Uzbekistan : Operationalization of the Uzbekistan Mortgage Refinancing Company

Finance / Housing finance

The knowledge and support technical assistance (TA) will support the operationalization of the Uzbekistan Mortgage Refinancing Company (UMRC) which will provide long-term funding to the banks in Uzbekistan to stimulate the market-based mortgage financing sector. Over time, this will help the economy to develop its financial sector and capital markets thereby contributing to long-term sustainable growth.

This TA will build on the outputs of the KSTA 9479-UZB: Mortgage Market Development Program, which produced the business plan for UMRC including a roadmap for the operationalization of the company and an outline of the regulatory changes required to ensure market uptake. The proposed TA will be a natural continuation of these efforts by financing the actual establishment of the company starting from setting up the actual legal structure, capitalizing to staffing and preparing the operational documents such as the lending policies, risk manuals, and human resources policies.

The continued population growth of Uzbekistan is putting substantial pressure on the economy in providing adequate housing supply. While the government is addressing some of the key challenges on the supply side of the housing market, especially in the rural areas, with the assistance of international donors, notably the ADB, its fiscal resources are not sufficient and need to be supplemented through the mobilization of market-based mortgage finance products through the commercial banking sector. However, the market-based residential commercial mortgage loan market in Uzbekistan remains severely underdeveloped as evidenced by the fact that the mortgage loans to GDP ratio is only 4.8% (compared to close to 50% in developed countries) and the total mortgage loan portfolio is only 14.2% of banks' total loan portfolio in Uzbekistan (while it was approximately 24.5% in Armenia, 41.7% in Russia, or 41.6% in the USA in 2016).

One of the main reasons why commercial banks have been unable to play their financial intermediation role in the housing finance sector is the lack of access to long-term funding sources. To address this issue, ADB is currently working with the Government of Uzbekistan (GOU) on the Mortgage Market Development Program (MMDP). Under MMDP, ADB is proposing to provide up to $200 million to support the development of the mortgage market in the country.

MMDP will have 3 outputs, namely to: (i) address the various gaps in the housing policy and subsidy environment in order to reduce the reliance on the various Government-sponsored housing programs that are mostly inefficient, untargeted and expensive while at the same time start the development of the commercial mortgage finance sector through policy-based actions; (ii) strengthen the management, monitoring, evaluation and design of Uzbekistan's present and new housing programs through the set-up of a housing assistance unit (HAU) under the auspices of the MOF; and (iii) establish UMRC which will directly address the lack of long-term funding to the banking sector by raising long-term financefirst from donors such as the ADBand at a later stage, through the domestic capital markets.

This proposed TA will assist output 3 under MMDP, i.e. the operationalization of the proposed UMRC while the other 2 outputs under MMDP will be supported through an increase of the TA amount under TA 9479-UZB._UMRC will be a dedicated wholesale mortgage refinance institution to be established as a joint venture between GOU and the Uzbek banking sector. The company will be run on a commercial basis and will offer long-term funding on market based terms to all participating financial institutions (PFIs) while at the same time promote technical competence inside the housing finance sector, encourage competition in the banking sector, collect sector related data and information and build capacity and awareness for the importance of a well-developed housing finance sector among the relevant stakeholders such as the banks, regulators, market practitioners and the public.

Availability of affordable mortgage credit increased (Uzbekistan National Development Strategy for 20172021).

UMRC made operational

1. Institutional structure of UMRC established

2. UMRC's operational framework developed

3. ICT support established