Microsoft Word Microfinance development in Uzbekistan Eng doc

Interest policy. Analysis has shown that microloans up to the amount of $1,000 at a 
high interest rate produce good effect if the business costs of entrepreneurs range from $600 
to $1,400 per month and the profit margin are about 30%. They are efficient for 
entrepreneurs whose business costs range $1,500-3,400 per month at a profit margin of about 
15-20%. When business costs exceed $3,500 for an entrepreneur it pays to take loans on 
bank conditions because the profit margin is not sufficient to pay the high interest rates of 
MFOs and CUs in short term. Thus entrepreneurs in different financial positions face genuine 
market choice.
Despite the high interest rates of acting MFOs, it appears currently that there is no need 
for legislative regulation for the following reasons: 
• First, demand for microcredits is significant even at existing rates and no downward 
trend is observed; 
• High interest rates indicate the costs of the initial development period of domestic 
microfinance and the associated trial and error; 
• Quantitative growth, economies of scale
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, and the streamlining of MFOs 
operations will lead to reduction in rates to the most preferable level
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from the 
entrepreneurs’ point of view (3-4% per month); 
• Transition to uniform standards of financial reporting as well as the gradual 
streamlining of procedures will imminently lead to higher MFO efficiency, which 
in turn leads to lower interest rates; 
• Catering to entrepreneurs’ demands, MFOs will increase loan terms up to 1-1.5 
years
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which will inevitably result in reduction of interest rates.
• Current policies geared towards creating various domestic microfinance institutions 
will steadily enhance the competitive environment in this segment, which will lead 
to falling interest rates. 
 
5. Assessment of demand for microfinance services in Uzbekistan 
Demand trends for microfinance services will be defined by the following nationwide 
tendencies: 
• Macroeconomic stabilization and currency liberalization; 
• Institutional reforms in agriculture; 
• Decentralization; 
• Further liberalization of the finance sector; 
• Re-orientation of businesses towards production. 
Three broad client groups may be underlined
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among MFO clientele: 
1. Entrepreneurs owning small businesses and registered as microfirms as well as 
entrepreneurs without the status of legal entity. 
2. Dekhkans (peasant) and private farms. 
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Larger is MFO portfolio, more it can reduce interest rates. 
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See Table 15, Annex 1 to the report. 
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See Table 14, Annex 1 to the report. 
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Materials from
“Analysis of microfinancing development in Russia, 2003” study results were used in this 
estimate. The study was implemented within the framework of the USAID Project “Inter-Parliamentary 
Working Group on Small Business “RF Duma – the US Congress””. 

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3. Socially unprotected population groups, including the unemployed, people with low 
income and migrants.