Financial Inclusion, Financial Regulation, Financial Literacy, and Financial Education in the Kyrgyz Republic

While financial inclusion is considered one of the key drivers of development today, it is quite new to the Kyrgyz Republic. The Kyrgyz Republic attempted to introduce the notion of financial inclusion after a violent power shift in 2010. The economy experienced an overall decline, the banking sector shrank, and financial intermediation slowed down. The National Bank introduced a number of regulatory measures to tighten the supervision of the financial sector and increase consumer protection. Some of the efforts have worked well: the banking sector has rebounded, savings have been mobilized, and financial markets have started developing. However, national development patterns, such as unstable economic growth, a high poverty rate, and weak governance are the key vulnerabilities for increasing inclusivity of financial products and services. Income inequality, especially when comparing rural versus urban areas, is substantial and restricts access to financial services for the rural population. Small and medium-sized enterprises face barriers for getting sufficient financing because of high collateral requirements. The population has a low level of financial literacy and is reluctant to use modern financial services. Our analysis suggests an urgent need for consolidated efforts to include more people and businesses into financial activities, mobilize their savings, and improve access to credit.

WORKING PAPER NO: 850