Commercial banks provide microcredit at concessional rates but require high rates of
collateral and provide only noncash credit. Borrower requirements to access bank
microcredit seem overly burdensome for the target borrowers, who may not be able to
meet these requirements (provide financial statements, a business plan, documented
proof of repayment capacity, formal collateral, notarized confirmation of agreement, etc.).
Commercial microfinance is not well developed either through banks or MCOs. All
microfinance activities, both concessional and commercial, are strictly regulated.
Although MCOs offer simplified credit in cash and without collateral, they have low
financial capacity and small loans. There is a gap between these two providers, and
hence the financial needs of businesses (small and medium-sized) and entrepreneurs
are not currently accommodated.
The microfinance market consists of 78,337 active borrowers. Following the CBU
requirement to increase the capital up to SUM2 billion ($250,000), the MCOs were able
to attract more capital financing and doubled their loan portfolio over 2015−2017. The
outreach of microcredit organizations has shown a positive tendency since 2012 as well
as financial penetration increasing from 5% to 8% over 2012−2017 (see Figure 15).
The average size of microloans reduced from SUM5.3 to SUM4.5 million ( equivalent to
$662−$562) due to the growth of outreach in rural areas, while the average size of
microcredits and microleasing increased by around 1.5 times from 2016 to 2017, which
resulted in the increase of MCOs’ capital and encouraged interest from small businesses
(see Figure 16).
MCOs are credit-only institutions that are not allowed to mobilize deposits or borrow from
the general public, thus they pose no systemiс risks for the financial system. MCO
regulations focus heavily on prudential requirements, which seems excessive for these
institutions. Similarly to banks, borrower requirements to access MCO microfinance
products seem overly burdensome (in particular, collateral requirements similar to bank
loans). Like banks, MCOs are limited in issuing cash-flow-based and uncollateralized
microcredits—the features that are key for traditional microlending. It is an unlevel
playing field—MCOs do not enjoy any of the benefits accorded to banks engaged in the
provision of microfinance services (such as access to government funding and tax
exemptions on microfinance activities with a social focus)
The government may want to consider developing a mechanism of linking MCOs to
banks as MCOs could play a complementary role to that of banks in terms of reaching
those types of customers that may not be accessible to banks. Even though MCOs are
technically allowed to receive loans from banks for further on-lending, strict collateral
requirements limit MCO borrowing from banks, and thus an alternative mechanism may
be necessary.
Leasing. Leasing is another source of SME finance. Leasing provides a viable substitute
for loans to finance equipment. Leasing costs more than bank lending but fewer
guarantees are required from the borrower.
As of January 1 2018, there are 126 officially registered lessors of which 104 are leasing
companies, the majority of which are state owned and 24 are commercial banks. The
largest players in the Uzbek leasing market are state-owned companies. including:
“Uzagroleasing,” the largest leasing company focusing on agricultural equipment,
“Uzmelyomashleasing” company leases irrigation equipment, and “Uzavtosanoat”
involved in leasing commercial vehicles.
The clientele for leasing in Uzbekistan includes a growing array of service sectors
including: large construction companies (which are engaged in building construction,
power plants, and road development, for example); transport companies; chemical
companies; medical service providers; manufacturers; and traders.
The leasing companies primarily focused on providing high-tech equipment as part of
the state program implementation of modernization of state-owned industrial enterprises.
As Table 8 illustrates, 78.2% of the leasing portfolio belongs to the leasing companies,
the volume of leasing transactions in 2017 comprised SUM2.68 trillion ($337.5 million).
However, the leasing share to GDP during 2013−2017 amounted to less than 1%, that
is less than half the median leasing volume of countries in the same income range as
Uzbekistan (see Figure 18). In this context, it seems that the sector is underdeveloped
for the size of Uzbekistan’s economy.
There is no licensing of leasing services, except for commercial banks that provide
leasing services who are licensed as banks. There is no obligatory ratio of leased asset
value to collateral value and no regulation on interest rates. Lease objects are exempt
from property tax and lease payments are exempt from value-added tax (VAT); small
enterprises had a holiday from lease profit tax until January 2017. Leasing contracts must
be greater than 12 months’ duration.
