PAPER WRAP-UP: Central Asia Benchmarking Report, 2006, Scott B. Gaul and Olga Tomilova

Authored by Scott B. Gaul, the Microfinance Information eXchange’s (MIX) Product Development Manager and Lead Analyst for Eastern Europe and Central Asia (ECA), and Olga Tomilova, the Consultative Group to Assist the Poor’s (CGAP) Consultant for ECA, a joint publication of the Central Asian Microfinance Center (CAC), CGAP, the Microfinance Centre for Central & Eastern Europe and the New Independent States (MFC), and the MIX, released February 2008, 20 pages, available at http://www.mixmbb.org/Publications/002-REG/EASTERN%20EUROPE%20AND%20CENTRAL%20ASIA%20(ECA)/02-Central%20Asia%20Benchmarking%20Reports/Central%20Asia%20Benchmark%20Report%20-%20English%20-%20Final.pdf

This report tracks the performance of microfinance in Central Asia (CA), a set of four countries (Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan) which are often included in analysis of the greater ECA, yet make up a disproportionally high percentage of the region’s poverty (28 percent) while only accounting for 12 percent of its total population. The total amount of 1,100 Central Asian microfinance institutions (MFIs) are analyzed in this report through data collected by the CAC, the MicroBanking Bulletin (MBB), and the MIX Market, the microfinance information clearinghouse.

Only 3 percent of the region’s low-income residents are currently served with microfinance services, but total outreach growth in CA between 2006 and 2007 was approximately 40 percent and was characterized by a large concentration in growth among non-bank financial institutions (NBFIs), non-governmental organizations (NGOs), and specialized microfinance banks. Moreover, European Bank for Reconstruction and Development (EBRD) partner banks and credit unions, both important players in Central Asian microfinance, experienced negative growth in outreach thereby pushing the aggregate growth of NFBIs, NGOs, and specialized banks far above the aforementioned industry-wide outreach growth rate of 40 percent. Also notable is that 55 percent of all borrowers in CA are serviced by only 27 MFIs.

Moving to the general trends within each country, the authors begin with Kazakhstan by noting that obtaining information on the sector was difficult. In fact, the report lacks any borrowership or loan portfolio information on credit partnerships in the country. However, the regulatory environment has improved with an increase in maximum allowable loan size from USD 8,200 to USD 67,000 and requirements for licensing as a Microcredit Organization (MCO) were eased. Known active borrowers, which stood at 196,200 at the end of 2006, were serviced by 523 institutions with a total loan portfolio of USD 2.2 billion.

In Kyrgyzstan the average loan balance per borrower decreased and many MFIs are transforming into microfinance banks, as did the Kyrgyz Agricultural Finance Corporation (KAFC)—now Aiyl Bank—in 2006. Total active borrowers, which stood at 175,100 at the end of 2006, were serviced by 483 institutions with a total loan portfolio of USD 184.2 million.

Tajikistan’s average loan balance per borrower increased, in contrast with Kyrgyzstan, and total active borrowers, which stood at 57,400 at the end of 2006, were serviced by 62 institutions with a total loan portfolio of USD 28.4 million.

Notably, in both Kyrgyzstan and Tajikistan, legal market entry requirements are low which has facilitated the creation of a number of MFIs by private individuals focusing on financial profit. The authors state that “opening a microfinance institution has become a form of microenterprise in its own right (page 6).”

Lastly, Uzbekistan experienced a turbulent year, as a result of political circumstances, with new legislation that eventually lead to the closing of all internationally-funded non-governmental organizations (NGOs) providing microfinance services and the suspension of lending operations of all other NGOs involved in microfinance for more than 8 months. However, the Mikrokredit Bank of Uzbekistan accounted for approximately 13,000 of Uzbekistan’s total active borrowership of 59,600, by the end of 2006. Fifty-one institutions were reported in 2006 with a total loan portfolio of USD 74.5 million.

Turning to donor and financing activities in CA during the period 2000-2006, the authors point out that USD 600 million had been allocated to microfinance in the region by 11 donor agencies and the top 4 development finance institutions (DFIs)—EBRD, the International Finance Corporation (IFC), the United States Agency for International Development (USAID), and The World Bank—accounted for 87 percent of all funding, which was conducted primarily through debt instruments. Isolating 2006, however, shows that the primary sources of funding are most rapidly shifting to foreign microfinance investment funds and local commercial banks.

Finally, when analyzing performance of MFIs in CA, the authors observed that internationally-linked MFIs’ outreach is more than 20 times greater, their loan portfolios are more than 10 times larger, and they are more leveraged than their locally-run competitors, with the exception being the Uzbekistan market. Notably, aggregate financial self-sufficiency was at 121.4 percent and Central Asian countries were lowest in ECA in terms of productivity.

MicroCapital recently posted wrap-ups of two other papers authored by Mr. Scott Gaul (sgaul@themix.org) (1), (2).

Based in Moscow, Russia, Olga Tomilova is CGAP’s Consultant for ECA and she previously worked with the CAC, the MFC, the Russian Women’s Microfinance Network (RWMN), and Opportunity International. She is also the instructor for profitability management at the Frankfurt School for Finance and Management’s (FSFM) Micro Banking Summer Academy (MBSA) and is listed by the MIX as a consultant for the Credit Union Dealer (CU Dealer) of Kyrgyzstan and Microcredit Organization OZAT (MCO OZAT) of Kazakhstan. Tomilova can be contacted by e-mail at olgatomilova@yahoo.com.

The authors also co-wrote “Microfinance Institutions in Central Asia: Benchmarks and Analysis 2005.”

By Anthony Busch, Research Assistant

Additional Resources:

“Central Asia Benchmarking Report, 2006”

“Microfinance Institutions in Central Asia: Benchmarks and Analysis 2005”

Consultative Group to Assist the Poor: Home

Food and Agricultural Organization of the United Nations: Home, Kyrgyz Agricultural Finance Corporation

Micro Banking Summer Academy: Home, Olga Tomilova

MicroBanking Bulletin: Home

MicroCapital wrap-up, April 4, 2008: “Benchmarking Asian Microfinance 2006”

MicroCapital wrap-up, August 14, 2007: “Benchmarking Philippine Microfinance 2005, By Allan Robert I. Sicat and Scott B. Gaul”

Microfinance Centre for Central & Eastern Europe and the New Independent States: Home