Microsoft Word Microfinance development in Uzbekistan Eng doc

 
Medium-term outlook: the second cost estimate 
In order to meet the demand for microfinance services in the medium-term it is planned 
to bring the volume of microcredits issued by MFOs to 100 billion soums in total by the end 
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Central Bank exchange rate as of June 2005 (USD 1 =1112, 75 soums). 

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of 2008. That sum will amount to 10.9% of the current demand by the first cost estimate, or 
about 3.2% of demand by the second cost estimate. Thus, meeting the demand in the 
medium-term outlook should occur as a result of opening new MFOs (increase the number of 
clients and average loan size of microcredits) and improving the quality of services provided 
by existing MFOs. In order to achieve the goal of an average number of clients per MFOs at 
3,000 people and average size of credits equal to $500, it will be required to establish 43 
MFOs in addition to the existing 35-36 MFOs by the end of 2005. Thus, the total number of 
MFOs should reach 78-79 organizations by the end of 2008. 
Prospects of MFOs' relations with commercial banks 
During the current quantitative stage of development in the microfinance sector, banks 
and MFOs act independently from each other with no competition yet taking place between 
them. Excessive banking regulations, however, may be capable of pushing MFOs towards 
the bank-dominated market. Vice versa, and with special regards to collateral requirements, 
a reduction in the regulatory reach of the Central Bank may be an incentive for banks to more 
actively participate in the microfinance services market. Answers by poll respondents prove 
it, which leads one to conclude that bank loans correspond to notions about acceptable credit 
from the perspective of amount, interest rates, and period of repayment. However, the 
complex procedures of receiving bank microcredits force entrepreneurs to seek funds in non-
bank organizations (CU and MFO) despite their extremely high interest rates, short periods 
of crediting, and small loans. 
In the meantime, MFOs and banks may create partnerships in certain areas. For 
instance, banks may provide loans to MFOs for subsequent retailing of microloans. They can 
also be partners in minimizing the costs and seeking new clients. 
Banks will not operate in the microfinance sector because of high transaction costs, and 
MFOs cannot currently offer larger loans because of a lack of financial resources. Analysis 
indicates that the niche of credits from 500 to 3,000 dollars will remain underdeveloped and 
potentially significant for a long time to come. 
As it was mentioned earlier, microcredits do not make any positive impact on those 
entrepreneurs whose expenses are under $500 per month. It means that a special credit 
product must be developed to enable them to increase their monthly business investments to 
a minimum of 1,500 US dollars. It is clear that only MFOs can potentially provide such a 
product (Appendix 1, picture 5: Cluster distribution of entrepreneurs based on their level of 
business expenses and profit margins). The development of such product is of great 
importance and urgency for Uzbekistan.