Although the regulation of leasing companies is fairly light, banks face some constraints
in undertaking leasing operations. The Central bank of Uzbekistan limits leasing activity
to no more than 25% of banks’ Tier-1 capital, making leasing relatively more costly for
banks. Many banks split the activity into a child-company to avoid
this limitation. Leasing companies owned by banks benefit from easier access to
low-cost funding.
At the same time, the leasing market faces some growing pains that require further
development, and some improvements in the legal framework would help. Like
microcredit organizations, leasing companies often struggle to find long-term funding and
there is a disproportional regional distribution of leasing services: compare the share of
Tashkent city of 30% with regions that have from 3% to 9%.
In addition, there is a lack of knowledge among many potential customers about
how leasing works and its potential benefits. One leasing company has conducted a
market analysis and estimates that 80% of the potential market does not understand the
product (the same company derives more than a third of its customers through deals
with suppliers). Also, clear and comprehensive rules for priority over property
are needed.
In order to further promote growth of leasing, it is advised to consider building up a
secondary market for leased objects and amending the Leasing Law to allow for
secondary leases. Adoption of the law will provide a major boost to the industry. The
regulator can support leasing further by relaxing regulations defining eligible lease
objects to allow for greater variety of equipment and machinery.
Foreign investments and external assistance programs. International Financial
Institutions (IFIs) such as Asian Development Bank (ADB), European Bank for
Reconstruction and Development (EBRD), the World Bank, International Finance
Corporation (IFC), and KfW (German bank) have been actively providing credit lines to
SMEs’ lending as well as more targeted business groups such as women businesses
and horticulture farms. Given a high interest rate environment, significant unmet demand
for SME finance, and limited government subsidy programs, funding from the
international financial institutions is very important in Uzbekistan
Among multilateral donor institutions, ADB is the most active in financing SMEs through
two partner commercial banks—”Hamkorbank” and “Ipak Yuli Bank”—over the past
decade. Within the framework of these projects with participating financial institutions
(PFIs), funds for SMEs’ working capital and fixed assets financing were channeled to
developing agriculture, production, and service in rural areas to create jobs. The capacity
of PFIs in credit underwriting and analysis also improved so that more than 6,000 micro
and small enterprises were trained on financial literacy. Capacity building from these
projects suggests that PFIs need to be provided with longer term funds for lending to
small businesses, rural outreach, risk management, and continuous enhancement of
their entrepreneurial capacity.
Currently, the European Bank of Reconstruction and Development (EBRD) is one of the
IFIs actively lending to SMEs through commercial banks. The EBRD currently provides
five credit lines for SMEs totaling around $140 million and large-scale technical
assistance to strengthen the institutional capacity of the partner banks on MSME lending.
Their support has added impact by encouraging other private banks
to continue lending, expanding their portfolios to benefit businesses. The EBRD is
involved in improving the competitiveness of small enterprises in Uzbekistan through its
Business Advisory Services and the Enterprise Growth Program. The EBRD jointly with
the EU launched the Regional Small Business Program in 2018 aimed at transferring
know-how in financing micro, small and medium-sized enterprises (SMEs) throughout
Central Asia. This is a platform for SMEs and financial institutions to exchange
information and knowledge. The project will equip financial institutions in Uzbekistan with
new digital business tools for effective work with small businesses
In addition, international financial institutions also consider providing assistance to
improve the wider lending environment by supporting regulatory frameworks and
developing overall lending infrastructure, and introducing digital technologies to upgrade
and expand lending to small businesses.
