Uzbekistan: Second Small and Microfinance Development Project

Sovereign Project | 42007-013

Summary

The Project facilitates access to credit by micro and small enterprises (MSEs) across Uzbekistan. It supports the generation of employment and sustains about 30,000 jobs for men

and women. It contributes to inclusive economic growth. ADBs proposed intervention comprises (i) a loan of $50 million to be channeled through three participating commercial banks (PCBs) for onlending to viable MSEs; and (ii) a TA grant of $600,000 to improve PCBs MSE finance capacity and their subborrowers' entrepreneurial skills.

Latest Project Documents


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Project Name Second Small and Microfinance Development Project
Project Number 42007-013
Country Uzbekistan
Project Status Closed
Project Type / Modality of Assistance Loan
Technical Assistance
Source of Funding / Amount
Loan 2634-UZB: Second Small and Microfinance Development Project
Ordinary capital resources US$ 50.00 million
TA 7523-UZB: Capacity Building for Microfinance Development
Technical Assistance Special Fund US$ 600,000.00
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Sector / Subsector Finance - Inclusive finance - Small and medium enterprise finance and leasing
Gender Equity and Mainstreaming Effective gender mainstreaming
Description

The Project facilitates access to credit by micro and small enterprises (MSEs) across Uzbekistan. It supports the generation of employment and sustains about 30,000 jobs for men

and women. It contributes to inclusive economic growth. ADBs proposed intervention comprises (i) a loan of $50 million to be channeled through three participating commercial banks (PCBs) for onlending to viable MSEs; and (ii) a TA grant of $600,000 to improve PCBs MSE finance capacity and their subborrowers' entrepreneurial skills.

Project Rationale and Linkage to Country/Regional Strategy

Despite increased bank lending in recent years, demand by MSEs remains unmet at present. According to the Central Bank of Uzbekistan, total loans granted by commercial banks to MSEs reached $898 million (SUM1.25 trillion) in 2008 and $1.2 billion (SUM1.85 trillion) in 2009. The amount allocated to microcredit by commercial banks increased by about 100% in 2009 over 2008 and was targeted to increase by another 30% in 2010. According to a World Bank survey, only 7.8% of business financing is met by loans the lowest percentage in the region (where the average is 23.3%). ADBs past credit lines to Uzbekistan indicate high demand from micro, small, and medium-sized business operating in all sectors, particularly agriculture and agroprocessing.

MSEs access to credit is constrained by the nature and characteristics of the financial sector in Uzbekistan, which is subject to various distortions. For instance, directed lending at subsidized interest rates leads to misallocation of resources. For depositors, practical difficulties in cash withdrawals from bank accounts have created a premium for cash and a trust gap for banks in terms of their ability to mobilize customer deposits. This is manifested by a low (individual and household customer) bank deposits'GDP ratio of 6.6% in 2009. The government has put in place measures to increase public confidence in the banking system which are expected to raise deposits mobilization.

The proposed intervention will meet a share of the MSE credit demand while addressing financial sector distortions. This will be achieved through working with participating commercial banks (PCBs) committed to sustainable MSE financing that meet the following criteria: (i) financial soundness (solvency, liquidity, profitability, efficiency, and prudence); (ii) extensive rural retail network; (iii) a proven track record and efficiency in non-subsidized microfinance intermediation; (iv) ability and willingness to manage the foreign exchange risk prudently; and (v) transparent corporate, financial, and management governance practices. Based on these criteria, ADB selected three PCBs: Agrobank, Hamkorbank, and Ipak Yuli Bank (IYB). Hamkorbank and IYB are privately owned, while Agrobank is majority government owned.

The selected PCBs business models and client profile correspond well with the proposed project objectives. Their business models aim at (i) increasing their retail presence geographically, (ii) diversifying operations into various sectors, (iii) offering new products to meet customer needs and increase profitability, and (iv) better outreach to viable but unbanked and under-banked potential clients. Their client base is diverse: Agrobank has a strong presence in the agriculture and agro-processing sectors, while Hamkorbank and IYB are more focused in the trade finance sector (IYB also has significant exposure to light manufacturing). Micro and small business loans constitute close to one-third of Hamkorbank's and one-fourth of IYB's loan portfolios; for Agrobank, they constitute one-tenth (given the much larger size of its overall portfolio). For their loans up to $20,000, the average loan size is $4,000, with an average repayment period of 18 months. These loans finance both investment and working capital.

