EFFECTIVE RISK MANAGEMENT MODEL FOR SMALL BUSINESS LENDING IN KAZAKHSTAN: INTERNATIONAL PRACTICES

Small and medium enterprises (SMEs) in Kazakhstan constitute a vital segment of the economy (~27% of GDP) yet face significant barriers in accessing finance. A key issue is the heightened credit risk perceived by banks due to insufficient financial transparency of SMEs and lack of collateral, leading to unmet credit demand (estimated ~80% unmet need). This underscores the need for an effective risk management model to facilitate SME lending while controlling default rates. Methods: The study employs a mixed-method approach: analysis of international best practices (Basel standards, credit scoring models, credit guarantee schemes) and evaluation of local banking data. We use comparative benchmarking of risk metrics and scenario analysis, applying the Probability of Default (PD) – Loss Given Default (LGD) framework of Basel to SME loan portfolios. Case studies from Kazakhstani banks and statistical data from regulatory reports inform the model calibration. Key Hypotheses & Conclusions: It is hypothesized that adapting international risk management techniques (e.g. quantitative credit scoring, internal ratings-based models, and portfolio diversification strategies) to Kazakhstan’s context will reduce non-performing loans and improve credit availability. The developed model integrates a PD/LGD-based risk assessment with risk mitigation tools (such as collateral requirements and state-backed guarantees), resulting in a more accurate estimation of credit risk and enabling banks to lend prudently to SMEs. Our findings confirm that this integrated model can maintain portfolio quality (keeping SME NPL ratios low) while expanding lending. Practical Applicability: The proposed model can be implemented by Kazakhstani banks to refine their credit underwriting for small businesses, using data-driven scoring and alignment with Basel capital requirements to optimize risk-weighted assets. Policymakers may utilize the results to bolster SME support programs (e.g. enhancing the Damu guarantee fund) and align regulatory frameworks with international standards, thereby fostering a more inclusive financing environment for SMEs.