1.3 Uzbekistan Regulatory Framework, Tax Regimes
and Financial Infrastructure
Uzbekistan is in its second year of a wide-ranging market-oriented program of reforms
in accordance with the National Development Strategy, a 5-year action plan for
2017−2021 period. The government is making three fundamental shifts to the economy:
from a command-and-control to a market-based economy; from a public sectordominated to a private sector-driven economy; and from being inward-looking and
isolationist to becoming outward-looking and open. These reforms are taking place amid
growing external imbalances and a youth bulge that cannot be tackled without more jobs
from the private sector.24
This initiative sent a clear signal on priorities: the private sector will be the key driver for
economic growth and job creation in Uzbekistan going forward. Currency liberalization,
as noted above, has been a major step towards an effective and enabling business
environment. On 5 September 2017, the Central Bank of Uzbekistan unified Uzbekistan’s
exchange rates and President Mirziyoyev promised to maintain freely floating market
rates thereafter. The Uzbek sum immediately dropped from the official rate of SUM4,210
per $1 to SUM8,100 per $1, so that the black market shank, albeit not entirely. If reforms
in this area continue to be rigorously implemented, a market exchange rate will remove
the single largest obstacle to the efficient operation of
a market-based economy in Uzbekistan. While recent reforms to foreign exchange
restrictions and the currency devaluation have substantially improved the business
environment for SMEs, a number of challenges exist to expanding or establishing
new SMEs.
Taxation. The tax system of Uzbekistan is developing in line with the country’s course
of reforms. Currently, Uzbekistan is implementing tax policy reform,25 the goal of which
is to reduce the tax burden on the economy, and eliminate imbalances in the tax burden
between small and large businesses. The Tax Policy Improvement Concept aimed at the
radical simplification of our extremely complicated tax system by: reducing the number
of taxes and tax regimes; unifying tax payment rules for different categories of taxpayers;
simplifying tax reporting; abolishing a number of inefficient tax and customs breaks; and
introducing a procedure for permanent benefits in the Tax and Customs Codes. Table
10 describes the tax rate changes in 2019.
From 1 January 2019, a simplified procedure for calculating and paying value added tax
has been introduced for SMEs with a turnover of up to SUM3 billion.
In addition, the procedure is a transitional measure, which will be introduced before
1 January 2021, and the procedure for calculation and payment is voluntary
In addition, Uzbekistan introduced a modern form of tax control—tax monitoring—which
provides for an extensive information exchange between tax authorities and
conscientious taxpayers with the provision of comprehensive assistance in solving
current tax issues.
Due to these efforts, the Uzbekistan tax ranking improved by 14 positions from last year’s
results: Uzbekistan took 64th place in the Paying Taxes 2019 tax ranking.26
According to the study, the total tax rate of Uzbekistan is 32.1%, which represents the
proportion of taxes and contributions to the company's profits.
This indicator is lower than the average for the countries of Central Asia and Eastern
Europe (32.8%), and also significantly lower than the average for the countries of the
Organisation for Economic Co-operation and Development (OECD) (40.2%).
In terms of the annual amount of time required to tax compliance, Uzbekistan’s indicator
(181 hours) is inferior to OECD countries (162 hours), but it is ahead of
most of the countries of Central Asia and Eastern Europe (the average for the region is
220 hours).
The number of tax payments per year is 10. For the countries of Central Asia and Eastern
Europe, this figure is 16 payments, while for OECD countries—11 payments. The world
average is 24 payments per year
The measures taken to improve taxation have significantly reduced the tax burden
on small businesses, which entailed the development of production, expansion of
investment activities, increased employment, and not only reduced the taxpayer's
compliance, but also increased efficiency of tax administration.
Customs policy. Customs reform in 2018 has significantly simplified and sharply
reduced the costs related to foreign trade. Uzbekistan significantly cut its import
tariffs, to attenuate the ensuing inflation and enhance competitiveness. As observed
earlier, import tariff rates for about 8,000 out of 10,800 items were reduced (for about
5,000 items, tariffs were eliminated) to mitigate the adverse effect on import-intensive
companies (and prices) and to improve the competitiveness of the economy. As
a result, the simple average tariff was reduced from 15.2 to 6.3%, whereas the
trade-weighted average went from 13.9 to 5.9%, as not all groups saw their tariffs
reduced homogeneously. This broad reduction in tariffs has provided a strong stepping
stone for an ambitious agenda on trade liberalization; the authorities are taking initial
steps to broaden their reach and reinitiate their World Trade Organization accession
process. The customs procedures will be streamlined and improved to lower costs
and administrative burdens for exporting SMEs after the adoption of a new edition of the
Customs Code in 2019.
