Uzbekistan : Mortgage Market Sector Development Program

Sovereign Project | 51348-001

1. The program is aligned with the following impact: living standards improved for the population of Uzbekistan. The program will have the following outcome: availability of affordable market-based residential mortgage credit increased. The outcome will be achieved by establishing the premise for improved access to long-term market-based funding and enhanced development of competitive housing finance products, as well as reforming the inefficient housing subsidy framework and some of its programs.

2. The program will have three outputs. The multitranche PBL will primarily support reforms under outputs 1 and 2. The PBL comprises 13 policy actions under tranche 1 and 14 policy actions under tranche 2. The FIL will focus on delivering output 3 of the program.

Project Details

Project Name
Mortgage Market Sector Development Program
Project Number
51348-001
Country / Economy
  • Uzbekistan
Project Status
Active
Project Type / Modality of Assistance
  • Loan
  • Technical Assistance
Source of Funding / Amount
Loan 3869-UZB: Mortgage Market Sector Development Program
Source Amount
Concessional ordinary capital resources lending US$ 50.00 million
Loan 3870-UZB: Mortgage Market Sector Development Program
Source Amount
Ordinary capital resources US$ 150.00 million
TA 9877-UZB: Implementing the Mortgage Market Sector Development Program
Source Amount
Technical Assistance Special Fund US$ 800,000.00
Loan 4245-UZB: Mortgage Market Sector Development Program (Additional Financing)
Source Amount
Ordinary capital resources US$ 150.00 million
Operational Priorities
  • OP1: Addressing remaining poverty and reducing inequalities
  • OP2: Accelerating progress in gender equality
  • OP6: Strengthening governance and institutional capacity
Sector / Subsector
  • Finance / Housing finance

Gender
Some gender elements
Description

1. The program is aligned with the following impact: living standards improved for the population of Uzbekistan. The program will have the following outcome: availability of affordable market-based residential mortgage credit increased. The outcome will be achieved by establishing the premise for improved access to long-term market-based funding and enhanced development of competitive housing finance products, as well as reforming the inefficient housing subsidy framework and some of its programs.

2. The program will have three outputs. The multitranche PBL will primarily support reforms under outputs 1 and 2. The PBL comprises 13 policy actions under tranche 1 and 14 policy actions under tranche 2. The FIL will focus on delivering output 3 of the program.

3. Output 1: Policy, regulatory, and legal framework for the mortgage finance industry strengthened. The government will revise and strengthen the existing housing policy and subsidy framework, which is presently distorting the financial system (i.e., government housing programs are provided at below-market rates, crowding out market funding and pricing). Activities include review of the existing, and establishment of better targeted, subsidy programs that reach lower-income households. Some of the changes under tranche 1 of the PBL are aimed at reducing excessive subsidies and their regressive nature. Policy actions under tranche 2 of the PBL will further deepen these reforms to enhance the fiscal sustainability and effectiveness of pro-poor targeting. The transition, which the UMRC will facilitate, toward stronger private sector participation in the development of the housing sector will be supported by (i) introducing a new category of financial institutions specializing in mortgage refinancing activities, (ii) mandating the Central Bank of Uzbekistan (CBU) to supervise and regulate this new category of financial institutions, and (iii) developing new regulations on mortgage lending to induce sound lending practices by banks.

4. Output 2: Housing finance strategy and subsidy framework strengthened. Tranche 1 of the PBL will establish the institutional mechanisms required to effectively implement and rationalize the government's housing subsidy framework. The government will establish the HAU to coordinate all existing housing policies and subsidy programs. In the initial phase, the HAU will take stock of the existing government housing programs and redefine the eligibility criteria for beneficiaries, review the housing policy framework, and agree on a road map that sets out priorities for the required legal and policy reforms. Ultimately, the HAU will become a single point of contact for all housing programs and subsidy schemes, with the objectives of reducing the excessive burden on the public budget and improving efficiency and sustainability. The HAU will also increase coverage by developing innovative and new housing finance solutions and instruments (such as the up-front and one-time subsidy schemes for low-income beneficiaries, and rental programs in the housing sector).

