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BISHKEK (TCA) — A roundtable to discuss the Main Directions of the Microfinance Sector Development in Kyrgyzstan for 2018-2021 was held in Bishkek on October 26. Representatives of the National Bank of the Kyrgyz Republic (NBKR), the Economy Ministry, the Union of Banks of Kyrgyzstan, microfinance organizations, credit unions, and independent experts attended the meeting.

This strategic document aims to stimulate the development of microfinance as an important tool for financing the small business and entrepreneurship, increasing employment and eliminating poverty. This goal can be achieved through the effective and responsible provision of a wide range of microfinance services to sustainable institutions (credit unions and microfinance organizations) for a wide range of people.

Assisting women entrepreneurs

According to statistics, 62% of microcredit recipients are women, and the issue of increasing the efficiency of using credit funds is very important.

As part of the Development of Women's Entrepreneurship project, 600 rural women entrepreneurs aged from 28 to 65 and more than 200 employees of partner financial organizations and other interested parties were trained throughout the country. Pilot projects were implemented with the use of credit products convenient for rural women entrepreneurs, for whom 403 loans were granted.

As the project studies show, the financial literacy of the population needs improvement. Up to 30% of loan recipients experienced difficulties with repayment due to poor business planning, 48% of women have difficulties with providing collateral and wish to obtain loans without collateral or with alternative collateral.
Microfinance institutions (MFI) clients are not satisfied with the quality of service, interest rates and terms of lending.

The results of the document’s discussion will help determine the necessary actions from the State, the NBKR and the microfinance sector.

Challenges for the sector development

The microfinance sector lacks long-term sources of financing. MFIs provide loans from external investors, and remain highly dependent on this source of funding.
Deposits have not become the main source of financing due to the legislative restrictions on accepting demand deposits, lack of knowledge and skills to promote deposit products.

The microfinance sector needs to enter the deposit protection system, as such international experience already exists.

The role of the informal sector and own funds is high in the microfinance sector. Thus, the informal sector holds 43% of the sector, and presence of this sector is often associated with high shadow turnover in the small business, experts said. The negative image of the sector in terms of transparency can be improved by introducing corporate governance, ratings, external audit and reporting.

The experts also spoke about poor financial services. The problem can be solved through the creation of a financial ombudsman institute and adoption of a Code of Ethics, experts said.

Significant gap between demand and supply in the market of microfinance services is the main challenge for the sector development. The existing potential of the microfinance sector is not fully used. According to studies, the potential of the client base of the microfinance sector is sixfold larger than the number of borrowers.

According to a survey, 25.4% of the poor use microfinance services, and 60% of them are rural and 30% are newlyweds.

Experts suggested that representatives of microfinance institutions engage in financial literacy of borrowers, especially in rural areas.


Microcredit is part of microfinance, which provides a wider range of financial services, especially savings accounts, to the poor. In the world, microfinance has existed for more than 30 years. In 1983, in Bangladesh, Muhammad Yunus founded Grameen Bank, which began to give out small loans at low rates without collateral and guarantee to the poorest population for small business development. In 2006, Yunus won the Nobel Peace Prize for his contribution to the fight against poverty through the creation of a microcredit system.

Thanks to microfinance, small business has been actively developing in Kyrgyzstan in the last few years.

Kyrgyzstan became the first country in Central Asia to have adopted the laws “On Credit Unions” and “On the Microfinance Organizations”, as well as the national microfinance strategy. The main goal of this strategy is poverty reduction through the expansion of access to financial services in remote regions of the country.

The first MFIs appeared with the support of international donors in Kyrgyzstan. Currently, there are around one hundred microcredit companies and more than fifty microcredit agencies in the country.

Fast and without collateral

Microfinance services are used if money is needed to purchase fixed assets but there is no collateral and it is difficult to find a surety to apply for a bank loan, or if the amount a person needs is not so great to collect a huge number of papers for a bank loan.

Microfinance organizations can also borrow fairly large amounts, but for higher interest.

Microfinance organizations are not as interested in the previous credit history of their clients as in reasonable explanation of why they need this money. But at the same time, when deciding whether to grant a loan, priority is given to business qualities over the business plan or collateral.

Loans can be paid out in minimal shares, but relatively often. Thus, microfinance best suits the needs of start-ups.

At the same time, the debt burden is distributed evenly. However, together with growth, the size of microcredit can also grow.

Debt trap

Microcredit has not only a positive impact on alleviating poverty but it also led many borrowers into a debt trap.

In 2016, there were about 540 thousand active borrowers in the country, 194 thousand of whom were borrowers from microfinance organizations. Across the country, about 77 thousand borrowers had two or more loans last year, down from about 91 thousand borrowers in 2014. According to the survey, 91% of borrowers have two loans, 8% have three loans, and 1% has four or more loans.

Although an increasing number of people use the services of microfinance organizations or microcredit companies, not all borrowers are satisfied with loans as expected. Insufficient financial literacy of the population is among the main reasons for this.

According to financial experts, to decrease the level of over-indebtedness in the country, it is necessary to work with citizens on improving their financial literacy and budget planning.

Since 2013, the number of borrowers has decreased by 46% in the microfinance sector and it is now 237 thousand people, the NBKR reports.


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