Microsoft Word Microfinance development in Uzbekistan Eng doc

 
2.3. Microfinance services of credit unions.
 
In order to expand financing capacity in remote areas of the country, to raise funds 
through deposits, and to promote competition among credit organizations, Law # 355-II of 
the Republic of Uzbekistan “On credit unions” was adopted on April 4, 2002. Currently 
there are 20 CUs operating under government-issued licenses. They can be divided into 
three categories based on the size of their assets: large (with assets over 500 million soums), 
medium (100-500 million soums), and small (less than 100 million soums). 
Figure 6. Growth in CU membership in 2002-2004. Figure 7. Composition of CU loans by the types of 
borrowers 
 
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For a loan of 1 million soums, the value of collateral must be no less than 1.2 million soums. Independent 
experts charge 10,000 soums for an assessment of collateral. Insurance agency charges 0.5% of collateral value 
– 6,000 soums. Notary charges state fee at the amount of 0.15% of collateral value – 1,800 soums, plus the 
service fees of the notary – 5,000 soums. As a result, the farmer must spend 22,800 soums to get a loan (survey 
materials). 
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When a bank accepts collateral onto its balance sheet, it is levied a 20% VAT. According to the law, the bank 
must sell the equipment in auction after the decision of the court. However, in practice the sale of collateral is a 
“hurdle” for banks without any end profit. Banks do not accept jewelry as collateral because the procedure for 
getting a license for jewelry is extremely complicated. Assessment and special premises will be required. 
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Analysis has revealed that vehicles are the most popular form of collateral. However, banks do not have 
special car storage facilities and parking payments create additional expenses. 
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Guarantees create additional difficulties. Banks must analyze not only the financial state of the borrower but 
also of the guarantor. Only financially stable organizations can be guarantors but there is no list of these 
organizations. Practice has shown that insurance companies are not reliable guarantors and guarantees of 
mahalla (neighborhood) committees have no real significance as they are not backed up by actual property. 

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