization is to determine the possibility of accepting certain risks and establishing approaches for their measurement and management.

4.4. Foreign Exchange Market and Securities Market

4.4.1. Foreign Exchange Market

Goals and Tasks

The following main goals and tasks for the development of the foreign exchange market will be defined for the medium-term period:

ensure further stable functioning of the floating exchange rate regime of the national currency;
take necessary measures to develop the forward foreign exchange market (forward, swap, futures market);
improve legislation for the spot foreign exchange market and the forward foreign exchange market.

Current Situation

The domestic foreign exchange market of the Republic of Kazakhstan is represented by the foreign exchange segment of the Kazakhstan Stock Exchange (KSE), the interbank foreign exchange market, and the market for cash foreign currency (network of bank exchange offices and legal entities).

Trading on the KSE and the interbank foreign exchange market is conducted in US dollars, euros, and the Russian ruble.

In 2003-2006, the situation on the foreign exchange market was characterized by a tendency for the tenge to strengthen against the US dollar.

In 2003-2005 and in the first half of 2006, a tendency for the nominal strengthening of the tenge against the US dollar was observed on the foreign exchange market, caused by the situation on world foreign exchange markets, growth in export earnings, and external borrowings of the banking sector.

Starting from the third decade of July, the situation on the foreign exchange market has been characterized by a weakening of the tenge against the US dollar. The change in trends in the dynamics of the tenge exchange rate is associated with a change in the mechanism for the formation and use of funds of the National Fund, the introduction of new rules on minimum reserve requirements, and the introduction of certain restrictions by the Agency on the attraction of external borrowings by second-tier banks.

Main Measures

To implement the planned goals, the following measures must be carried out:

continue the policy of a managed floating exchange rate regime, in order to smooth out sharp fluctuations in the exchange rate of the Kazakh tenge;
start quoting the euro/tenge exchange rate on the KSE, in order to diversify risks related to dollars.

4.4.2. Securities Market

Goal and Task

The main goals and tasks of the securities market in the medium-term perspective are:

expand access to loan capital through the stock market;
increase the number of investors in the securities market, including at the expense of the population;
protect the rights of investors in the securities market, including the rights of minority shareholders.
introduce new and liquid financial instruments on the securities market, including bonds secured by earmarked assets (securitization mechanisms), derivative securities, infrastructure bonds, debt securities secured by state guarantees;
build a realistic yield curve in the government securities (GS) market.

Current State

The current state of the stock market in Kazakhstan is characterized by the underdevelopment of the stock market. About a third of the names of stocks in the official list are unavailable on the market. Among them are the securities of the largest companies, which are leaders in the Kazakh economy.

The industry structure of securities turnover does not correspond to the structure of the official list of the KSE. The share of the secondary stock market in the total turnover of the stock exchange is insignificant and continues to decline. The main problem is the predominance of contractual transactions. The Agency and the KSE are taking measures to combat direct transactions, but their share in volume and quantity remains high.

Main Measures

Development of the Stock Market

According to world experience, necessary conditions for the successful development of the equity market are ensuring strict compliance with the protection of shareholders' rights, compliance with strict reporting standards, a low level of corruption, and a mass of retail investors in the stock market.

Therefore, in order to develop the stock market, a set of measures is planned aimed at optimizing the information disclosure regime, fully corresponding to the interests and needs of investors, by improving the corporate legislation of the Republic of Kazakhstan, implementing International Financial Reporting Standards (IFRS); creating effective corporate legislation, creating a system for monitoring compliance with legislation in the field of corporate governance.

Expansion of the Range of Financial Instruments Offered

One of the main tasks of the Kazakh securities market is to expand the range of financial instruments offered in order to increase investment opportunities.

Priority areas for solving this issue will be:

further development of the GS market, including consideration of the possibility of government borrowing at a stable level to establish a corresponding benchmark on the stock market, as well as building a realistic yield curve across the entire spectrum of financial instruments in the domestic financial market of the republic;
improvement of legislation on the issuance and circulation of securities under state guarantees and state guarantees in terms of implementing mechanisms for the use of such guarantees and guarantees;
launch of securitization mechanisms;
development of public-private partnership (PPP) mechanisms by issuing bonds with state guarantees;
adoption of effective measures to develop the market for derivative financial instruments, further improvement of legislation and elimination of legislative norms hindering the development of the derivatives market.

An important link in the creation of an active derivatives market is the formation in Kazakhstan of a liquid market for long-term and short-term GS.

In this regard, the Government, the National Bank, and the Agency will work out approaches to the issuance of GS and the creation of a liquid market, which will allow forming yield curve indicators for market participants.

Development of the GS Market

3.1. Strategy for Issuances and Management of GS Debt

According to the Concept for the Formation and Use of National Fund Funds for the medium-term perspective, government borrowing policy will be oriented towards achieving a 50-70 percent ratio of government debt, including guaranteed debt, to the market value of National Fund assets.

