176 INTERNATIONAL CONFERENCE ON EURASIAN ECONOMIES 2015 The Impact of Microfinance on Entrepreneurship in Kyrgyzstan Asst. Prof. Dr. Kamalbek Karymshakov (Kyrgyzstan-Turkey Manas University, Kyrgyzstan) Ph. D. Candidate Kadyrbek Sultakeev (Kyrgyzstan-Turkey Manas University, Kyrgyzstan) Ph. D. Candidate Burulcha Sulaimanova (Kyrgyzstan-Turkey Manas University, Kyrgyzstan) Abstract This paper aims to investigate the impact of microfinance on entrepreneurship in Kyrgyzstan. For estimation the nationally representative "Kyrgyz Integrated Household Survey" for 2013 is used, which covers around 5000 households from all regions in the country. The main variable of interest, the probability of being an entrepreneur of household members depends on individual, household level characteristics and on microfinance loan receiving status. Following the literature, due to the endogeneity issue in using microcredit loan in estimation, this research applies binary response model with instrumental variables. Estimation results show that participation in the micro loan raises the probability of individual to be entrepreneur. 1 Introduction Lack of access to crediting in low-income countries is generally seen as one of the main impediments in developing entrepreneurial activities. Individuals with low income or limited wealth have no access to loans from the banking system, due to absence of collateral, while microfinance institutions (MFI) are solving this issue, enabling financial access to all. The importance of microfinance organizations, in facilitating the financial resources to borrowers, has risen rapidly in the last ten years in Kyrgyzstan. In spite of the fact that the financial services of microfinance institutions including microcredit, insurance, savings, money transfers and other financial products are targeted to support poor and low-income borrowers; in the case of Kyrgyz Republic it works mainly in giving microcredit only. In 2002 Kyrgyz Republic has adopted a law “On microfinance organizations”, under which MFIs can determine their own sizes of loans and interest rates, as well as commission rates. This, in turn, enabled rapid start-ups in this sector, reaching MFIs loan portfolio share with respect to GDP of country up to 8%. Thus, since 2002 the number of MFIs increased from 18 to 204, while the loan amount has grown more than 16 times (from $ 1 billion KGS to 16.8 billion KGS) and number of borrowers increased from 80 000 to 429 000 people. According to the National Bank of the Kyrgyz Republic, in 2014 the microfinance sector is represented by 5 microfinance companies, 145 microcredit companies and 54 microcredit agencies. Such statistics show widespread characteristics of MFIs in Kyrgyzstan, where total population is around 5.5 million people. Moreover, according to National Statistical Committee of Kyrgyz Republic (NSCKR) in 2014 the 72% percent of borrowers of MFIs are between 30 and 60 ages, while 20 % are people younger than 30 years; this shows that the most of microfinance clients are in working age and can use credits in income generating activities. It is important to mention that, according to NSCKR, the share of women borrowers in all regions of Kyrgyzstan is bigger. In 2014 the 64% of borrowers were women, while only 36% were men. Another significant fact is that 65% of total population lives in rural areas and microcredit loans are widely used for agricultural purposes, which includes credits for cultivating crops and processing agricultural products by small firms or self-employed workers. Another purpose of microcredit loan is to use it in trading and catering, which are mainly presented by small enterprises or own-account workers in Kyrgyzstan. In average, the amount of loans value around 66,400 KGS (1 050 USD), shows that microfinance institutions are commonly facilitating credits to the poorer people in the country, which is 35 % of total population (NSCKR). Empirical evidence on the microfinance impact on the enterprises in general show that participation in microcredit program have positive effects, thus microcredit loan relaxes credit constraints, which in turn enables entrepreneurs to manage financial resources optimally and to increase the business revenue, profits and employment (see Karlan and Valdiva (2011); Field et al. (2013); Buera et al. (2012); Kholis (2009); Babajide (2012); Wang (2013)). However, few studies have been undertaken in investigating how microfinance influences entrepreneurial decision of beneficiaries’. One of recent studies on this belongs to Amin et al. (201 2) who assessed the impact of microcredit loan on women entrepreneurship in Bangladesh. He found that the access to microcredit has a significant positive impact both on women and men entrepreneurs. Limited studies have been undertaken to analyze the microfinance impact in Kyrgyzstan case, and they mostly consist of qualitative evaluation and analysis of microfinance institutions in Kyrgyzstan. To our best knowledge there are only two empirical studies on microfinance impact in Kyrgyzstan case. Sultakeev (2012) investigates the effect of microcredit on microenterprises income in Kyrgyzstan. Angioloni et al. (2013), which empirically assesses the impact of microcredit loan on household welfare. However, the study of Sultakeev (2012), suffers from some limitations, such that sample size of the study is small and covers only two regions out of seven region of the country and not nationally representative. While the research of Angioloni et al. (2013) which estimates welfare effect of microfinance impact, do not correct the endogeneity issue, which is arising from microcredit program