Microsoft Word Microfinance development in Uzbekistan Eng doc

institutional reform pursued in the agricultural sector. The restructuring of shirkats, or 
collective farms, into private farms brings about a substantial demand for small credits. In 
2004-2006 1,020 collective farms or 55 % of their total number are expected to be 
restructured into farms. New small farmers will direly need small funds for the development 
of their farms, the purchase of machinery, seeds, and fertilizers. Demand for small credits 
will be very high, given the fact that over 60 % of the population lives in rural areas.
9. 
Micro financing is an important instrument for the decentralization. 
Decentralization will become an important factor for developing microfirms, which require 
small credits to develop and diversify their production, while banks are not able to meet their 
demand.
Thus, today micro financing is the most practical opportunity to improve the social 
and economic well-being of a substantial part of Uzbekistan’s population and to reduce the 
acuteness of social tension in society.
At the present stage, the main factor concerning the implementation of all the 
aforementioned aspects of microfinancing is the elaboration of the state programme for its 
support in facilitating social and economic developments of the country. Such a programme 
should include the following components:
1. 
Elaboration of legislative and regulatory framework. Further development of 
the legislative and regulatory framework of micro financing should take place in two stages: 
• Adoption of the Resolution by the Cabinet of Ministers to address most urgent 
basic problems of MFO: clear registration procedure for various types of MFO, 
determining the MFO access to alternative sources of financing and procedures 
for further taxation.
• Development of the law “On Microfinancing in the Republic of Uzbekistan” to 
identify the complete spectrum of issues related to the activities of MFOs in 
Uzbekistan. Adoption of this Law will make the most positive impact on the 
micro financing sector in terms of forming an optimal legal framework. 
2. Extension of tax preferences. Taking into account the early stage of development 
of the microfinancing sector and its special social significance it seems reasonable to extend 
the privileged regime of MFOs’ income taxes for the next three years. Concurrently, services 
to provide microcredits and microleasing should be exempt from the value added tax.
The conditions for extension should include the targeted use of deductible funds to 
further provide for microfinancing services, coverage of transaction costs of MFOs, and the 
development of their material and technical infrastructure. It is noteworthy that in the past 
banks were also provided income tax privileges, which played an important role in formation 
of the national bank sector.
3. State participation. The state may allot funds for establishing targeted MFOs. For 
example, it is possible to allocate state loans for the most vulnerable strata of the rural 

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population – rural teachers, doctors, technical and engineering employees, young families, 
and so on, and attract MFOs to administer these funds. Requirements to expand the 
geographical reach of MFOs to all regions of the country should become the main 
precondition for receiving a loan.
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4. New pilot projects. Two types of new pilot projects will strengthen the status and 
scale of microfinancing in Uzbekistan: pilot testing of new micro financing products and the 
introduction of traditional microfinancing products in regions where the labor market is most 
tense.
5. Raising public awareness. One cause for the small number of organizations 
involved in microfinance and the resulting lack of competition is a lack of information. 
Raising public awareness of microfinancing is possible by holding various round-tables, 
MFO activity presentations, implementing joint MFO initiatives in conjunction with state 
bodies, releasing booklets, brochures, and manuals on microfinancing, as well as broadly 
covering the phenomenon in the national media.