Small and Medium-Sized Enterprise Finance in Uzbekistan: Challenges and Opportunities

Supply-side constraints affect the willingness to lend to SMEs, the suitability of 
products and services to meet the needs of SMEs, and the sources of finance in the 
market. The contributing factors to these constraints are presented below, based on 
focus group discussions with SMEs. 
(i) High cost of bank credit  
Eighty percent of the total number of the entrepreneurs interviewed indicated a high 
lending rate as the main problem for SME development. The market rates of credit for 
small businesses are in nominal and real terms high, due to high administrative costs of 
originating loans resulting from overly regulatory requirements for documentation of 
loans and high credit risk. But given the high deposit rates and the weak currency, 
nominal rates for small loans in local currency between 28 and 36% are justified.
The Central Bank refinancing rate is 16%. There are high rates for foreign currency loans 
(12%−16%). The interest rates are not affordable for any medium- or long-term 
production investment. 
(ii) Delivery mechanism  
The channels for financial service delivery do not meet the needs of small businesses, 
particularly outside the city of Tashkent. Along with high costs of financing, the banking 
sector has limited capacity for developing alternative channels for service delivery. The 
focus group discussions led to an overall view that SMEs would prefer to do most
of their banking through online and mobile platforms. During individual interviews, SMEs 
reported they would like to get loans online, rather than making a trip to a bank branch. 
Costs of transportation and time spent accessing financial services are additional limiting 
factors, especially for women entrepreneurs. Due to the lack of ICT infrastructure,
46
the 
banks are not able to provide distance services. 
44
Decree of the President of the Republic of Uzbekistan “On Measures to Further Improve the Financial 
Stability of Enterprises of the Real Sector of the Economy" № 4053 of 18 November 2008.
45
ADB Sector Assessment https://www.adb.org/sites/default/files/linked-documents/42007-014-ssa.pdf. 
EBRD Country Assessment https://www.ebrd.com/cs/Satellite?c=Content&cid=1395238453911&d=& 
pagename=EBRD%2FContent%2FDownloadDocument 
46
ICT Development Index 2017 Uzbekistan ranking is 95th. See at: http://www.itu.int/net4/ITU-D/idi/2017/ 
index.html. 

---

ADBI Working Paper 997 
D. Tadjibaeva 
30 
(iii) High collateral requirements and cost to collateral registration
Data from the Collateral Registry suggests that over 98% of all loans issued since 2015 
have been secured by hard collateral (real estate, fixed assets – 94% of all loans)
or cash deposit (4%). Other forms of loan security have not been widely used. This
is especially problematic for microfinance borrowers who do not have acceptable 
collateral.
According to global statistics
47
 collateral was required in an average of 78.9% of all loans, 
and in Uzbekistan, collateral was required in 96.5% of loans (international practice is 
80% of loans), with an average of 175% loan to value ratio compared with 128% for large 
companies.
48
As demonstrated in Figure 24, banks are using the limited range of collateral to secure 
a loan, which increases the impact of the high collateral requirements on an SME’s 
eligibility to borrow, and the overall process remains time-consuming for the borrower. 
The process of registering collateral is comparatively hard; for example, the client has to 
personally register movable collateral, and then leave the original receipt with a notary. 
Immovable securities need to be notarized, with some notaries requesting proof of 
insurance and requiring the client to arrange and pay for an evaluation of the collateral’s 
value by a third party.