At the same time, for the development of the financial market, GS will be issued at a stable level according to the initially planned volume and schedule, regardless of the actual execution of the budget.

In order to implement the task of building a yield curve for GS, it is planned to provide measures to reduce artificial demand for GS in the securities market. In addition, mandatory requirements for the acquisition of GS by organizations with state participation, as well as other market participants, including accumulated pension funds, should be excluded. The exclusion of these requirements should be carried out gradually as alternative financial instruments appear on the market.

The market related to the determination of state financing strategy is a significant support for maintaining the development of the domestic securities market. Such a strategy includes strict adherence to the principles of an active market: accessibility and transparency, as well as attracting obligations to finance investment projects through the securities market, and active investment in the development of priority infrastructure by attracting funds in the stock market.

The State will improve and ensure, within the principles of accessibility and transparency, high-quality information about the debt structure, necessary financing for investment projects, and debt management strategies for market participants and society as a whole.

In order to develop the financial sector in the medium-term period, special attention will be paid to four fundamental areas that will contribute to the development of the securities market, such as:
1) informational transparency of infrastructure;
2) strength and reliability of financial organizations;
3) diversification of the investment portfolio of pension funds and liberalization of interest rates;
4) improvement of the legislative base.

In addition, a phased introduction of GS with longer terms of circulation will be carried out; measures will also be taken to develop alternative instruments in the debt instrument market, in particular, infrastructure bonds, to meet the needs of pension funds and other participants in the stock market.

3.2. Establishing a Corresponding Benchmark and Building a Realistic Yield Curve in the GS Market

A phased introduction of GS with longer terms of circulation is planned. At the same time, for the construction of the yield curve, the issuance of GS with terms of circulation from one month and above is planned.

Improvement of the Securities Market Infrastructure

With the development of the securities market, the presence of a developed infrastructure becomes increasingly significant. In this regard, it is necessary to carry out work on the further improvement of the securities market infrastructure. Special attention should be paid to the improvement of technical infrastructure, in particular in connection with the functioning of the Regional Financial Center of the city of Almaty, the organization of a special trading platform of the financial center on the trading platform of the stock exchange functioning in the city of Almaty is necessary. In this regard, it is necessary to carry out work on adapting the KSE trading system in accordance with the specifics of the activities of the regional financial center, namely, the circulation of securities of foreign issuers, as well as the admission of foreign broker-dealers to trading, will require considering the possibility of concluding transactions in the trading system with a "T+3" execution time, as well as the use of clearing systems. In the activities of the central depository, it is also necessary to carry out work to bring its software into line with the capabilities of the KSE trading system.

An important issue in the development of the securities market infrastructure will also be the creation of a unified registry of rights to securities, as well as the registration of the transfer of ownership rights to them, the implementation of which will have a favorable effect on reducing risks arising in the process of registering rights to securities, and contribute to increasing the level of transparency of the structure of owners of securities, the protection of investors' rights.

Improve the practical use and application of the methodology for determining the fair (market) value of financial instruments for various types of securities.

Improvement of Prudential Regulation of the Activities of Professional Participants in the Securities Market, as well as the Implementation of a Risk Management System

In order to improve risk management issues in the securities market, it is planned to improve the prudential regulation of the activities of professional participants in the securities market in accordance with international standards of prudential regulation, focused on risk supervision and the implementation of a risk management system among them.

The main goal of the risk management system should be to determine the possibility of accepting certain risks and establishing approaches for their measurement and management.

Development of the Market for Derivative Securities

As international experience shows, the level of development of the financial sector is adequate to the degree of liquidity of the stock market and the development of the market for derivative financial instruments. Building a realistic yield curve in the GS market should become the basis for the development of the market for derivative financial instruments.

It should be noted that at the present time, the task of defining the concept of derivative financial instruments, the procedure for their circulation and taxation, set by the current Concept for the Development of the Financial Sector of the Republic of Kazakhstan, has not been resolved. Perhaps this fact, as well as the absence of market makers ready to support large volumes of transactions, largely explains the underdevelopment of the market for derivative financial instruments.

The first step in the development of the market for derivative financial instruments will be the National Bank acting as the main market maker in the interbank foreign exchange market, which should stimulate other market participants and contribute to the emergence of more complex derivative instruments (options).

Necessary Measures:

definition of the concept of derivative financial instruments, the procedure for their circulation and taxation by making changes and additions to the legislation of the Republic of Kazakhstan (Civil Code of the Republic of Kazakhstan, Tax Code of the Republic of Kazakhstan, Law of the Republic of Kazakhstan "On the Securities Market");
building a yield curve for GS up to 1 year;
carrying out in the interbank foreign exchange market the quoting of forward contracts for a term of 1 month with the prospect of their further quoting along the entire yield curve for a term of up to one year.