The project complies with ADBs country partnership strategy, which supports sustainable economic growth, poverty reduction, gender and development, and its Microfinance Strategy. For rural nonfarm enterprise development, ADBs country partnership strategy encourages forward and backward linkages with the agricultural sector. These linkages absorb surplus labor released from agriculture. The loan will carry forward this principle to other sectors as well. It also supports the development of rural financial services and promotes more efficient intermediation functions by commercial banks. It seeks (by allowing subborrowers to draw down their sum subloans in cash if they so choose) to abolish the distinction between cash and noncash market transactions.

Impact More individuals earn their livelihood in the formal private MSE sector.
Project Outcome
Description of Outcome Expanded, viable and sustainable MSE finance operations
Progress Toward Outcome

As of December 2013:

Access to capital eased and job creation stimulated in both rural and urban areas across Uzbekistan; to date, 20,700 jobs created, with women accounting for 38%.

Implementation Progress
Description of Project Outputs

Delivery of training to improve entrepreneurial capacity of subborrowers, including women and MCOs

Increase in microfinance loans to financially viable subborrowers (men and women)

Status of Implementation Progress (Outputs, Activities, and Issues)

As of December 2013:

(i) 14,312 microfinance loan accounts have been opened under the project by low-income households, and micro and small businesses in urban and rural areas, with women accounted for 36%.

(ii) 10,372 sub-borrowers, with women accounting for 38%, trained for enhanced entrepreneurial capacity.

(iii) 590 loan officers at participating commercial banks trained for improved microfinance loan appraisal skills, safeguards awareness, and gender equality.

Geographical Location Uzbekistan
Safeguard Categories
Environment FI
Involuntary Resettlement FI-C
Indigenous Peoples FI
Summary of Environmental and Social Aspects
Environmental Aspects This project is FI category with respect to environment safeguards. By nature of PCBs' anticipated subloans, it is anticipated that these will have minimal or no adverse environmental effect and thus the project is treated as category C and need not apply any other specific requirements. In any case subprojects shall comply with Uzbekistan's enviromental, health and safety, and social laws and regulations, and will conform to ADB's safeguards policies (Safeguards RRP Chapter D, para. 29). PCBs will finance only those subprojects which have minimal or no adverse environmental risks.
Involuntary Resettlement This project is FI-C category with respect to social safeguards (Involuntary Settlements). By nature of PCBs' anticipated subloans, it is anticipated that these will have minimal or no adverse social risks, and thus the project is treated as category C and need not apply any other specific requirements. In any case subprojects shall comply with Uzbekistan's enviromental, health and sefety, and social laws and regulations, and will conform to ADB's safeguards policies (Safeguards RRP Chapter D, para. 29). PCBs will finance only those subprojects which have minimal or no adverse social risks.
Indigenous Peoples This project is FI category with respect to social safeguards (Indigenous Peoples). By nature of PCBs' anticipated subloans, it is anticipated that these will have minimal or no adverse social risks, and thus the project is treated as category C and need not apply any other specific requirements. In any case subprojects shall comply with Uzbekistan's enviromental, health and sefety, and social laws and regulations, and will conform to ADB's safeguards policies (Safeguards RRP Chapter D, para. 29). PCBs will finance only those subprojects which have minimal or no adverse social risks.
Stakeholder Communication, Participation, and Consultation
During Project Design During project design, the ADB mission consulted stakeholders comprising workers, NGOs, womens' organizations, microcredit organizations, credit unions, commercial banks, Central Bank of Uzbekistan and other development partners. Their feedback and lessons learned by them were incorporated into the project's design.
During Project Implementation

Loan Review Missions will continue to consult with stakeholders to determine the loan's intended outcome's efficacy

Project design parameters will be monitored closely during implementation. Particulary, information will be sought regarding:

a) Amount lent to MSEs (it is envisaged that subloans up to $10,000 will be 50% of the total loan amounts disbursed)

b) Projects financed and assets created in the MSE sector

c) Total incremental employment created

d) Number of bank staff trained on enhancement of their appraisal skills of MSEs

e) Number of women provided with subloans

f) Regional distribution of subloans in Uzbekistan's 13 regions

g) Overall social and economic benefit that will accrue to Uzbekistan

h) Future areas and issues of development specially related to microfinance and MSEs

Information obtained will be placed on the 3 PCBs' websites and shall be included in the PCBs' reports to ADB.

