CEU eTD Collection Facilitating Women’sEconomicEmpowerment In partial fulfillment ofthe requirements for the degree of Microfinance inKyrgyzstan: Supervisor: Professor Karoly Zoltan Jokay Master of Arts in Public Policy Public Arts in of Master Department ofPublic Policy Central European University Nurgul Temirbekova Nurgul Budapest, Hungary Submitted to 2012 By CEU eTD Collection of dishonest MFIs, and few credit complementary services on the side of MFIs. on the side of the government, as well as low penetration in regions, over-indebtedness, existence forecasting and planning for the agricultural sector, and politicization ofthe microfinance issue unfavorable fiscal and social policies, inadequate legal framework, absence of macroeconomic reveals that major obstacles to theeffective application ofmicrofinance in the country are well as reports, development strategies and other documents related to microfinance, the research particular. Using semi-structured interviews, on-line newspaper articles and other publications, as microfinance improving its impact ontarget groups overall and women, as amajority group, in institutions. Understanding these problems can contribute to appropriate application of microfinance sector emerging from activities the of thegovernment andmicrofinancial treatment at work, family and community. This thesis aims to examine the problems of the in Kyrgyzstan are women, who have been traditionally excluded from formal finance and equal through small and medium enterprises. Today the majority of clients of microfinance institutions states in using microfinance as a tool for fighting poverty and developing market economy Abstract Within a decade Kyrgyzstan became a leader among the former Soviet Central Asian i CEU eTD Collection advice and support. the Department of Public Policy and John Harbord from Academic Writing Center for their Acknowledgements I would like toextend my heartfelt gratitude to my thesis supervisor Karoly Jokay from ii CEU eTD Collection Reference List ...... Reference 37 Questions Interview and Interviewees of ...... List Annex: 36 ...... Conclusion 34 Kyrgyzstan in Microfinanceand Women 3: ...... Chapter 19 Design...... Research 2: Chapter 18 Review Literature 1: ...... Chapter 4 Introduction ...... 1 Acknowledgements ii ...... Abstract i ofcontents Table 3.3 Problems Existing in the Microfinance Sector and Ways Out of Them of Out Ways and Sector Microfinancethe in ...... Existing Problems 3.3 26 Microfinance of ...... Evolution 3.2 21 Issues ...... Women’s 3.1 19 Microfinance and ...... Women 1.3 11 Microfinance ...... to Approaches 1.2 7 Microfinance on Information Basic...... 1.1 4 iii CEU eTD Collection economic activity that would contribute to greater gender equality in the long run. appears as a real opportunity for women to involve into household-based, entrepreneurial women’s education and career, and others (Cawthorne 2008). Inthe current setup, microfinance (c) women’s labor in the household, which is significant but unpaid, (d) pregnancies influencing smaller than men’s in spite of qualifications, (b) domination of men in top-paying occupations, are women (Global Poverty Projectbanking finance, as compared to men by n.d.)about 10% (World Bank 2012). 70% of the world’ forpoor a number offormal to access limited reasons,had countries developing in women that revealed Studies 2011). (Luneva including (a) wages that areMFIs around the world (MIX Market 2012). Interestingly, 70% ofMFIs’ clients are women consolidating financial systems (Sokolova 2009, 14). and raising employment, and economic mission, such as developing small enterprises and many countries and ofteninstitutions and parts of state-owned banks” (ACCION Internationalclaim n.d.). They are present in their commitmentsuch as “NGOs, credit unions, cooperatives, private commercial banks, non-bank financial to social mission,short-term and collateral-free loans. There is a broad range of microfinancialsuch institutions (MFIs), as reducing affordable, offer that institutions and programs microfinancial by addressed isusually areas, poverty bondage. Today the problem ofthe access of the poor to finance, especially in rural and remote moneylenders, who charged exorbitant interest rates and put theminto detrimental debt afford (Robinson 2001, 9; Brix 2009). implies small-scale financial services, such as loans andsavings that the low-income need and can throughout1970s-1990s targeting the low-income people and viewed as a development tool. It Introduction Today up to 100 million needy people (ACCION n.d.) are served by at least 2000 large least by at served are n.d.) (ACCION people needy 100 million to up Today Traditionally, poor people accessed loans through informal channels, such as local Microfinance is a relatively new phenomenon in the financial services sector that emerged 1 CEU eTD Collection without traditional barriers. Increasing the use of microfinance by women to engage in income- belong to men. Microfinance is one of the financial/economic opportunities that women can use traditionally resources and power equality, gender lawson and strategies of existence the Despite for their small and medium programs on economicenterprises empowerment of women in other countries of Central Asia. n.d.). Understanding of operation(SMEs) of MFIs in Kyrgyzstan could contribute to developing in agriculturereached penetration and developed theand legal and regulatory framework commerce for microfinanceprofitability that is considered the best and (OrlovaratesKyrgyzstan that are2012). among theand poverty reduction in thishighest regionwas have been approached through microfinance. However, thein EECA only(MIX disadvantageousMarket position as compared to other countries.one Programs promoting gender equality in the culturallyregion and historicallyto be successful. homogeneousEastern Europe and Centralregion Asia (EECA), which are relatively new to microfinance. Withinwhere women from Latinhave America, Southless Asia and Africa, and neglect the formerly beenplanned economies of traditionallythan cases on focus authors These live. women inwhich conditions economic and a aspects, cultural decade placed in it and Lisa Kuhn (2002). They look at women in microfinance in complex considering social and Cheston Susy (2007), Kaur as Anjali such microfinance, issuesin women’s on focus particularly target groups, and the entire