Uzbekistan: Small Business Finance Project

Sovereign Project | 42007-018 Status: Proposed

Summary

Small businesses need longer-term funds to expand their production capacity and import modern equipment for their businesses. Financial institutions in Uzbekistan do not have sufficient long-term funds to make long-term loans without creating a maturity mismatch. The proposed Second Small Business and Entrepreneurship Project (the project) will (i) provide participating financial institutions (PFIs), i.e., commercial banks and leasing companies, with longer term funds for onlending to rural and women's small businesses; (ii) provide capacity building technical assistance (CDTA) to PFIs to improve their risk management and increase the number of loan products they offer; and (iii) provide training to small businesses to improve their capacity to borrow. In addition, the project will provide assistance to the government to improve the enabling environment for small business development and access to finance.

Latest Project Documents

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Procurement Notices See also: Operational Procurement

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Procurement Documents

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Project Name Small Business Finance Project
Project Number 42007-018
Country Uzbekistan
Project Status Proposed
Project Type / Modality of Assistance Loan
Technical Assistance
Source of Funding / Amount
Loan: Small Business Finance Project
Ordinary capital resources US$ 100.00 million
TA: Small Business Finance Project
Financial Sector Development Partnership Special Fund US$ 500,000.00
Strategic Agendas Environmentally sustainable growth
Inclusive economic growth
Drivers of Change Governance and capacity development
Knowledge solutions
Partnerships
Private sector development
Sector / Subsector

Finance - Small and medium enterprise finance and leasing

Gender Equity and Mainstreaming Effective gender mainstreaming
Description Small businesses need longer-term funds to expand their production capacity and import modern equipment for their businesses. Financial institutions in Uzbekistan do not have sufficient long-term funds to make long-term loans without creating a maturity mismatch. The proposed Second Small Business and Entrepreneurship Project (the project) will (i) provide participating financial institutions (PFIs), i.e., commercial banks and leasing companies, with longer term funds for onlending to rural and women's small businesses; (ii) provide capacity building technical assistance (CDTA) to PFIs to improve their risk management and increase the number of loan products they offer; and (iii) provide training to small businesses to improve their capacity to borrow. In addition, the project will provide assistance to the government to improve the enabling environment for small business development and access to finance.
Project Rationale and Linkage to Country/Regional Strategy The Government of Uzbekistan recognizes the importance of micro and small enterprises (MSEs) for inclusive economic growth and job creation, and this requires a favorable enabling environment and improved access to finance. The Asian Development Bank (ADB) has provided several financial intermediation loans to support improved MSE development. The ADB country partnership strategy for 2012 2016 includes MSE development and finance as a key area of assistance. The economy of Uzbekistan has experienced robust growth in the last decade, with annual economic growth at 8.1% of gross domestic product (GDP) in 2014. Key exports such as copper, gold, natural resources, and cotton have contributed to strong results. However, the continued decline in remittances from the Russian Federation, reduced Russian demand for Uzbek products such as automobiles, and lower prices for natural resources are likely to have an adverse effect on Uzbekistan's economy in 2015 and beyond. Small businesses play a vital role in Uzbekistan's economy, and have the capacity to generate growth, exports, and jobs. According to the official definition applied from 1 July 2014, small businesses in Uzbekistan include micro and small enterprises (MSEs) and individual entrepreneurs. MSEs are defined by the number of employees, with the threshold number of employees varying by sector. There is no definition for medium-sized enterprises. As of 1 January 2015, there were 221,140 enterprises registered as MSEs and 227,646 persons listed as individual entrepreneurs. In 2014, small businesses contributed 76.5% to total employment and 56.0% to GDP. They produced approximately 98% of total agricultural output, 66% of construction, 86% of retail trade, and 45% of services. Small businesses contributed 21% of total exports and 45% of total imports. Access to finance, information, and specific skills are major impediments to small business growth in Uzbekistan. Specific issues include: (i) lack of sufficient collateral to satisfy collateral requirements, which are generally high for small businesses, at 146% of loan amounts. Alternative sources of collateral and security (future cash flows, contracts to deliver services on a factoring basis, business reputation, third parties, or group guarantees) are rarely accepted; (ii) limited growth opportunities for small businesses owned or operated by women, due to their concentration in informal businesses. Although women face no legal constraints to financial access, in 2014 only 10% of total small business loans from banks were onlent to women. Women's small businesses show low use rates of financial products and services, as evidenced by the low number of microfinance accounts opened for women (35% of all accounts in 2012); (iii) high cost of bank credit. Lack of liquidity and available capital, coupled with the perceived high risk and higher administrative costs of lending to small businesses causes banks to charge high interest rates; (iv) small businesses lack business skills, experience, and knowledge. Limited information makes it a challenge to prepare business plans and to market products and services. Insufficient technical, managerial, and professional skills constrain profits; and (v) small businesses lack access to information on government programs, market opportunities, suppliers, competitors, technology, and banking products, particularly those in rural areas. Despite the importance of small businesses, only a small number of them receive loans from financial institutions. There is a large financing gap between small business credit demand and the loans supplied by commercial banks. Although 94% of small businesses have an account at a financial institution, only 9.6% have outstanding credit at a financial institution. In 2014, total bank lending to small businesses was only 6.3% of GDP or SUM9.1 trillion (or $3.4 billion), of which only SUM1.5 trillion (or $0.5 billion) were microcredit.
Impact Contribution of small businesses to inclusive economic growth and employment improved.
Outcome Sustainable provision of PFIs' financing to small businesses increased
Outputs Capacity of the PFIs for financing small businesses expanded
Geographical Location

Safeguard Categories

Environment FI
Involuntary Resettlement FI-C
Indigenous Peoples FI-C

Summary of Environmental and Social Aspects

Environmental Aspects Safeguards due diligence for environment, indigenous people, and involuntary settlement will be carried out during fact-finding. PFIs' environmental and social management systems (ESMS) will be reviewed and any needed capacity building in this area will be structured. Recommendations will be identified to ensure that ADB safeguards requirements are met.
Involuntary Resettlement No impact is expected
Indigenous Peoples No impact is expected
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation

Business Opportunities

Consulting Services Consulting services will include the engagement of the secured transactions/legal expert, MSE finance experts, and Gender expert.
Procurement A capacity building technical assistance, estimated to cost $1,000,000 aims to (i) improve policy and regulatory framework for MSE access to finance; (ii) strengthen capacity of PCBs in lending to rural and women's MSEs; and (iii) enhance entrepreneurial skills and financial literacy of rural and women's MSMEs.

Responsible Staff

Responsible ADB Officer Aliya Mukhamedyarova
Responsible ADB Department Central and West Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, CWRD
Executing Agencies
Ministry of Finance
5 Mustaqiliik Square
Tashkent 100008
Republic of Uzbekistan

Timetable

Concept Clearance -
Fact Finding 22 Feb 2016 to 04 Mar 2016
MRM 09 May 2016
Approval 30 Jun 2016
Last Review Mission -
Last PDS Update 30 Mar 2016

Safeguard Documents See also: Safeguards

Safeguard documents provided at the time of project/facility approval may also be found in the list of linked documents provided with the Report and Recommendation of the President.

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Evaluation Documents See also: Independent Evaluation

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Related Publications

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