5. The following actions will be carried out by the government under tranche 2 of the PBL to facilitate implementation of outputs 1 and 2: (i) introduction of a pilot program of income-based up-front housing subsidies for low-income families and preparation of a feasibility study for a new government-sponsored housing assistance scheme; (ii) development of a comprehensive housing and mortgage market database; (iii) eventual transformation of the HAU into an independent housing agency; (iv) preparation and approval of a new system for the collection and timely dissemination of statistical data and information on the housing sector, which will ultimately lead to the establishment of a house price index; (v) review and amendment of the current prudential and regulatory framework governing housing finance and mortgage lending in line with international norms; and (vi) comprehensive review of the housing sector (demand and supply sides) to identify areas and initiatives to promote greater competition by introducing international best practices. A feasibility study will also look into the future roles and relevance of the two dominant state-owned real estate developers.

6. Output 3: The establishment and operationalization of the mortgage refinancing company supported with long-term funding. Under this output (solely addressed by the FIL), ADB will provide long-term funding to the proposed UMRC to make long-term local currency resources available to banks to fund residential mortgage and housing improvement loans. The UMRC will facilitate the provision of mortgage loans at an interest rate close to market rates (with an average loan maturity of 10 years), and address the demand for housing improvement loans, which are currently unavailable in the market. The UMRC will address a fundamental market constraint that is preventing banks from expanding their housing finance portfolios, by better matching their assets and liabilities. The UMRC will provide loans to participating financial institutions (PFIs) that are secured by eligible mortgage loans, based on criteria that will assess product design, market-based pricing, underwriting practices, loan documentation, and performance. This will help to professionalize the overall housing finance industry and address the risks associated with broadening access to housing finance across new borrower segments. Eligibility criteria will also target end-beneficiaries that are currently underserved by the banking sector. In the medium to long term, the UMRC will support more exponential sector growth by using new debt instruments such as corporate bonds, covered bonds, and/or mortgage-backed securities to mobilize long-term funds from institutional investors.

Project Rationale and Linkage to Country/Regional Strategy

1. Macroeconomic context. Since 2017, Uzbekistan has undertaken critical reforms, which have sustained a gross domestic product (GDP) growth above 5% in 2018. The country moved to a more liberal exchange rate and trade regime in 2017 and is undertaking major fiscal reforms. Substantive progress has also been achieved through ongoing structural and institutional reforms. The government is keen to continue its reform agenda, but it remains challenging. To sustain high growth and to make the private sector the primary driver of growth, the government has prioritized the restructuring of state-owned enterprises (SOEs), public finance management reforms, including ad hoc transfers from the state budget to SOEs, and finance sector development.

2. Sector development context. Access to affordable and long-term mortgage finance is needed to meet the growing housing demand, which is the result of population growth and years of underinvestment in the housing sector. Uzbekistan needs to produce 145,000 new housing units per year until 2040 to keep up with new household formation and replace old housing stock, with most new housing needed in urban areas. This figure is well above current production figures; the housing shortfall is therefore increasing annually despite the government's involvement to address it. In the past, the government initiated a number of housing subsidy programs mostly administered by state-owned commercial banks to improve the housing conditions in the country. However, the inefficiently structured and targeted subsidies are costly for the government and are not conducive to the development of market-based solutions by focusing solely on a limited number of households and products.

3. Core development problem. The government acknowledges that it lacks a comprehensive housing policy and subsidies framework. The existing housing finance programs are not effectively coordinated in terms of design, targeting, and use of subsidies, resulting in inefficient use of limited fiscal resources. The government also recognizes the need to gradually replace or phase out the existing programs and move to a market-based mortgage finance mechanism in addressing the housing needs of the population.

4. Low mortgage finance intermediation by banks dominated by state housing programs. The mortgage loan portfolio of Uzbek banks has increased steadily during 20132018, as reflected by the high compound annual growth rate of all bank mortgage loan portfolios of 31.4% and growth in the total gross loan portfolio of banks of 36.8% during this period. As of the end of 2018, the total mortgage loan portfolio had grown to SUM13.8 trillion. However, these figures still only represent 8.3% of banks' total loans outstanding and 3.4% of the GDP. Since 2007, most state housing programs have been mainly delivered by public banks. Six public banks issued 92% of all mortgage loans under the government's rural and urban housing programs (i.e. at subsidized rates). As a result, of the 39,556 mortgage loans issued in 2018, 75% by number, and 72% by volume, of loans were issued under the various state housing programs.