approach should bereviewed. Finally, a third group of authors critics of microfinance. In their view, microfinance does not have the intended positive impact on are (2006), Fernando Jude and (2010), Bateman Milford including authors, Other programs. of microfinance can lead to greater sustainability and development, rather than subsidized lending Jainzik (2006), focus on approaches microfinance and their impact suggesting commercialization Michael and Köhn Doris (2001), Steinward Dirk 2009), (2001, Robinson as Marguerite such Today 65% of clients of MFIs in Kyrgyzstan are women, who borrow most of the money If we focus onwomen’s issues in these economies, Central Asia represents a more or less The current literature on microfinance is complex and multidisciplinary.authors, Some 2 CEU eTD Collection Kyrgyzstan today and ways out of them. research design. Chapter 3 will discuss the typical problems existing in themicrofinance sector of microfinance and its role in economic empowerment of women. Chapter 2 will outline the Kyrgyzstan? in activity entrepreneurial income-generating to women of access the increase to question: the addresses thus thesis This areas. other in equality overall and women in particular leading to their economic empowerment and greater gender be addressed. Appropriate application of microfinance can improve its impact on target groups undermines the effective provision anduse of microfinancial services in Kyrgyzstan. indebtedness, existence ofdishonest MFIs, and few credit complementary components, politicization ofthe microfinance issue, and the MFIs, such as low penetration in regions, over- framework, absence of macroeconomic forecasting and planning for the agricultural sector, and legal inadequate policies, social and fiscal as unfavorable such thegovernment, byboth sector greater gender equality (Kaur 2007, 7-8). However, theproblems posed to the microfinance generating entrepreneurial activity canempower them in economic terms and ultimately lead to Chapter 1 will review the current literature on the models of and approaches to This thesis therefore aims toexamine these problems, why they emerge and how they can 3 how canmicrofinance beused CEU eTD Collection lending and the remaining 7 models are group-based. country specific will notbe mentioned in this work. The first two models are based on individual of microfinance deserve special attention, as they are practiced around the world. Models that are According to Jeenbaeva (2008, 12), Microfinance Hub (2010), and Srivinas (n.d.), several models Hub2010). (Microfinance ensured are andaccountability security ashow well as supplements, its and services credit of onrange based differently models classify authors Different them. for institutions can provide a broader range of services as compared to microcredit institutions. microcredit orloans are only one type of microfinancial services. Therefore, some microfinance as precise, isnot this However, interchangeably. used are “microcredit” and “microfinance” insurance, paymentand transfer services (AsianDevelopment Bank n.d.).Very often terms moneylenders. as such sources, informal and organizations, as non-governmental such institutions, semiformal International n.d.). It is supplied by three sources, including formal institutions, such as banks, help them grow tiny businesses or engage in otherproductive economicactivities” (ACCION 1.1 Basic Information onMicrofinance 1.3. Section systems. The role of microfinance in economic empowerment of women will be discussed in MFIs. Section 1.2 will focus onthe approaches to microfinance: poverty lending vs. financial is broken into three sections. Section 1.1 will provide the definition of microfinance and types of Chapter 1: Literature Review Today various microfinance and microcredit models exist. There is no universal typology offer institutions microfinance savings, and as loans such services, typical Besides This chapter will introduce the concept of microfinance from the broader perspective. It Microfinance is a “practice of providing financial services […] to very poor families, to 4 CEU eTD Collection loans to each other at low interest rates. members sharing similar values, workplace, community, etc. It belongs to its members, who give Credit unions initiated by their members, whereas community banks are initiated by outsiders. into cooperatives for a common social or economic goal. Inaddition, cooperatives are usually poor but its ownership structure and funding may be different and belong to its members united Cooperatives training programs. around the world today and is often promoted by NGOs in package with various advisory and help groups and providesBangladesh and village bank model in Latin America. This model is alegalizedloans version of self- based on“social” collateral. Community bankingThe model is used by manymembers. MFIs from local and external sources, including MFIs, and providing financial services to group groups based on location, gender, religion, and other criteria with the goal of mobilizing funds, Self-help groups kind of social mission. Direct loans by commercial banks are offered with supplementary services, such as trainings and consultations in various fields. Individual loans by MFIs The model is anon-profit entity that is created, financed and governed by a group of The model is similar tocommunity banking in terms of providing financial services to the Principles of this model are somewhat similar to those of Grameen Bank model in Other name for this model is associations, which are composed of the low-income The goal of financing the poor in the model is to generate profit rather than achieve some One client receives a loan, provides security and is accountable for it. Typically such loans 5 CEU eTD Collection model, as it enables them to expand the number of clients (Arun and Hulme 2009, 1). to pay for him/her (ACCION International n.d.). Today many MFIs practice group-based important aspect in group loans, as a failure topay by one group member will make his/her peers isan collateral, “social” also called pressure, Peer companies. microfinance to specific pledge (Sokolova 2009), that could begiven toa group of clients either based oncollateral or group loans group solidarity called also loans, isgroup model second The guarantees. other or loans provided by commercial banks and MFIs to single clients and