Microfinance institution activities in Central Asia: a case study of Tajikistan and Uzbekistan

Abstract

This article compares key issues concerning the structure of microfinance institutions (MFIs) and the nature of competition in Tajikistan and Uzbekistan. Employing both qualitative and quantitative measures, the field research indicates that MFIs in Tajikistan and Uzbekistan do not have the traditional characteristics of microfinance business. Although both countries are at the pre-competitive stage, the qualitative research indicates that urban areas in Tajikistan are approaching a competitive edge. The research demonstrates that MFIs in these countries do not require their clients to give up membership of other MFIs, thus increasing the probability of cross-indebtedness. Moreover, if a client fails to repay a loan from one MFI, there is a high probability that this person will join another MFI. Consequently, both countries may face cross-indebtedness even in the absence of intensive competition.

Acknowledgements

This project was funded in part through a grant provided by the United States Department of State's Title VIII Programme and administered by the University of Delaware. I wish to thank Brian Coeffy for valuable comments and data analysis, Sebastian Faryniarz for ideas on developing research tools and providing contact lists, Jahangir Kakharov and Sitora Shokamolova for assistance during field research, Alisa Serdyuk for translation and the participants at the Title VIII Research Conference, University of Delaware for helpful suggestions. The usual disclaimers apply.

Notes

1. A bank or other formal financial institution that expands its services to work with clients traditionally served by MFIs.

2. According to the MIX classifications ‘New’ MFIs are those that have been functioning for less than four years, ‘young’ are those that have been working between five and eight years, and those with over eight years of operation are ‘mature’.

3. The questionnaire contained questions related to history and characteristics of the firm, marketing activity, competitive practices and opinions regarding Islamic microfinance. A copy of the questionnaire and description of the main characteristics of MFIs is available from the author upon request.

4. These results based on information from the questionnaire form are available from the author.

5. For example, the pressures on group lending were highlighted in the PBS documentary broadcast on 30 March 2011, ‘In India, loan sharks, commercialisation cast pall over microfinancing;’ available online from http://www.pbs.org/newshour/bb/world/jan-june11/indialending_03-30.html

6. See Appendix for Wright and Rippey classification

7. The threshold for watch list country borrowers' growth is 58%. Tajikistan and Uzbekistan rates for 2007 were 83% and 76% respectively.

8. I met the director of the Association for Credit Unions but did not receive any information regarding its activities.

9. For corruption, Tajikistan ranked 154 and Uzbekistan 172 among 176 countries reported by Transparency International in 2010 (Transparency International 2011).