ADB will also communicate with MOF and PCBs through written documents. MSE subborrowers would provide monthly information at the time of repayment through personal interactions. PCBs will communicate to ADB through quarterly and annual written reports. PCBs will communicate to their staff through training programs, sensitization programs and workshops and to borrowers through awareness programs.

The information related to this project would be provided by ADB, PCBs, MOF, microfinance and small enterprise borrowers, and public at large comprising researchers, evaluators, commentators and representatives of media.

The frequency, at which communication on this project will be quarterly from MSE borrowers to PCBs, from PCBs to ADB. ADB will thereafter disclose such information on its website. There will be periodic review by ADB and communication to the public by experts.

Business Opportunities
Consulting Services All consultants were recruited according to ADB's Guidelines on the Use of Consultants. The terms of reference for all consulting services were detailed in in Section D of the Project's Facility Administration Manual. ADB's Quality and Cost Based Selection (QCBS) procedure using the bio-data technical proposal was used in consultants' recruitment.
Procurement Procurement to be financed under the loan will be carried out in accordance with ADB's Procurement Guidelines (2007, as amended from time to time). The procurement of goods and services will, as provided in para. 3.12 of ADB's procurement guidelines, (i) be from member countries of ADB; (ii) be of reasonable price, given time of delivery, quality, and efficiency; and (iii) in accordance with established private sector commercial practices which are acceptable to ADB.
Responsible ADB Officer Anna Charlotte Schou-Zibell
Responsible ADB Department Central and West Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, CWRD
Executing Agencies
Ministry of FinanceNilafur Nurkuzieva5 Mustaqillik Maydoni Square
Tashkent 100008
Republic of Uzbekistan
Timetable
Concept Clearance 04 Mar 2010
Fact Finding 26 Jan 2010 to 12 Feb 2010
MRM 08 Mar 2010
Approval 21 Apr 2010
Last Review Mission -
PDS Creation Date 04 Mar 2010
Last PDS Update 18 Sep 2014

Loan 2634-UZB

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
21 Apr 2010 01 May 2010 03 Aug 2010 31 Dec 2013 - 28 Apr 2014
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 142.87 Cumulative Contract Awards
ADB 50.00 21 Apr 2010 50.00 0.00 100%
Counterpart 92.87 Cumulative Disbursements
Cofinancing 0.00 21 Apr 2010 50.00 0.00 100%
Status of Covenants
Category Sector Safeguards Social Financial Economic Others
Rating - - - - Satisfactory -

TA 7523-UZB

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
21 Apr 2010 17 May 2010 17 May 2010 30 Jun 2011 30 Jun 2012 -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
600,000.00 0.00 0.00 0.00 0.00 0.00 600,000.00 21 Apr 2010 456,602.69
Status of Covenants
Category Sector Safeguards Social Financial Economic Others
Rating - - - - Satisfactory -
Title Document Type Document Date
Capacity Building for Microfinance Development TA Completion Reports Apr 2013
Amendment to the Loan Agreement for Loan 2634-UZB: Second Small and Microfinance Development Project Loan Agreement (Ordinary Resources) Jan 2013
Amendment to the Project Agreement with Hamkorbank for Loan 2634-UZB: Second Small and Microfinance Development Project Project/Program Agreement Jan 2013
Amendment to the Project Agreement with Ipak Yuli Bank for Loan 2634-UZB: Second Small and Microfinance Development Project Project/Program Agreement Jan 2013
Loan Agreement for Second Small and Microfinance Development Project between the Republic of Uzbekistan and Asian Development Bank dated 01 May 2010 Loan Agreement (Ordinary Resources) May 2010
Project Agreement for Second Small and Microfinance Development Project between Asian Development Bank and Agrobank dated 01 May 2010 Project/Program Agreement May 2010
Project Agreement for Second Small and Microfinance Development Project between Asian Development Bank and Hamkorbank dated 01 May 2010 Project/Program Agreement May 2010
Project Agreement for Second Small and Microfinance Development Project between Asian Development Bank and Ipak Yuli Bank dated 01 May 2010 Project/Program Agreement May 2010
Second Small and Microfinance Development Project Project/Program Administration Manual Mar 2010
Second Small and Microfinance Development Project Reports and Recommendations of the President Mar 2010
Second Small and Microfinance Development Project: Gender Action Plan Gender Action Plans Mar 2010
Second Small and Microfinance Development Project Summary Poverty Reduction and Social Strategies Mar 2010

Safeguard Documents

See also: Safeguards

No documents found.

Evaluation Documents

See also: Independent Evaluation

No documents found.


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