normally requiring collaterals local and global networks ensuring information and best practices exchange. Second, they offer microfinance services for vulnerable groups. Third, they normally belong to best practices to the communities and MFIs through trainings, consultations, publications, etc. “intermediaries” between poor communities, MFIs, governments and donor agencies. They bring are NGOs First, countries. many in programs microfinance promoting and creating Non-governmental organizations based on informal arrangement. isnormally model This members. group by decided are contributions of size and regularity The size contributions to the shared fund that is given ina lump sum toone member in each cycle. Rotating savings and credit associations (ROSCAs) clients. International organizations, such as UN, also use this model in their programs. special arrangement. Sometimes the model requires compulsory deposits in these banks by individuals orself-formed groups can obtain from commercial or microfinance banks based on Bank guarantees From the above, two main lending models can be specified. The first model is individual This model of microfinance is important, as it laid the basis for MFIs around the globe by In this model, a small group of individuals, typically women, agree to regularly make one- This model is used by governments or donor agencies, which guarantee loans that 6 CEU eTD Collection approach services” totheneedygroups by commercial MFIs seeking self-sufficiency –the“ targeted at specific groups of population –the “ have better impact on target groups. (Dudka 2012). Thedebate involves the question of proper approach to microfinance that would At times political forces play with the issue in their interest by appealing to poorest constituencies governments, entrepreneurs, civil society, and ordinary people about its impact on target groups. been heated debate among the scholars, international organizations, microfinance institutions, 1.2 Approaches toMicrofinance The approaches to these initiatives will be discussed in next section. them. assist to initiatives local develop can MFIs and governments poor, the of characteristics (ACCION n.d.). Using various microfinance models listed above and taking into account the provide them with jobs and income. a desire to engage in particularAccording to CGAP, among the reasons why some clients run their small enterprises are not only activity carpentry, butvegetable selling, small shops, transportation,also and much more” (CGAP n.d.). the necessity,fishing, – ofbusinesses a variety in others or themselves for work or farms, onsmall work as local markets smallbusinesses, operate clients “These women. are today world the around MFIs of areclients not able to population that cannot access formal financial services. As mentioned above, more than half of of MFIs are. The typical client of MFI would come from vulnerable and low-income groups of 1990s marked the so-called “paradigm shift” in microfinance from subsidized programs As the issue ofmicrofinance involves important socio-economic problems, there has It is estimated that from 750 million to1 billion people could benefit from microfinance To understand the demand for microfinancial services, we need to specify who the clients ” (Robinson 2001, Steinward 2001). The idea of poverty lending approach is in provision poverty lending approach lending poverty 7 ” to“non-directed financial financial systems CEU eTD Collection targeted and large-scale provision offinancial services to needy groups by self-sufficient It became popular to think that the financial systems approach to microfinance would ensure the government (subsidized lending program’s) failures to reach the poor (Arun and Hulme 2009,emergence of commercial 1). microfinance was the response to market (formal banking sector’s) and the Therefore, education”. primary and services, basichealth safe water, to access to analogous essential to enable people to participate in the benefits of a modern, market-based economy – approach does not lead to generation of local savings (Robinson 2009, 55). credit technologyand personal ties (Tolbaev 2012). Third, they tend to have bad credit portfolios due toweak to fail in reaching target groups and serve the interestsand of people who have access to information bureaucraticand capacity to cover all the needy groups and will end at some point in time. Second, they tend creating market distortions in developing countries. First, such programs procedureshave limited funding programs were increasingly criticized for being non-sustainable, inefficient and wasteful and (Köhn and Jainzikthe perceived riskiness of such businesses” (Robinson 2001, 11). 2006, and […], transactions sizeof small the collateral, of forms standard of unavailability the location, 181). characterized by “family ownershipFinally, […], nonlegal status […], lack of an authorized business governments before and their input tothe economy was notconsidered. thisThese enterprises were changes in economy and was structural of asaresult countries in developing composed particularly emerged that sector” “informal of small and medium enterprisesbecause in 1980s-1990s scholars and policy makers started paying attention tothe so-called that were invisible to is to get the poor out of extreme poverty and empower them (Robinson 2009, 55). consultations, etc., to the poorest groups by governments and donors. The goal of such programs as trainings, such services, complementary rates and interest market below with credits cheap of According to Arun and Hulme, access to financial services is “a public good that is The approaches to microfinance have evolved as donor-and government-funded lending Robinson and Steinward suggest that the shift towards commercial microfinance occurred 8 CEU eTD Collection governance and accountability tools allows them “to attract more commercial funding in the support and developing private funds. Commercialization with professional management, subsidized lending programs into commercial MFIs allows reducing their dependency on donor and may be commercially unsustainable (Kloppenburg 2006, 5). The transformation of 32). MFIs do not attract the desired number of investors, because they are new to capital markets Only MFIs in Indonesia were able tobecome fully financially self-sustaining (Steinward 2001, institutions and programs are still atleast partially funded by governments and donor agencies. 