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Credit Unions Fuel Entrepreneurs Across Uzbekistan
FrontLines - April 2010
By Virginija Morgan
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A small loan allowed Gairatjon Otajonov, right, to create a thriving
bread-baking business.
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Challenge
For centuries, Uzbekistan
thrived on trade and commerce
along the Great Silk
Road that passed through the
country. To this day, thousands
of small merchants earn
a living from tailoring, farming,
trading, or selling homemade
food.
Until recently, many of
these businesses lacked capital.
It was difficult to get
small loans from the nation’s
banks, which were mostly
state run. The collapse of the
Soviet banking system in the
early 1990s, just as Uzbekistan
was gaining its independence
from the USSR,
drained savings accounts and
left people distrusting the
country’s financial system.
The lack of confidence was
increased by high inflation. As
late as 2004, just 5 percent of
Uzbekistan’s population had
savings accounts, while 75 percent
socked away money in
their homes.
Initiative
In 2002, USAID helped
to launch a credit union
movement to allow Uzbeks to
build their savings, earn interest, and supply capital to
small businesses.
The World Council of Credit
Unions (WOCCU) had already
spent more than a year working
towards that objective, with
funding from the Asian Development
Bank. USAID provided an
additional $5 million grant for
WOCCU to support legislation
and development of the credit
union network.
In April 2002, the law permitting
credit unions was passed,
and within the next six months,
the Central Bank of Uzbekistan
had registered the country’s first
three credit unions.
USAID and WOCCU have
since helped establish and
strengthen 43 more credit unions
in 12 regions of the country to
provide savings and loan services
to low-income members.
Some people use credit unions
to finance their short-term needs,
such as buying school supplies
for their children at the beginning
of the school year. Others,
such as former flour salesman
Gairatjon Otajonov of Kokand
City in the Ferghana Valley take
out loans to launch a small business.
Otajonov’s first loan from
Mador Credit Union funded two
traditional Uzbek bread ovens, or
tandirs, for a bakery.
With USAID funding,
WOCCU helped credit unions
open up and solidify their
operations through financial
monitoring, credit collection,
marketing, accounting, and
auditing. Publicity helped
grow membership.
Staff was also trained to
work with the credit union
members to ensure they were
able to repay loans on time.
Nearly 2,000 credit union
staff, directors, and committee
members have participated
in these USAID-funded
training programs.
In 2005, the Credit Union
Association was formed with
help from USAID and
WOCCU, serving as a kind of
“second-tier support structure,”
according to Nizomiddin
Muradov, the association’s
executive director. The
association oversees member
compliance with national legislation
as well as compliance
with its own internal policies
and procedures. By the end of
2007, the association operated
with minimal subsidies from
USAID.
Result
By the middle of 2009,
Uzbekistan had 91 credit
unions with 125,000 members
and $103 million in assets.
About 70 percent of the total
loan portfolio volume goes to
microenterprise and agricultural
loans, and more than half
of the loans are under $1,000.
Most creditors develop
long-term relationships with
credit unions. “We are growing
and expanding the services
along with the needs of our
members,” said Hulkar Alieva,
executive director of Mador
Credit Union.
As his business gained
popularity, Otajonov returned
for additional loans to finance
more space and turnover capital.
Today his bakery produces
about 1,200 lepeshkas
(loaves of bread) each day for
five chayhanas (restaurants)
in the city.
★
FrontLines is published
by the Bureau for Legislative and Public Affairs
U.S. Agency for International Development
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Material should be submitted
by mail to Editor, FrontLines, USAID,
RRB, Suite 6.10, Washington, DC 20523-6100;
by FAX to 202-216-3035; or by e-mail to frontlines@usaid.gov
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