Microsoft Word Microfinance development in Uzbekistan Eng doc

 
Figure 5. Volume of microcredits issued by own resources of commercial banks, billions of 
soums 
 
 
 
 
 
Source: Author’s calculations 
 
Problems in microcredit by commercial banks are as follows: 

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• Microcrediting losses. Banks are not interested in microcrediting due to high transaction 
costs and the high risk of microcredit transactions. Preferential interest rates imply the loss 
making nature of these loans as they contradict the basic commercial nature of the banks. 
• Limitations. Banks issue microcredits mainly for the establishment of production.
Nevertheless, it is virtually impossible to start a manufacturing business in the 2-3 years of 
loan period unless this business is trade. Furthermore, existing limitations on receiving the 
entire amount of microcredits in cash are not appropriate in the case of small amounts. 
• Collateral. There are a number of issues related to the collateral of bank microcredits. 
They include: the inability to sell the collateral without client’s consent; the lack of clear 
procedures for the confiscation and transfer of collateral; issues of notary certification of 
collateral; issues of objectivity in assessment of collateral, the incapacity of insurance 
companies to act as an insurance guarantor; the high cost of legalizing collateral
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; disputed 
issues of collateral taxation
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; the storage of some types of collateral
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; and issues of 
guarantee
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. 
• Loan indebtedness. All types of bank microcredits are risk-prone as all manufacturers 
encounter marketing issues and high taxation. Failure to repay loans is not a banking issue 
but an issue of proper encouragement of small business development and nationwide 
entrepreneurship. . 
On the other hand, bank employees note that microcredits in amounts between 5 
million and 10 million soums are excessive. Many clients overestimate their capacity to 
repay and do not have sufficient skills to manage their capital.