254). Though the financial systems approach appears as an attractive one, many microfinance global scale. It is believed to have greater potential for poverty reduction (Neuhoff 2006, 253- contributes to the solution ofeconomic problems, such as unemployment and income ona more microenterprises” (Steinward 2001, 23). The new approach targets a wider range of people and microfinance is “the response to a new demand for financial services by a newly emerged class of 2006, 4) and developed the basic legal framework for microfinance. The commercial MFIs – donors and governments funded and experimented with lending schemes (Kloppenburg groups or goals. To acertain extent, they were the “prerequisite” programs preceding the modern liberal economies where state intervention is minimal. unfeasible and short-lived microenterprises. This approach can be applied in countries with into funds investing of risks reduces approach systems financial the addition, In 1). 2009, in rural and remote areas but notthe sizeand of loans. Thus, their profit-seeking incentivesdiversify make them expand their services services other financialto institutions, commercialmeet banks for instance, rather based on the numberthe of clients poor’s with compete They demands behavior. and incentives (market-oriented) different have as they flexible, of financial services, knowing their client groups’ needs best. They are sustainable, efficient and provider optimal as an viewed are MFIs commercial the Thus, 2001, 11). (Robinson institutions The subsidized lending programs traditionally targeted the agricultural sector for special for sector agricultural the targeted traditionally programs lending subsidized The 9 (Arun and Hulme and (Arun CEU eTD Collection corruption. Commercial MFIs can target economically active poor. If we speak of transition the of wespeak If poor. active economically can target MFIs Commercial corruption. the public for failing toreach the target groups due to poor planning and performance and commercial MFIs for inefficiency, non-sustainability andcreating market distortions, as well as by addressed with theassistance of subsidized lending programs that recently get criticized by be can problems Their 51-55). (2009, etc. disasters, unemployment, skills, and education commercial microfinancial services, because of factors,such asage, ethnicity, gender, poor economically active poor. Extremely poor people may not beable toapply for and use of target groups. People are poor differently. Some may be extremely poor and others can be response to market and produce developments 181-183). (2006, met 1are inBox conditions transformed to become “financially self-sustaining” and “institutionally enduring”, if three positive impact on the poor. Köhn and Jainzik suggest that poverty lending programs could be poverty lending approach with the economically viable financial systems approach can have a economic goal of making a profit. However, the proper combination of the socially important approaches, one has to make a tradeoff between the social goal ofsupporting the poor and the models mentioned and not mentioned above are located. When deciding between these two their own resources through profits” (Goodman 2006, 13-14). form of loans or equity capital [… for] greater stability in thelong run”, as well as “to generate (i as precondition for ii and iii) (Köhn Enhancement and Jainzik 2006, 183)of competition and • market dynamics Maintaining the target group• orientation (iii) Lasting positive sector impact Operations: Ability to redesign and adapt organisational• and IT structures Capacities continuouslyto in develop • new products Level of human resources maintained and • increased (personnel development etc) sustainability Institutional (ii) (i) Financial sustainability (=[risk adequate] profitability) Box 1:Dimensionsofsustainability in microfinance institutions These approaches are not two extremes but rather a scale, where various microfinance Robinson says the choice of the approach direction should be based on the characteristics 10 CEU eTD Collection women’s aspirations and their ability to achieve them. to achieve them and to link with other women’s and men’s organizations for change resources to achieve their aspirations power relations” as framed in the Box 2. and poverty reduction (2007, 7). Mayoux defined empowerment “as a process of change in (Cheston and Kuhn 2002, 7). widely considered tobeimportant foroverall poverty reduction anddevelopment strategies correlation betweengender empowerment andhuman development. Thegenderequality is target clients of MFIs. Studies conducted by UNDP, UNIFEM, and the World Bank revealed the women, who make up the overwhelming majority of MFIs’ clients, and the poor, who are the development strategies of government and donor agencies, as it has todowith both at once – access toformal finance andincome. Microfinance has beenincreasingly included ingender and 1.3 Women andMicrofinance needs. onthese will elaborate section Next needs. specific remember that the majority of clients of MFIs are women from developing countries, who have markets and establishing middle class (2009). economically active poor in opening or running their SMEs. They aim atdeveloping local According to Sokolova, the microfinance programs in these economies rather seek to support economies, including Kyrgyzstan, microfinance is somewhat different from the rest of the world. Source: Mayoux, 2000 (In Kaur 2007, 7) 2007, Kaur 2000 (In Mayoux, Source: Over: Power Power With: Power To: Power Within: Box 2:Framework forWomen’sEmpowermentin DifferentSpheres ofLife Kaur says that empowering women is considered to contribute to greater gender equality gender togreater contribute to considered is women empowering that says Kaur The idea of microfinance is in theprovision offinancial services to thepoorthat have no In discussion ofapproaches to microfinance, planners of microfinancial programs should enabling women to develop the necessary skills and access the necessary the access skills and necessary develop the to women enabling enabling women to examine and articulate their collective interests, to organize to interests, collective their articulate and to examine women enabling changing the underlying inequalities in power and resources that constrain enabling women to articulate their