Challenges and Solutions of Kyrgyzstan’s Microfinance Sector

Print
 
Jun 2014
Kyrgyzstan, June, 27 2014 - The microfinance sector has been growing since the 1990s in Kyrgyzstan, when international financial institutions, donor organizations realized that one of the effective ways to combat poverty is to ensure public access to finance. Currently, the loan portfolio of financial institutions is about 20% of GDP.

2014 could be a turning point for the development of microfinance institutions (MFIs) around the world. New technologies, such as mobile banking and biometric identification of borrowers are being introduced widely. According to the head of the World Bank Office in Kyrgyzstan, Alexander Kremer, Kyrgyzstan has chosen the right time to discuss how these technologies could be applied in the country.

On June 25 and 26 Bishkek hosted an international conference to discuss successes, problems and solutions in the microfinance sector of the country. The event was organized by the National Bank of the Kyrgyz Republic with financial support from the World Bank and the Association of Microfinance Institutions.

Conference participants discussed problems in lending of borrowers, violation of consumer rights and low financial literacy. The National Bank addresses these problems, but their solution requires comprehensive measures and common approach of all branches of government, together with donor organizations and the business community.

The conference was attended by Prime Minister of Kyrgyzstan Joomart Otorbayev, representatives of the President's Office, Finance Ministry, Economy Ministry, the State Service for Regulation and Supervision of Financial Market, and heads of the EurAsEC central banks.

Achievements

The microfinance sector has been growing since the 1990s in Kyrgyzstan, when international financial institutions, donor organizations realized that one of the effective ways to combat poverty is to ensure public access to finance. Currently, the loan portfolio of financial institutions is about 20% of GDP.

Today about 15 percent of Kyrgyzstan's population is credited by MFIs.

The country's economy is growing, and it needs more access to funding. The Prime Minister urged investors to increase their investment in Kyrgyzstan.

Kyrgyzstan’s borrowers are responsible for their debt obligations. 2014 began quietly enough for microfinance companies. In 2012 and 2013, there were heated debates on microcredit organizations’ activity. On the one hand, the situation was heated by unscrupulous investors, and on the other hand, it was related with unscrupulous microfinance companies. To prevent the negative situation, it is necessary to increase financial literacy of population and its awareness of the microfinance processes.

According to the Prime Minister, the State has taken a proactive policy on financing the economy. For the first time, the Government has allocated 4 billion soms to subsidize interest rates for lending farmers. Joining the Customs Union will open opportunities for long cheap money to invest in the real economy, and a significant part of the funds should be directed to the real economy and leasing and agro-processing, concluded Otorbayev.

After 2010, the microfinance sector in Kyrgyzstan learned two important lessons, said Head of the World Bank Office in Kyrgyzstan Alexander Kremer. The first positive lesson was that MFIs provided access to financial services when the economy was in a very difficult situation, and the existence of the banking sector was under threat. The second lesson was a warning about the unregulated growth of the sector. There are significant gaps between banks, MFIs and shady financial sector.

Reducing poverty

The microfinance sector in Kyrgyzstan makes a significant contribution to the reduction of poverty by providing micro-credit services, said the National Bank Chairman Tolkunbek Abdygulov. Since 2005, the microcredit coverage has increased from 1.4% to 7.6%, and the number of borrowers more than 12-fold (from 35,000 to 436,000 people). MFI’s credit portfolio has increased more than 26-fold (from 722.9 million to 19.1 billion soms).

These figures confirm the positive development of the microfinance sector and demonstrate its relevance to consumers. The microfinance sector helps reduce poverty, increase employment, enterprise development and social mobilization, said Abdygulov.

According to the National Bank, currently the total assets of non-bank financial institutions (NBFI) are more than 24.3 billion soms and increased by 3.8% compared with 2013. Loan portfolio amounted to 19.8 billion soms and did not change compared with 2013.

The MFI loan portfolio includes mainly medium and short-term loans up to three years.

The MFIs are mainly serving agriculture, and in the first quarter of 2014 its share was 41.7% of the total loan portfolio. The trade had 20.2% of the total loan portfolio of MFIs.

The MFI loan portfolio is formed by attracting funds from international financial institutions and MFIs’ own funds.

Rural population is also served by credit unions which provide loans that are much smaller on average than loans provided by banks or MFIs. The credit unions are independent private financial organizations owned by their participants who simultaneously are their clients.

In the first quarter of 2014, the total loan portfolio of credit unions decreased by 59 million soms (4.1%). The number of borrowers of credit unions has decreased by 1,040 people, or 6.85%. The National Bank explained that the number of borrowers has reduced due to reduction in the number of credit unions.



 

Research Analysis Tools

The fund indexes, institution benchmarks and other market information displayed here are all Symbiotics designed analysis tools, created in-house by our analysts and experts. Symbiotics has one of the oldest track records in microfinance investment analysis dating back to the late 1990s; its indexes and benchmarks have been regularly used as markers by investors, asset managers, financial institutions and practitioners. These, as well as several other research products, are available through the Research Account. Click on the link below to find out more.

Learn More