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

Figure 24: Assets Used as Collateral in Uzbekistan 
Source: IFC Movable assets lending in Uzbekistan, 2017.
Banks offer third-party guarantors, but they are difficult to find for first-time borrowers as 
they are often considered high risk. Insufficient collateral limits the size of loans
and constrains entrepreneurs’ access to larger loans for business expansion and capital 
investments. 
ADB Country Gender Assessment Update, 2018. See at: https://www.adb.org/sites/default/files/ 
institutional-document/479841/uzbekistan-country-gender-assessment-update.pdf. 
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Jamie P Bowman. The Role of Credit Bureaus and Collateral Registry in Uzbekistan, February 2016.
48
See at: https://tradingeconomics.com/uzbekistan/value-of-collateral-needed-for-a-loan-percent-of-the-
loan-amount-wb-wb-data.html. 

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D. Tadjibaeva 
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Alternative sources of collateral and security, such as future cash flows, business 
reputation, third parties, or group guarantees, are rarely considered acceptable. In 
stakeholder and focus group discussions, insufficient collateral was cited as the single 
greatest impediment to borrowing. 
(iv) The lack of alternative sources of SME financing
This is a significant factor affecting the credit situation for SMEs. Banks are not able or 
willing to meet the full demand for enterprise finance and SMEs need different types
of finance. A lack of and imperfect legislative and regulatory environment hinder 
alternative sources of SME finance and the development of the non-bank financial 
institutions, venture funds, crowd funding, capital markets and inter-firm financing 
mechanisms. All these institutions could play a larger role in SME financing than they do, 
operating in underserved areas and filling in important financing gaps based on proximity 
and flexible operations. The major constraint on these services developing 
is an excessive government intervention in banks’ activities and an overregulated 
banking system.
(v) Overregulated financial sector  
Uzbekistan’s banking system is highly regulated through an opaque and complex series 
of regulations. Many of these regulations are formal legislation from the legislative body, 
but others are guidance from the executive branch in the form of decrees and 
proclamations. As a result, loan and credit extension is highly regulated and there is no 
possibility of financial innovation. Existing regulations and the 
banknote shortage place legal and practical restrictions on cash transactions while 
SMEs—mainly individual entrepreneurs engaged in trade—need cash loans or at least 
loans that can be used for payments at card terminals. Only allowing direct transfers from 
the bank to the lender’s supplier is very inflexible, especially for inventory finance. 
(vi) Product and services segmentation is weak
Very limited financial services and products are adapted to different stages of SME 
growth (e.g., newly established, young and growing, maturing or mature, etc.). SMEs 
that are using similar products notwithstanding their financing needs are often different. 
Apart from the fact that start-up financing is extremely limited, so start-ups usually apply 
to microcredit organizations for microloans or private moneylenders lending at higher 
interest rates. It can be difficult for SMEs to mature into competitive, growth-focused 
businesses because financial markets are not particularly well organized to offer a 
continuum of financing options (e.g., trade credit, factoring, leasing, equity, etc.) that 
firms can use to develop their business.
(vii) Lack of SME financing expertise
Many state-owned banks have inadequate expertise in analyzing undocumented cash 
flows of businesses, so their lending processes and products are not adapted for the 
pattern of those cash flows. The supply side is not the only source of constraints limiting 
access to finance, and there is no lack of negative sentiment in the SME community 
about the lack of financing. 

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ADBI Working Paper 997 
D. Tadjibaeva 
32