5. Lack of access to long-term funding and underdeveloped capital markets. All commercial banks are constrained by the lack of access to long-term funding (beyond 1 year). This results in banks' aversion to fund residential mortgages and leads to limited experience and insufficient internal capacity to properly design, analyze, price, and service mortgage loans. The capital market in the country is underdeveloped and illiquid. There is no active bond market to mobilize long-term financing from institutional investors, such as pension funds or insurance companies. Despite the sizable mortgage loan portfolio in public banks, these mortgage loans cannot be used by the banks for the issuance of corporate bonds or mortgage-backed securities because of the highly subsidized interest rates. New instruments such as long-term saving plans for households are also absent.

6. The proposed sector development program (SDP) aims to develop a market-based residential mortgage market by (i) designing and implementing a new housing policy, reforming housing subsidies, and reviewing the legal and regulatory framework; (ii) strengthening the institutional framework to administer housing policy and subsidies by establishing a Housing Assistance Unit (HAU) in the Ministry of Finance (MOF); and (iii) making long-term fixed-rate local currency funds available to banks to enable them to expand their range of residential mortgage loan products through the establishment of the Uzbekistan Mortgage Refinancing Company (UMRC).

7. Consistency with Asian Development Bank strategy and country strategy. The program is consistent with the Asian Development Bank (ADB) country partnership strategy for Uzbekistan, 20192023, which supports inclusive and sustainable economic growth through financial market development, access to finance, private sector development, and domestic resource mobilization. The program is included in ADB's country operations business plan for Uzbekistan, 20192021, and will be the first SDP in the country. In late 2017, ADB provided knowledge support TA to conduct detailed diagnostics of the housing finance sector, which led to a comprehensive government reform program. The program supports key operational priorities of ADB's Strategy 2030 such as making cities more livable, addressing remaining poverty and reducing inequalities, accelerating progress in gender equality and strengthening governance and institutional capacity.

8. Government's reform agenda. Based on ADB's advice and preparatory work, the government prepared a comprehensive presidential decree to reform the mortgage finance sector, which was signed on 13 May 2019. The decree establishes a strategic road map for the development of the mortgage market, including reforms to the existing housing policy and subsidies framework, over the period of 20192021. The government plans to gradually reduce its direct role in providing long-term funding for residential mortgage finance, remove interest rate subsidies and other distortions in the finance sector, reform the regressive subsidy framework, and establish efficient administrative mechanisms. Over time, the government plans to enable the operations of new institutions and to replace the current inefficient and costly subsidy programs with transparent and efficient subsidies to make residential mortgages more affordable to low- and middle-income families.

9. Rationale for a sector development program. The SDP modality is justified because the sector requires both a policy reform component and an investment component (supported by the FIL), which are interlinked. The PBL will focus on reforms that are necessary for creating the enabling environment for an effective and efficient mortgage finance market. The FIL will help establish a new type of financial institution (i.e., the UMRC) with private sector participation and make long-term funds available to banks. Initially, the UMRC will use ADB resources and subsequently access the capital market by issuing bonds (i.e., once the domestic capital markets are sufficiently developed). Therefore, the program will ensure that (i) reforms to improve market intermediation are pursued continuously, (ii) government housing policies and subsidy programs are streamlined to effectively support low- and middle-income borrowers, and (iii) much-needed long-term financing to banks is provided to expand the range of market-based mortgage products. These measures will enable banks to access long-term funding, promote competition, and remove market inefficiencies and distortions.

Impact

Living standards improved for the population of Uzbekistan

Project Outcome

Description of Outcome

Availability of affordable market-based residential mortgage credit increased

Progress Toward Outcome

Implementation Progress

Description of Project Outputs

Policy, regulatory, and legal framework for the mortgage finance industry strengthened (under the policy-based loan)

Housing finance strategy and subsidy framework strengthened (under policy-based loan)

The establishment and operationalization of the mortgage refinancing company supported with long-term funding (under the financial intermediation loan)

Status of Implementation Progress (Outputs, Activities, and Issues)
Geographical Location
Nation-wide

Safeguard Categories

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

Summary of Environmental and Social Aspects

Environmental Aspects
Involuntary Resettlement
Indigenous Peoples

Stakeholder Communication, Participation, and Consultation

During Project Design
During Project Implementation

Business Opportunities

Consulting Services
Individual consultants and a consulting firm will be engaged by ADB following the ADB Procurement Policy (2017, as amended from time to time) and ADB's staff instructions. ADB will select the consulting firm through the quality- and cost-based selection method with a standard qualitycost ratio of 90:10. The estimated consultant inputs comprise 18 person-months of international consulting services and 25 person-months of national consulting services. The bidders may suggest some adjustments, with justification. Depending on the emerging circumstances, the Central and West Asia Department team administering the TA will retain flexibility on the number and person-month allocations among the experts as well as their tasks.
Procurement
No expected procurement in TA.