own aspirations and strategies for change 11 CEU eTD Collection documentation requirements, cultural barriers, limited mobility, and literacy” (2002, 6). Creating 6). (2002, literacy” and mobility, limited barriers, cultural requirements, documentation requirements, guarantor salaried or male requirements, as collateral such services financial formal accessing from women kept have traditionally that barriers avoid that and services products Kuhn, “microfinance institutions around the world have been quite creative in developing transforming traditional power relations between men and women. According to Cheston and traditional barriers to other sources of finance. Thus, microfinance has a significant potential for Provision ofaccess to financial services by MFIs is critical for women’s empowerment because of choices and are more sensitive to social pressure within peer groups” (Vento 2006, 84-85). investment their in cautious “more are they 2006, 24),as Torre (La enterprises profitable more with women because women have demonstrated better repayment records and investment into sustainability of microfinance programs and institutions can beensured if they choose towork 13). 2009, Rutherford and Hulme (Arun, empowerment” increased income on “children’s schooling, household nutrition status and women’s women’s incomemen. Studies revealed improvements in healthcare, nutrition andeducation with increasein (Kaur 2007, 2). 2007, (Kaur constraints” sociocultural 8-9). Studies“the lack of credit, technology and extension services, which could ease their burdens, and of microfinance2, 2007). The work of confirmedthesecan lead toilliteracy, malnutrition, disease, high infant mortality andwomen low life expectancy” (in Kaur is typically which services, social other and education capital, a water, land, income, to access limited [having] positive household-based impactKuhn 2002, 8). Accordingwith to Akinsanmi, “impoverished rural women face multiple disadvantageslow of productivitytraditionally more vulnerable than man because they duehave much fewer entitlements (Cheston and to [and] macroeconomic conditions” (Kaur 2007, 2).Even if women are not poor they are countries have been more exposed to poverty than mendue to“socially constructed constraints One of the ways to empower women is to involve them in income-generating activities. Women’s empowerment is important for three reasons. Second 12 , womenare considered to spend better than Third , some scholars believe that the First , women in developing in , women CEU eTD Collection and the tools of assessing the impact of such programs (2006). women can be opposite. Therefore, he emphasizes theneed to improve the current programs the positive results of the existing programs are simply visibility. In reality, the situation of men in sharing burden ofloans (Armendariz and Roome 2008, 118-119). Fernando believes that as involving such societies, and families the within relations power changing at aimed measures women within families, societies and economies. Empowerment of women requires complex Fernando (2006) raise an important point about loans and responsibility increasing the burden on consideration ofneeds and circumstances of women. Armendariz and Roome (2008) and complex, including provision of complementary services, such as skills training, and entrepreneurs to betrapped in greater poverty. The services of many MFIs fail tobedesigned in than no income, such as absence of information, education and skills, can create risks for be beneficial only for profit-seeking financial elites (Bateman 2010, 50-51). Many factors, other governments and donor agencies focus on provision ofcredits but not the use. Such a setting can empowerment with provisioncriticized the existing microfinance programs for equalizing poverty reduction and women of credits. have authors as wellother (2006), Fernando and (2008), Roome and TheyArmendariz (2010), argue that the problemsin particular, it has raised criticism for not making the intended impact on target groups.emerge Bateman because MFIs, experience exchange, etc. and political support for their initiatives, developing networks and channels for information and equipping women with basic skills, education and information in relevant field, providing legal as such levels, national and atcommunity measures of set a includes italso but finance about decide on family budget and investment issues. Indeed, empowerment of women is not only in thefamily as one of the “breadwinners”. With increased income women have more power to or raising women’s income can make them less dependent on husbands and increase their status Despite the commonly supported belief of benefits of microfinance on the poor, women 13 CEU eTD Collection secondary education. or primary completed have 19% remaining The 4). 2011, HDR (UNDP education higher have empowering women (Cheston and Kuhn 2002, 41-42). Women’s Empowerment Project in Nepal, could have significantly improved the capacity for the world offer literacythat at least one member inaMFI client group is literate to guide the group. Verytrainings few MFIs in for Itisadvised sector. women. formalfinancial access the and enterprises tomanage for women problems Such literacy initiatives, as World Women’s general educationEducation and literacy and later in the thesis. need to learn basics of business planning, marketing, budgeting, etc. This factor will be discussed are former teachers and doctors who found themselves in new market relations (Li 2008) and people These have. dwellers urban that information to lackaccess often and areas rural in reside “to plan, calculate and project profit, and manage money” (Cheston and Kuhn 2002, 39-41). that complementary services can yield additional profits to MFIs, as their clients are better able Business training sustainability/profitability issues in approaches to microfinance: programmatic factors contributing to real empowerment of women and balancing the “properly”. Considering the above mentioned criticism, Cheston and Kuhn highlight several key The criticism of microfinance is important in learning from mistakes and making it work more programs, rather than completely abolish them, as noother programs have been operating so far. Business trainings are important for theclients of MFIs in Kyrgyzstan, as twothirds of them This programmatic factor is not relevant tothe case of