Kazakhstan is weighing the adoption of a law on endowment funds with plans to introduce tax incentives and a fintech platform to support them. Once the law is adopted, every citizen of Kazakhstan will be able to become an investor whose money will be used for financing social projects. Farkhad Kuanganov, head of the Project Office of the Ministry of Science, revealed that the draft legislation is already under consideration in the parliament and may be adopted as soon as this year.
Endowment funds work in favor of non-commercial organizations involved in social spheres as one of the instruments of funding. Investment income supports the organization, aided by the fund.
Assets of such funds consist of the donations made by philanthropists, which are then invested rather than spent. Endowment funds may also accept direct donations for charity support, bypassing the target capital. These funds could be managed either by professional participants in the securities market or by the target capital funds that manage their endowment assets on their own.
The total capitalization of Kazakhstan’s 21 existing endowment funds slightly exceeds $1.022 billion. Under current legislation, investors do not retain ownership rights over their contributions, as donations are considered fully transferred to charity funds and no longer belong to the donors. Additionally, endowment funds do not benefit from tax incentives or other measures that might encourage potential investors.
«The necessity of the introduction of this law is related to the dual nature of endowment funds, as they combine functions of both charity and investment funds. The current legislation cannot regulate them, so we decided to develop a new law. It has already been reviewed by the parliament since April. Now, we are looking forward to implementing the next stage of creating five pilot endowment funds with a total capitalization of $103,493,500,» Kuanganov said.
He also noted that before preparing the draw law, authorities carefully examined the international experience of countries with many active endowment funds. Primarily, it’s the U.S. model law and Russian regulation as of 2006. Russia was the first post-Soviet-era country to regulate endowment fund activities. Kuanganov is hopeful that Kazakhstani law will be adopted before 2024 ends or in early 2025.
He also added that the MPs suggested introducing tax incentives, which include a 300% corporate income tax offset for the target capital. The proposals also include the introduction of tax-free treatment for endowment funds on receipt of contributions, grant aid and investment income drawn from endowment.
The draft law also proposes amending the Code on Subsoil and Subsoil Use to include a provision allowing subsoil users to transfer their contractual obligations for personnel training and scientific research to endowment funds. Additionally, the draft law plans to grant financial organizations the right to participate in the creation of endowment funds.
“To promote the industry, we have to accomplish a set of tasks, which the professional community of endowment funds is already discussing. The first task is to create a fintech platform that will offer digital services to investors, funds and management companies, given that crowdfunding is the main source of funding. The platform should be similar to what Kaspi and other banks have developed, allowing every citizen to contribute and track their donations,” Kuanganov added.
Svetlana Lavrova, chair of the Board of Trustees at Aurora-Ala Corporate Foundation (endowment fund), believes these organizations are the only mechanism to maintain strategic sustainability and funding for the social sphere, as well as a source for long-term money for the financial market and the country’s economy.
According to her, the weak development of the endowment market is largely due to the lack of legislation, compounded by a shortage of necessary skills among market participants, low awareness and insufficient public outreach. Lavrova believes that the adoption of the new law in Kazakhstan will attract a large number of institutional investors, significantly boosting the capitalization of endowment funds.