Licenses and permits. Due to the reform, 27 new Law on Permit Procedures was
adopted, pursuant to which, 7 licenses and 35 permits were abolished. Procedures of
issuing licenses and permits were significantly simplified. Fees for licenses and permits
decreased significantly.
Public services. Uzbekistan established the Agency for Public Services under the
Ministry of Justice in order to provide public services to business entities according
to the “One-Stop Shop” principle. 28 Small businesses can obtain 16 types of public
services, such as business registration, permits and license, through 194 one-stop
centers. All these measures were aimed at abolishing the requirement to visit
other government agencies, the elimination of red tape and reducing the cost of
doing business.
These reforms led to an improvement in Uzbekistan’s ranking in the World Bank’s 2019
Doing Business Report, from 166th position in 2012 to 76th in 2018. The country has
improved its rating in only four indicators. Uzbekistan climbed by one place in Dealing
with Construction Permits, two places in Registering Property, and 3 places in Trading
Across Borders.
The country also made trading across borders faster by introducing an electronic
application and payment system for several export certificates, reducing the time for
export documentary compliance. Uzbekistan still needs to improve its ranking in several
areas, such as Getting Credit (60th), Resolving Insolvency (91st), Dealing with
Construction Permit (134th) and Trading across the Borders (165th).
Financial infrastructure. As discussed earlier, the Government of Uzbekistan
introduced a number of reforms to enhance the financial infrastructure in the country.
Substantial progress was made in upgrading the legal and regulatory framework for the
financial infrastructure. Upon adoption of the Law on Sharing Credit Information in 2011,
the first local, private credit bureau, the Credit Information and Analytical Center, was
established, which is also a positive sign for the development of the financial market.
There is substantial empirical evidence that private credit bureaus are correlated with
easier access to finance, while the existence of public credit registers does not show an
impact on access. 29 The Credit Bureau is licensed and supervised
by the Central Bank of Uzbekistan, and currently includes information from 28 banks, 76
non-bank financial institutions and one leasing company. Reporting is mandatory, and
requires prior consent of the borrower. There is no limit on the size of loans reported.
This helps increase the reliability of information on legal entities. The bureau covers 8.1
million natural persons and 647.000 legal entities
In order to realize the potential value of credit information in Uzbekistan, the international
credit rating agency (CRIF) (Italy)30 signed a strategic partnership agreement with Credit
Information Analytical Center (CIAC) to develop a credit bureau in Uzbekistan.
This initiative is part of the Financial Infrastructure Project in Uzbekistan implemented
within the framework of the World Bank Group – IFC Finance & Markets Global Practice.
Under the agreement, CRIF owns 35% of the share capital of the private−public
partnership company.
CRIF is committed to transferring technology, knowledge and experience to CIAC as
well as providing efficient services to improve the credit assessment process in the
country. The partnership between CRIF and CIAC aims to facilitate the introduction of
state-of-the-art services to analyze credit risks.
Secured transactions. As part of the IFC, the Azerbaijan and Central Asia Financial
Inclusion (ACAFI) project on strengthening financial markets infrastructure supported the
drafting of a legal framework on a secured transaction system. The Law on Collateral
Registry was enacted in 2014. The publicly accessible, unified, online registry was
launched in 2015 under the Central Bank of Uzbekistan. This established the types of
security and creditors’ rights to be notified to the registry, and provides quick notification
of secured creditors’ status to parties claiming an interest.
Over 418,000 registrations have been made by the users in the Collateral Registry,
157,000 registrations have been made in connection with the fulfillment of the collateral
obligations and over 85,000 registrations have been excluded from the Collateral
Registry. Also, more than 3.8 thousand statements were provided by the Collateral
Registry to its users.31
The commercial banks made 94.5% entries in the Collateral Registry and 5.4% were
made by microcredit organizations