Kyrgyzstan, as 81% of women Studies show that illiteracy is one of the problems in microfinance. Illiteracy creates show Studies acredit. to service a complementary as provided be can training Business The current situation in developing countries is such that it is better to fix the existing 14 CEU eTD Collection develop economy. This kind of political support for women is important, as it normally gives rise the role ofwomen in microfinance initiatives, which, inher view, helps to reduce poverty and emphasized she where Asia, Central of summit microfinancial the launched officially Otunbaeva their mobilization (Cheston and Kuhn 2002, 42-43). common problems of women can appeal to a feeling of women’s solidarity and contribute to of Discussion communities. in issues women’s of discussion apublic caninitiate stakeholders Dialogue onsocialand politicalissues enterprises of women. thesis, due to the lack of information about the extent to which husbands are involved in dedicate much of their time to household and family. However,understanding (Chestonit and Kuhn will2002, 42). not be discussed in thisparticipation of husbands are also held bysome MFIs in order toincrease their awareness and work/household balance of women. Joint events, such as orientations and group meetings, with International prioritized “outreach” to husbands of female clients seeking their support for management” for their client in Africa. Moreover, some MFIs, including Opportunity Trust and Opportunity International offered trainings on time management and “husband meet family and community expectations of women. For instance, African NGO Sinapi Aba responsibilities can beburdensome for women and requires special strategies by MFIs that would work and family balancing However, households. their from is away not that ofenterprise type normal household work that is significant in developing countries. Obviously, women chose the familyandBalancing workresponsibilities This programmatic factor is relevant to Kyrgyzstan’s context. Last year ex-President Roza To receive the social support for empowerment of women through microfinance, MFIs in Kyrgyzstan definitely need to consider this programmatic factor, as women By starting up enterprises, women increase their responsibilities in addition totheir 15 CEU eTD Collection communities may feel more comfortable working with women (Cheston and Kuhn 2002, 46-49). local in as women positions, field for true especially holds This offices. asfield aswell positions, Building institutions responsive to women’s needs complementary services in Kyrgyzstan. invested within their community. Therefore, this willfactor be discussed as creditpart of Definitely, this programmatic factor has a potential to 2002, 44-45). empower Kuhn and (Cheston saved women, if their savingsIndependence fromexternal sources significantlywill reduces therateofinterest thatis reinvested or be savings remain within the community, and the capital is spent in their own discretion. with little external support. Women are proud of ownership and autonomy in such settings. Their control, Ownership, and participatory governance later, as MFIs already include this programmatic component in their activities. discussed be will not chapter This enterprises. individual own their managing and up starting decision making for women. However, it can be also used to increase women’s capacity of Other means can be considered (Cheston and Kuhn 2002, 43-44). group leadership and promotion of active participation of all group members in decision making. making and leadership among women through trainings, consultations, periodical rotation of Experience in decision making and leadership Kyrgyzstan. to new assistance programs. This factor will be discussed in chapter on microfinance in For women’s needs to bemet best, MFIs could assign morewomen to management recently. only clients their for programs savings discussing started Kyrgyzstan in MFIs This factor is applicable toself-help groups and other savings-based community groups This programmatic factor is used in Kyrgyzstan in the form of trainings on leadership and Cheston and Kuhn believe that group lending can be used for the facilitation ofdecision 16 CEU eTD Collection in proper planning and application. popularity of its services. In this situation, the problem is not in the microfinance idea itself but generating income. critics, the evidence shows that it can contribute toeconomic empowerment byat least services specifically targeted at women. This factor will be reviewed later in the thesis. clients improve andneedto theexisting services towards the needs of womenordevelop new sector in the country is quickly growing. 7 largest MFIs are now competing among themselves for and women receiving smaller loan amounts than men” (Cheston and Kuhn 2002, 49-50). sometimes be perpetuated in microfinance programs, with men dominating mixed lending groups can disadvantages These legal environment. restrictive a cases, in many and, less education, “limited business networks and opportunities, greater domestic burden,weaker self-confidence, Kuhn 2002, 29) togenerate necessary information. Moreover, they should take into account and (Cheston feedback” andclient research, market monitoring, assessments, “impact conduct delivery schemes,they should consider thegender specific conditions ofwomen. They can Designing products to meet women’s needs important but will not be considered in this thesis. is factor programmatic This and 22 respectively. – 23 women men and of composed equally almost are Directors of Board and positions management top the see that can we Frontiers, and leading MFIs in Kyrgyzstan, including Bai Tushum& Partners, Mol Bulak Finance, Kompanion, MFIs are women. A strong argument for consideration ofthis factor is that the overwhelming majority of clients of The fact that the microfinance sector is expanding shows the increasing demand and Although microfinance is not a guaranteed tool for empowering women in the eyes of This programmatic factor is most important in Kyrgyzstan’s context, as the microfinance This factor reiterates what was said above. When MFIs design their products and product In fact, MFIs employ men and women equally in Kyrgyzstan. From the web-sites of 4 17 CEU eTD Collection Kyrgyzstan. of strategies development sectoral as aswell Program, Development Nations United and of Microfinance