4.5. Microfinance: Tasks and Development of the Sector as Part of the Financial System of the Republic of Kazakhstan

Goal and Tasks

Expand the opportunities for socially vulnerable layers of the population and small business entities, currently not covered by banking sector services, through access to microfinance services, which will allow:

develop entrepreneurial initiative;
increase employment;
raise the standard of living;
increase the level of financial literacy.

Current State

Despite the fact that a number of microfinance organizations (MFOs) operate in Kazakhstan, the scope and volume of services offered by them are still limited. In Kazakhstan, MFOs offer only microcredits, and the coverage of their activities is not yet large.

Microfinance services in Kazakhstan are offered by four types of organizations: commercial banks (through EBRD programs), non-bank financial organizations, credit cooperatives, and microcredit organizations.

Analysis of the credit cooperative market allows us to say that current trends do not correspond to market needs. The total credit portfolio of credit cooperatives, along with the number of clients they cover, is extremely insignificant and incomparable with similar indicators of banks.

Taking into account that the activities of credit cooperatives, including the provision of loans, are limited to a narrow circle of participants, it can be stated that the level of development of credit cooperatives is low.

The main factor hindering the development of microfinance so far has been the lack of a conceptual approach to the development of the microfinance system, comprehensive support from the state.

In accordance with the policy of the President of the Republic of Kazakhstan, aimed at increasing competition in the financial sector, the Government of the Republic of Kazakhstan has set the task of creating conditions for the development of competition. Such organizations as credit cooperatives and microcredit organizations, being mobile specialized financial institutions, could offer services alternative to banking.

Main Measures

In order to expand access of the population to financial resources, the range of services provided by credit cooperatives and microcredit organizations, solve social problems by creating additional jobs, reducing the level of poverty and increasing the income of the population, developing small and medium-sized businesses, stimulating the development of competition in the financial market, ensuring sources of financing for MFOs, creating a sustainable microfinance sector as part of the financial system of the republic, it is necessary to adopt the following measures in the medium-term perspective:

further improvement of the mechanism of state support for credit cooperatives and microcredit organizations;
creation of incentives for the development of auxiliary services and infrastructure providing access of microfinance organizations to professional services and information;
improving the quality of monitoring the activities of credit cooperatives and microcredit organizations, including improving the forms of reporting provided by them to the statistical authorities.

Financial Leasing

Current State

In 2005, leasing companies concluded 1,358 contracts for financial leasing, through which 4,191 units of property were implemented. The cost of property actually transferred under financial leasing contracts amounted to more than 20.8 billion tenge. The volume of the leasing portfolio has increased almost 6 times in recent years and reached, according to estimates, over 350.0 million US dollars. A more than fourfold increase in the number of concluded leasing contracts was noted. The share of leasing in the total volume of investment in fixed capital has increased to 1.8%. The market for leasing services is becoming increasingly attractive for both investors and manufacturers of goods, works, and services.

In recent years, the restriction of the minimum leasing term until 2004 was the main restraining factor in the development of leasing. Fixed assets with a useful life of 10-20 years were practically impossible to lease. This was due to the fact that the leasing term had to be at least 8-16 years, and ownership rights could be transferred to the lessee only after the expiration of this term. This significantly increased the risks of the transaction.

The Government of the Republic of Kazakhstan has taken various measures to develop financial leasing. In particular, this is the adoption of changes and additions to the Code of the Republic of Kazakhstan "On Taxes and Other Mandatory Payments to the Budget" (Tax Code), which came into force on January 1, 2004. This is the Law of the Republic of Kazakhstan of March 10, 2004 "On Amendments and Additions to Some Legislative Acts of the Republic of Kazakhstan on Issues of Financial Leasing". In tax and civil legislation, the regulation of financial leasing has been brought closer to international standards, which contributes to the development of small and medium-sized businesses, accelerating the pace of updating fixed assets at enterprises. The most important changes and additions are as follows: definition of financial leasing, in terms of reducing the leasing term to 3 years; introduction of the concept of "secondary leasing", which provides for the possibility of secondary leasing of leased items when they are withdrawn from dishonest lessees, which minimizes the risks of lessors; the possibility of uncontested withdrawal of leased items from dishonest clients in the order of summary proceedings; definition of the leasing term, for example, termination of the leasing contract while retaining ownership rights with the lessor does not entail a change in the leasing term, which is very important in the case of returning a leased item from one lessee and transferring it to another, as well as reduced risks for the lessor associated with the termination of the leasing contract and possible tax losses; cancellation of mandatory registration of leasing contracts, except for those whose registration is provided for by other legislative acts in the part of real estate and transport.

In general, a fairly favorable legislative base has been created regulating civil-law issues and taxation of leasing operations.

Main Measures

Further improvement of leasing operations, including issues of tax policy, registration procedures, and statistical information.