Contact

Responsible ADB Officer
Kuchkarov, Adhamjon
Responsible ADB Department
Sectors Group
Responsible ADB Division
Finance Sector Office (SG-FIN)
Executing Agencies
Ministry of Economy and Finance

Timetable

Concept Clearance
03 Apr 2019
Fact Finding
18 Feb 2019 to 22 Feb 2019
MRM
11 Sep 2019
Approval
28 Nov 2019
Last Review Mission
-
Last PDS Update
28 Nov 2019

Funding

Loan 3869-UZB

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
28 Nov 2019 12 Dec 2019 10 Feb 2020 31 Jul 2021 31 Jan 2023 31 Jan 2023
Financing Plan
  Total (Amount in US$ million)
Project Cost 50.00
ADB 50.00
Counterpart 0.00
Cofinancing 0.00
Loan Utilization
  Date ADB Others Net Percentage
Cumulative Contract Awards 15 Jul 2024 50.00 0.00 100%
Cumulative Disbursements 15 Jul 2024 50.00 0.00 100%
Status of Covenants
Category Sector Safeguards Social Financial Economic Others
Rating - Satisfactory Satisfactory Unsatisfactory - Satisfactory

Loan 3870-UZB

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
28 Nov 2019 12 Dec 2019 10 Feb 2020 31 Jul 2023 - 31 Jan 2023
Financing Plan
  Total (Amount in US$ million)
Project Cost 150.00
ADB 150.00
Counterpart 0.00
Cofinancing 0.00
Loan Utilization
  Date ADB Others Net Percentage
Cumulative Contract Awards 15 Jul 2024 150.00 0.00 100%
Cumulative Disbursements 15 Jul 2024 150.00 0.00 100%
Status of Covenants
Category Sector Safeguards Social Financial Economic Others
Rating - Satisfactory Satisfactory Unsatisfactory - Satisfactory

Loan 4245-UZB

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
07 Nov 2022 14 Nov 2022 21 Dec 2022 30 Jun 2026 - -
Financing Plan
  Total (Amount in US$ million)
Project Cost 150.00
ADB 150.00
Counterpart 0.00
Cofinancing 0.00
Loan Utilization
  Date ADB Others Net Percentage
Cumulative Contract Awards 15 Jul 2024 131.63 0.00 88%
Cumulative Disbursements 15 Jul 2024 131.63 0.00 88%

TA 9877-UZB

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
28 Nov 2019 20 Dec 2019 20 Dec 2019 31 Dec 2021 25 Nov 2024 -
Financing Plan/TA Utilization
ADB Cofinancing Counterpart Total
Gov Beneficiaries Project Sponsor Others
800,000.00 0.00 0.00 0.00 0.00 0.00 800,000.00
Cumulative Disbursements
Date Amount
15 Jul 2024 542,727.23
Status of Covenants
Category Sector Safeguards Social Financial Economic Others
Rating - Satisfactory Satisfactory Unsatisfactory - Satisfactory

Project Data Sheets (PDS) contain summary information on the project or program. Because the PDS is a work in progress, some information may not be included in its initial version but will be added as it becomes available. Information about proposed projects is tentative and indicative.

The Access to Information Policy (AIP) recognizes that transparency and accountability are essential to development effectiveness. It establishes the disclosure requirements for documents and information ADB produces or requires to be produced.

The Accountability Mechanism provides a forum where people adversely affected by ADB-assisted projects can voice and seek solutions to their problems and report alleged noncompliance of ADB's operational policies and procedures.