Organizations (MFOs) of Kyrgyzstan, National Bank of the Kyrgyz Republic, microfinance. and publications on websites of other local and international MFIs and institutions related to weblog of BaburTolbaev (Chief Executive Officer ofcountry’s leading MFIMol Bulak Finance) from Kyrgyzstan), only three interviews responded via e-mail. interviewees in microfinance. However, due totimeandtravel constraints (all interviewees are Kyrgyzstan were planned. The selection was based on the level of competence and experience of interviews with representatives of MFIs and organizations dealing with microfinancial issues in Chapter 2:Research Design Secondary sources are reports of local and international institutions, including Association For primary research Ialso use on-line newspaper articles and briefs, publications on Primary sources include semi-structured interviews (please see Annex). Initially, at least 10 This thesis is based on qualitative research design and covers primary and secondary data. 18 CEU eTD Collection paid positions, especially at local level. Women occupy only 9% of top positions in local higher education (UNDP HDR 2011, 4), they are under a disadvantage inaccessing top and well (Institute for War & Peacegender equality in Kyrgyzstan, such as increasing rates of home violenceReporting and bride stealing 2010). Though women (81%)Forms of Discrimination Againstequally Women (Art. 5 and 16). hold secondarythe Universal Declaration ofHuman Rights (Art. 7) and Convention on the Eliminationor of all addition, Kyrgyzstan declared its commitment togender equality at international level by ratifying of President“On family violence and measures of social and legal protection against family violence”,“On Decree measures rights”, reproductive “On women”, and men for opportunities and rights equal of guarantees to improveConstitution (Article 16, Section 4), Criminal, Labor and Family Codes, Laws “On state genderthe in proclaimed is equality Gender 2012). (Azattyk policies working into strategies and policy”but have fewer rights than men. Declaration of women’s rights often fails totransform( from laws Issues Women’s 3.1 today will be defined in order to provide the ways out of these problems. microfinance in Kyrgyzstan. Finally, the typical problems existing in themicrofinance sector microfinancial services important. Second, it will give the information onevolution of to women of access make which issues, the discuss itwill First, activities. generating try to investigate how to improve the role of microfinance in developing women’s income- stressed the role of women in developing microfinance initiatives in Kyrgyzstan. This chapter will Chapter 3:Women andMicrofinance in Kyrgyzstan In many spheres, however, there has been a trend towards worsening of the situation with Women in Kyrgyzstan constitute over 50% of the country’s 5.3 million strong population Ex-President Roza Otunbaeva in her speech to 2011 Central Asian Microfinance Summit 19 Ȳ 136 dated March 20, 2006). In CEU eTD Collection income. “By putting financial resources in the hands of women, microfinance institutions help reduction among women (Kadam n.d.) who were traditionally excluded from formal credits and creates certain risks for banks and deters banks from working with them (CCI KR n.d.). this and finance and market of knowledge poor the have women typically Moreover, microlevel. problems in accessing formal financial services, because banks are not willing to work at to farms/lands. As women typically need small-size loans for their enterprises, they face wholesale traders. Only 18% of women own private enterprises and only 15% have entitlements Most women are engaged in cropfarming and sell their products in outdoor markets or to and medium enterprises (Sultanbekova 2012) that are becoming their main source of income. get increasingly trapped in poverty and vulnerability as compared to men. traditional discrimination ofwomen in regard to their role in society and property rights, women within their familiesthem. Often they have noentitlementsand to estate and lands and excluded from decisioncommunities making (Kadamtimes more of their time for these expected responsibilities and certainly do notgetn.d.). paid for Due to thechildren and (grand) parents,failure tolabor in household and farms. Studies show that they spend 3.5 of gender of care take to expected are Women 2012). Kolesnikova 2010; (Adamaliev traditions policiespatriarchic and women in the country participate in the formal labor market (UNDP HDR 2011, 4). higher than men’s (Kutueva 2009). According to theGender Inequality Index, only half of the years old at work (Sultanbekova 2012). The official level of unemployment of women is 1.5 times report that the gender problem can be aggravated with age discrimination of women above 40 qualifications, women’s wages make up only 67% of what men earn. In addition, some sources Despite 2012). (Kolesnikova positions making decision local and in state women 30% of least at governments despite thefact the Decree “On measures to improvegender policy” stipulates for In this situation, microfinance has been becoming a popular and feasible tool for poverty Today women have found their niche in economy through active involvement in small Today two thirds of the population resides in rural areas with strong social and cultural 20 CEU eTD Collection microfinancial organizations with wide range of services. around the world (President 2011) from informal village-based self-help groups to commercial Kyrgyzstan. Today the country has adopted all microfinance and microcredit models practiced services. Credit portfolio diversification is also attheir discretion (AMFO n.d.). and products credit of a widerange candevelop They rates. commission and interest and loans of sizes own their dictate can MFIs activities. their for limits liberal quite setting by institutions “On credit unions” and “On microfinancial organizations”. The laws favored microfinancial self-help groups. (Marat 2008). These initiatives took poverty lending approach and worked mainly with informal support of international donors, such as UNDP, the World Bank, EBRD, ADB, and others 2012, 3). In the following years, the number and funding of such initiatives increased with the 3.2 Evolution ofMicrofinance MFIs, state sector and donors in Kyrgyzstan held within the last year. particular focus takingon concrete steps towards the solution ofproblemsthe existing in themicrofinance sector with role of women.