Kazakhstan Strives to Become an Attractive Destination for Fintech Startupsby Fintechnews Singapore October 24, 2018
The Kazakhstan government is looking to turn its capital of Astana into an attractive destination for fintech companies as part of a broader plan to reduce the country’s dependence on the export of natural resources.
Kazakhstan, the world’s largest landlocked country and the ninth largest in the world, is a dominant nation of Central Asia economically, generating 60% of the region’s GDP, primarily through its oil and gas industry.
But a recent push by the government is demonstrating the country’s commitment to building a modern economy and achieve economic standards similar to those of the 34-member nations of the Organization for Economic Cooperation and Development (OECD).
The Plan of the Nation initiative includes a series of key privatization, fiscal, judiciary and social reforms and incentives aimed at attracting foreign investment.
Kazakhstan’s new financial hub
One key initiative part of the nationwide plan is the Astana International Financial Centre (AIFC), which was officially launched in July 2018. The AIFC is positioned as a financial hub for the countries of Central Asia, the Caucasus, the Eurasia Economic Union, the Middle East, Western China, Mongolia and Europe.
It strives to become a center of attraction of fintech projects, providing them with modern infrastructure, laboratories and opportunities of close cooperation with major financial and technological companies operating in the financial center. It even has a fintech regulatory sandbox where companies can innovate.
The AIFC can be compared to global financial centers such as Hong Kong, Singapore or Dubai centers which have English as the main language, UK securities and corporate law, and visa and tax waivers, for global financial players and startups to set up shop.
At launch, about 55 companies had already registered with the AIFC and the number is expected to grow to 500 by the year 2020.
“Astana looks forward to becoming the fintech capital of the region and there are so much startup business, so many engineering and clever entrepreneurs in China that they can come and find a happy home in Kazakhstan,” Lady Barbara Judge CBE, chairwoman of the Astana Financial Services Authority (AFSA), the independent regulator of the AIFC, said earlier this month.
She stressed that Kazakhstan was interested in being involved with China in the Belt and Road Initiative, also referred to as the New Silk Road, through its AIFC hub.
“We want to attract investors who are interested in the Belt and Road Initiative. We want to attract investors who are interested in being international and in building partnerships with the Kazakhs,” Lady Judge said.
AIFC has already had a close relationship with Chinese companies. China Development Bank has opened a representative office in AIFC and other top Chinese banks are following suit. Shanghai Stock Exchange owns 25% of the AIFC’s Astana International Exchange.
A nascent startup ecosystem
The startup ecosystem in Kazakhstan is in the early stage of development but acceleration programs such as TechNation, Astana Hub, Startup Kazakhstan, and Seedstars’ Fintech Stars program are providing assistance, mentorship, and funding opportunities to young Kazakh startups looking to grow and expand internationally. Additionally, the several special economic zones present across the country, such as the Innovation Technologies Park in Almaty, are offering favorable tax regimes to startups.
According to the Rating Agency of the Regional Financial Center of Almaty, payments is the most crowded segment of Kazakh’s fintech industry with 41% of fintech companies operating in the space, followed by microlending with 24%.
Fintech startups in Kazakhstan include Online Booking, a solution for small and medium-sized businesses that need a resource management system and an online payment, Otbasy, an invoice financing marketplace, Ules, a peer-to-peer (P2P) lending platform, and Smart Pay, a payments solution for small and medium-sized businesses.
Prodengi, the country’s first financial price comparison portal, and Kredit24, one of the largest online micro-loan provider in the country, are two other fintech startups, both founded and headed by Alexey Sidorov, their CEO.
Sidorov, an ex-banker turned serial fintech entrepreneur, recently launched Lendex, a platform that will use blockchain technology to connect borrowers in Asia with lenders anywhere in the world, and Moneybank.vn, a P2P lending platform in Vietnam. Sidorov is also the co-founder of the Kazakhstan Fintech Association.
Besides developing the private tech sector, the Kazakh government itself is looking to leverage cutting-edge technologies to modernize its infrastructures and processes.
According to Ozy, a fintech company known as MedElement is already exploring by digitizing the medical infrastructure of hospitals around Kazakhstan. And in a similar fashion to the United Arab Emirates, the Kazakhstan government wants to transition all records and government data onto digital platforms to allow the use of blockchain technology to deliver services more efficiently.
“We are very interested in blockchain technology as a financial instrument, and all the opportunities that blockchain has to offer,” said Baur Bektemirov, the AIFC’s managing director.
Last year, the AIFC signed a deal of cooperation with Maltese firm Exante to develop the country’s untapped cryptocurrency market. In March, Kazakhstan’s central bank launched a blockchain-based mobile securities trading application called Invest Online to allow locals to buy discount notes of the central bank.
But for Yesset Butin, the chairman of Kazakhstan’s Blockchain and Cryptocurrency Association, an organization founded in December 2017 to assist the government with the business implications of blockchain technology, Kazakhstan desperately needs to play catch-up with global counterparts.
“We think we are late already in implementing blockchain technology,” said Butin. “If we don’t do it now, we will be too late and we will lose our possibilities and our advantages in this technology.”
He cited the example of Belarus, which in December 2017 legalized cryptocurrency transactions to boost the private sector and attract foreign investment, and of Russia, which has said it plans to pass laws later this year.
Butin said the main challenge of the Kazakh cryptocurrency industry right now was the absence of a strong legal framework that would both boost the local blockchain industry, and help curtail the use of cryptocurrencies by criminals as well as protect investors.
Every country will soon regulate and legalize cryptocurrencies, he said, adding that his organization and the government were still educating themselves on the potential uses of this new technology before drafting any measures.
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Featured image: Kazakh Almaty Night, Kazakhstan, via MaxPixel. net.