Microsoft Word Microfinance development in Uzbekistan Eng doc

Legal and regulatory framework of the microfinance service provided by NGO-MFOs. 
A definition of MFO appeared in the country after the adoption of basic Resolution 
#309 of the Cabinet of Ministers “About the actions for development of microfinance in 
Uzbekistan” on 30 September, 2002. Its objective was to create legal grounds for more 
active involvement of the population in entrepreneurial activities by introducing new 
microfinance instruments and grants by international financial institutions, foreign 
government organization, and non-government non-profit organizations
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. It has created a 
favorable environment for the development of NGO-MFOs. The Ministry of Labor and 
Public Welfare of Uzbekistan was named as the coordinator of microfinance development 
programmes. 
Microfinancing for legal entities and individuals – residents of the Republic of 
Uzbekistan – is offered in local currency in the amount of no more than equivalent of USD 
3,000 per borrower in terms of urgency, charges, and repayment. Grant funds of donor 
organizations in foreign currency used as the source of microfinance are transferred to the 
corresponding account of an authorized bank and need to be sold at the interbank currency 
exchange rate. 
Main problematic aspects are as follows: 
• Resolution #309 stipulates a limited legal regime. Despite the inclusion of an annex 
which lists donors, it remains unclear whether this list is exclusive. (In other words, it 
is unclear whether MFOs using the funds of other donors, not listed in the annex, may 
also work in the format of microfinance.) In short, the resolution does not encompass 
all types of MFOs. 
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Statute # 755 for commercial bank crediting of individual entrepreneurs and small businesses from non-
budgetary funds credit lines adopted 20 July, 1999. 
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Starting with traditional donors and ending with development banks and international NGOs: ACDI/VOCA, 
FINCA through USAID, ADB, UNDP, Open Society Institute (Soros Foundation) – co-financing; Mercy Corps 
(with support of UK government); Netherlands Organization of International Development and Cooperation 
(NOVIB); U.S. NGO “Joint Development” (JDA), NGOs under JICA (Japan) – training programme; Northwest 
Medical Team and Global Lifeline NGOs – U.S. NGOs 

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• Registration procedures and the legal status of NGO-MFOs are unclear. JSC and 
LLC may be appropriate mechanisms for microfinance activities for MFOs striving to 
raise individual savings. Both legal forms combine limited liability of the participants 
with centralized management. Features of the other three legal forms (cooperative 
(full or special partnerships), manufacturing cooperatives and unitary companies) 
make them unsuitable for these purposes
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. 
• The disbursement of microcredit by NGO-MFOs is limited due to restrictions on the 
access and use of cash. Bank clients are entitled to withdraw funds from their 
deposits as they wish without any limitations. Banks must complete these transactions 
within one day of receiving a client’s payment order or in accordance with the terms 
stipulated in the agreement. The bank is also responsible for delays in carrying out 
transfers or the requests of clients. One problem banks and NGO-MFOs deal with is 
that regulatory and legal acts related to cash handling contradict the provisions of the 
Civil Code. NGO-MFOs suffer most from these limitations as they are expected to 
disburse their loans in cash.
Problems regarding cash limitations for microfinance sector were addressed in 
Resolution #309 (for NGO-MFOs), in Resolution #348
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(for CUs) and Resolutions #201
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and 367
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(for EBRD sub loan programmes through the banks). This approach should not be 
changed in future. Rather is preferable to preserve the consistency of regulations and 
reinforce the status of microfinance. 
• An additional problem for MFOs centers on restrictions banning the storage of cash 
from loan repayments on their premises. Although it would be preferable for them to 
use these cash payments in order to issue new loans, MFOs must the cash in the bank.
Subsequently, the deposit of these funds feeds the problems associated with cash 
withdrawals. However: 
1. All legal entities regardless of ownership form must observe the Rules for cash 
transactions for legal entities, approved by the Central Bank and registered by the Ministry of 
Justice under Decree #565 on 17 December 1998. This means no one will make exceptions 
for MFOs. 
2. In accordance with Article 4 of the Rules, caps for the amount of remaining cash 
will be set by the banks in agreement with the managers of the organizations. These caps can 
be reviewed as required. Hence, this matter could be addressed by expanding the authority 
of MFOs to increase the amount of cash kept at the cashier and by widening the norms for 
cash use.