In preparing any country program or strategy, financing any project, or by making any designation of, or reference to, a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

Title Document Type Document Date
Mortgage Market Sector Development Program: Audited Project Financial Statements (January 2022-January 2023) Audited Project Financial Statements Aug 2023
Mortgage Market Sector Development Program (Second Tranche): Progress Report on Tranche Release Progress Reports on Tranche Releases Dec 2022
Loan Agreement (Ordinary Operations) for Loan 4245-UZB: Mortgage Market Sector Development Program (Additional Financing) Loan Agreement (Ordinary Resources) Nov 2022
Project Agreement for Loan 4245-UZB: Mortgage Market Sector Development Program (Additional Financing) Project/Program Agreements Nov 2022
Mortgage Market Sector Development Program (Additional Financing): Project Administration Manual Project/Program Administration Manual Oct 2022
Mortgage Market Sector Development Program (Additional Financing): Gender Action Plan Gender Action Plans Oct 2022
Mortgage Market Sector Development Program (Additional Financing): Report and Recommendation of the President Reports and Recommendations of the President Oct 2022
Mortgage Market Sector Development Program: Audited Project Financial Statements (January-December 2021) Audited Project Financial Statements Jun 2022
Amendments to the Loan Agreement for Loan 3870-UZB: Mortgage Market Sector Development Program Loan Agreement (Ordinary Resources) Jul 2021
Amendments to the Project Agreement for Loan 3870-UZB: Mortgage Market Sector Development Program Project/Program Agreements Jul 2021
Mortgage Market Sector Development Program: Audited Project Financial Statements (January-December 2020) Audited Project Financial Statements Jul 2021
Mortgage Market Sector Development Program: Updated Project Administration Manual Project/Program Administration Manual Jun 2021
Mortgage Market Sector Development Program: Project Administration Manual Project/Program Administration Manual Jan 2020
Loan Agreement (Ordinary Operations [Concessional]) for Loan 3869-UZB: Mortgage Market Sector Development Program Loan Agreement (Ordinary Resources) Dec 2019
Loan Agreement (Ordinary Operations [Concessional]) for Loan 3870-UZB: Mortgage Market Sector Development Program Loan Agreement (Ordinary Resources) Dec 2019
Project Agreement for Loan 3870-UZB: Mortgage Market Sector Development Program Project/Program Agreements Dec 2019
Mortgage Market Sector Development Program: Report and Recommendation of the President Reports and Recommendations of the President Nov 2019
Mortgage Market Sector Development Program: Technical Assistance Report Technical Assistance Reports Nov 2019
Mortgage Market Sector Development Program: Project Administration Manual Project/Program Administration Manual Oct 2019
Mortgage Market Sector Development Program: Concept Paper Concept Papers Apr 2019
Mortgage Market Sector Development Program: Initial Poverty and Social Analysis Initial Poverty and Social Analysis Mar 2019

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.


Evaluation Documents See also: Independent Evaluation

None currently available.


Related Publications

None currently available.


The Access to Information Policy (AIP) establishes the disclosure requirements for documents and information ADB produces or requires to be produced in its operations to facilitate stakeholder participation in ADB's decision-making. For more information, refer to the Safeguard Policy Statement, Operations Manual F1, and Operations Manual L3.

Requests for information may also be directed to the InfoUnit.

  • 08 Nov 2022 | News Release

    ADB Supports Housing Finance in Uzbekistan

    ADB has approved a $150 million loan that will help expand green renovation loans in Uzbekistan while boosting the funding available to commercial lenders in the country to continue providing affordable home loans.
  • 28 Nov 2019 | News Release

    ADB Loans to Improve Access to Housing Finance in Uzbekistan

    ADB has approved $200 million in loans that will help the Government of Uzbekistan reform its housing finance programs and provide families with more affordable mortgage products.

Tenders

Tender Title Type Status Posting Date Deadline
Gender-Focused Quantitative Study Firm - Consulting Closed
IT Specialist Individual - Consulting Closed
Energy Efficiency Expert Individual - Consulting Closed
Green renovation toolkit development Team Leader Individual - Consulting Closed
Gender Specialist Individual - Consulting Closed
Banking and Capital Markets Regulatory Specialist Individual - Consulting Closed
Housing Information System Expert (Statistician) Individual - Consulting Closed
Housing Policy and Subsidy Expert Individual - Consulting Closed
Environmental and social safeguards expert Individual - Consulting Closed
Risk Management Expert Individual - Consulting Closed
Mortgage Market Sector Development Program - Program Manager/TA Coordinator (national) Individual - Consulting Closed
TA9877: Mortgage Market Sector Development Program Individual - Consulting Closed
Legal Expert Individual - Consulting Closed
Underwriting and Monitoring Expert (Advisor) Individual - Consulting Closed

Contracts Awarded

No contracts awarded for this project were found

Procurement Plan

None currently available.