Microsoft Word Microfinance development in Uzbekistan Eng doc

 
2. Analysis of microfinance development in Uzbekistan

Sector Background 
The microcredit programme was initiated in 1998 with two UNDP pilot projects in 
Kashkadarya and Karakalpakistan. The projects have supported the establishment of three 
NGO-MFOs and their implementation laid the foundation for national legislation adopted in 
August 2002 (Resolution # 309 of the Cabinet of Ministers). Principle outcomes of the pilot 
projects included a tangible increase in low income people’s access to financial resources 
which enabled them to participate in trade and small scale production, manage household 
assets based upon microbusinesses, livestock tending, and service provision. 
Microfinance in Uzbekistan is currently conducted by commercial banks, credit 
unions (CU), non-government non-profit (donor) organizations (NGO-MFO) as well as off-
budget funds (Funds for Farmer Support, State Employment Fund) and credit lines of the 
international financial institutions (EBRD, ADB, etc.). Banks have a leading role in 
microfinance – they account for more than 80 percent of the total amount of microcredits. 
General features of microfinance development in Uzbekistan include: 
• Target group. Two groups – traders and agricultural producers – visibly stand out 
among the microcredit recipients of all types of MFIs. 
• Amount of microcredit and interest rate. The average amount of a bank loan is 3 
times the size of a CU loan and 16 times the size of an MFO loan. Although their 
repayment periods are shorter, the most expensive loans are those of CUs. Therefore, 
6
Usually traditional financial intermediaries such as commercial banks do not serve low-income families due to 
the high cost of small transactions, lack of traditional collateral, geographic isolation, high risk, and sometimes, 
due to social prejudice. 

---

12
although CU loans are free of a number of flaws typical to banks
7
, they are not designed 
for low income borrowers. NGO-MFO loans are more appealing to low income 
borrowers due to their simplified procedures and relatively low cost. 
• Borrower expenditures. The repayment of bank loans is comparable to tax payments in 
Uzbekistan and amounts to 12.6 percent of the borrowers’ expenditures. CU clients pay 
8.7 percent of total business expenditures for debt servicing, while MFO participants pay 
3.3 percent.
• Effectiveness. Surveys have shown that non-bank loans contribute to the sustainability and 
yield of microbusinesses in a more effective manner. MFO clients feel the most positive 
changes: 71 percent of MFO clients have increased their turnover and 60 percent increased 
their profits. Microcredits yield the most tangible effect on growth in turnover and profit in 
trade, production of foodstuffs, and catering services. They are less effective in the sectors 
such as growing agricultural crops and services sector.