Taking Credit in Uzbekistan

In Uzbekistan, people unable to get loans are finding help at neighborhood credit unions, which are boosting home-based businesses, self-employment, and incomes.

Tashkent, Uzbekistan—Rano Khalilova was only 18 when her parents died, so she well knows the importance of being self-sufficient. She saw the opportunity to buy a grocery store and fulfill a dream of owning a business.

However, with no credit history, Khalilova, now 37, could not find a bank that would lend her money. She turned to a credit union, which quickly provided the loan. She has never looked back, expanding her business to include a beauty salon and a car repair and spare parts shop. She employs 15 people and says she could not have done it without financing from the credit union.

Khalilova is a member of Osiyo Trust, the largest credit union in the country with over 7,300 members. These days she could borrow from banks at a lower interest rate but she prefers to stay with the credit union. "I get good advice on business matters from staff at the credit union," she says.

The Umid ("hope") Credit Union in Bukhara City was established by women in 1997, and is now the biggest of seven in the Bukhara province, helping poor rural women out of poverty and chronic underemployment.

One of the big advantages of credit unions is fast processing. The credit union can process loans for small amounts in just one or two hours. A mortgage for a house, apartment, or car requires just 3 days. According to Dilbar Akhmedova, chairwoman of the Bukhara Business Woman Association, "the bank [...] takes up to 2 months to process a loan."

"Credit unions are critical to the growth of the private sector," says Sherzad Abdumuminov, director of Osiyo Trust, which began operating in 2004. "Without them small business could not grow in Uzbekistan."

To support small microfinance development, crucial in reducing poverty, Uzbekistan embarked on a US$50 million initiative. ADB provided US$20 million through a loan for the Small and Microfinance Development Project to ensure the effective delivery of financial services - particularly to low-income households and small enterprises and microenterprises.

Credit Unions Changing Lives

Shirin Market in the Mirzo-Ulugbek district of Tashkent bustles with shoppers buying food, groceries, and clothing. In 1999, Bakhtiyor Karimov, 45, and his wife Klara Kurbanova moved their clothing stall from the open market area into a real shop with a loan from Osiyo Trust.

With profits from the shop and another loan from the credit union, they bought a four-room apartment and renovated the ground floor into a wedding dress shop and a carpet store next door.

"We go to Osiyo Trust because they understand the needs of small business owners and the self-employed," says Karimov. "If we had no credit unions in our country, it would be hard for businesses like ours to survive."

In the Kibray district on the outskirts of Tashkent, cucumber farmer Bohodir Nishonov agrees.

Walking through a 2.7-hectare potato field where farm workers are harvesting potatoes, he says he was one of the first members of Osiyo. He took his first loan 5 years ago to renovate rundown farm buildings and buy seeds and fertilizers for his 5 hectare farm. He borrowed again to build cucumber greenhouses, install gas heaters, and pipe hot water in to keep the plants warm in cold weather.

"There is a big demand for cucumbers these days," he says. But, he adds, without access to loans from the credit union, he would not be able to benefit from that demand. Nishonov, 43, harvests 220 tons of cucumbers annually for local markets and for export to the Russian Federation.

His latest plan is to build a factory with foreign partners to grow expensive flowers, like lilies, for export. Nishonov gets free financial and planning advice from the credit union.

A Promising Project

By almost every measure, the Small and Microfinance Development Project has been a success. Nationally, an astonishing 98% of borrowers pay back loans in full to credit unions. Niyazova credits a sense of collective ownership for this accomplishment.

By the close of the project in December 2010, ADB had originally planned to establish 20 credit unions with a combined total of US$8 million in deposits; 50,000 members; assets of US$15 million; and US$14 million in loans. Every indicator quickly blew past ADB's targets. By October 2009, there were already 100 credit unions with deposits of US$88 million; 141,000 members; assets of US$121 million; and US$107 million in loans.

Says economist Zafar Umarov, director of the Financial Sector Development Agency at the Central Bank of Uzbekistan, "There can be no more successful credit union project in ADB's portfolio."