(President This summit 2011). Mostlaid importantly,develop microfinance as a tool basisfor fighting poverty and economic development in Kyrgyzstan for initiation the wide Otunbaeva. The of declared goalsdialogue of summitthis were to share best practices, attract donors andsummit bybetween the presidentthe first Central Asian Microfinance Summit was held upon the initiative of ex-presidentwas Roza the sign for level the playing field and promote gender equality” (Cheston and Kuhn 2002, 11). Last summer The basic institutional and legal framework allowed for quick growth of MFIs in MFIs of growth quick for allowed framework legal and institutional basic The Within few years the legal framework for microfinance was developed, including Laws The first microfinancial initiative was launched in Kyrgyzstan in 1995 by FINCA (FINCA 21 CEU eTD Collection confirms the proposition that profit-seeking incentives of commercial MFIs lead to their their initiatives, the Association is effectively approaching the government and donors. This crucial for their success.achievements indicate that planning and coordination of activities by MFIs in KyrgyzstanHere were the role ofinformation among thethe members of the Bureau and thus to avoidlargest risks of over-indebting. These commercialInformation Bureau Ishenim was established. Itallows forthe exchangeMFIs of credit history is important. Credit addition, In 2012). (Saakyan 2011-2015 and 2006-2010 for strategies development As upon Asia to create Association of Microfinancial Organizations and develop medium-term deposits are expected to rise from 0.02% to 1.5% to GDP (Dudka 2012). internal reserves are expected to grow from 35 million KGS to 5 billion KGS, and therefore, the expected to double and the number of clients might exceed 600 thousand people. In addition, the National Bank forecasts for 2011-2015, within theupcoming 5 years, credit portfolio ofMFIs is not have had the effect they have today without foreign support (Mombekov 2012). According to to external sources make up over 57% ofthe total credit portfolio. MFIs in Kyrgyzstan would Commercial Bank KYRGYZSTAN, in terms of net profits (Tazabek 2012). Obligations of MFIs 2012). In 2011, some MFIs outperformed the commercial banks, such as EkoIslamikBank and companies operate with the assistance of donors and international financial organizations (Dudka portfolio belongs to only seven institutions (Pleasecannot access banking services and therefore prefer microfinance.see Table 1 for the ratingcities, of MFIs).as well Theseas from villagesmoney, (DudkaMFIs 2012).cover This90%rate for banks makes up 24% and forindicates MFIs is 38% (Tazabek of2012). Though banks charge less all usersto theinterest average The respectively. fact rates interest of38-100% and 22-28% charges group Each microfinancialtoday. that most of the clients services or 400 thousand clients from Among other achievements of MFIs is that Kyrgyzstan was the first country in Central Despite the big number of registered MFIs in the country, 85% of the aggregate credit Kyrgyzstan in 454MFIs and banks 22commercial are there Bank, toNational According 22 CEU eTD Collection foreign donors give loans only to MFIs with portfolios larger than 2 million USD (2012). fully subsidized and profitdependent agencies on foreign registeredfunded institutions, suchdonor as Ayil Bank and newly created Ala Too Finance, and numerous non- funding,in Kyrgyzstan as in theare viewnot capableof Ulan Mombekov,of increasingso far. their portfolio.effectiveness, economy and sustainability relative tosubsidized lending programs in Kyrgyzstan They are As Table 1 illustrates, the leading MFIs in Kyrgyzstan are all commercial. Government- allcommercial. are Kyrgyzstan in MFIs leading the 1illustrates, As Table 23 cannot distribute profit among its members and spend it for the goals of its By-Laws) individuals) and entities No 3. Microcredit agency (credit entity in the form of non-commercial organization that can give microcredits to legal entities and individuals and 2. Microcredit company (credit entity created in any organizational-legal form ofcommercial organization that can give1. Microfinancial microcredits tocompany legal (financial and credit entity in the form of joint stock company that can give loans to legal* Please entities note thatand individuals)the Law of the Kyrgyz Republic on Microfinancial Organizations stipulates for the following three 2012) types(Tazabek of MFIs 7 6 5 4 3 2 1 Table 1:Rating ofthelargest MFIs* in Kyrgyzstanbased ontheircredit portfolio, net profit,number ofclients, andcapital “Microcredit Company OKSUS” Microcredit Company” Company “Frontiers” Finance” Partners” “Microfinance Company “Bai-Tushum & Kompanion” “Microfinance Company “Financial Group “Microcredit Company Finca” Total for MFIs: Total: Closed Joint Stock Company “Pervaya Company Stock Joint Closed Limited Company “Microcredit Bulak “Mol Company Microcredit Closed Joint Stock Company Closed Joint Stock Company Closed Joint Stock Company Name of MFI

CEU eTD Collection (Kyrgyz soms) thousand KGS portfolio, Credit 14 498674 665.43 12 261 139 282 458 298 707 929 2 509586 2 546431 2 763970 3 136170 24 of MFI,% portfolio of credit Share 100 84.57 0.96 3.16 4.88 17.31 17.56 19.06 21.63 thousand KGS 1 137 308.96 1 137 736 264.55 24 535 9 332 39 348 271 735 104 361 157 646 129 308 Net profit, r ofclients 463 691 417 512 3794 13 514 78 105 125 35428 137310 122 263 Numbe clients, % 100 90.04 0.82 2.91 0.02 22.67 7.64 29.61 26.37 Share of Share KGS thousand 6 583943 3 076758 23 917 241 704 290 824 1 344378 740 079 824 189 956 046 Capital, CEU eTD Collection Baitushum &Partners is convinced that the state should notsolve its social problems at the loans in KGS, whereas MFIs take their own loans in foreign currency. Gulnara Shamshieva of itself creates conditions for high interest rates, such as issuing high bonds and making MFIs give state the is that criticism of such kind to MFIs commercial the of response The 2012). (Dudka that so far microfinancial services covered only 10% of population and needed to be expanded interest rates and forgot that microfinance was intended for poverty reduction. She emphasized criticism against MFIs. She said that MFIs were turning into moneylenders charging exorbitant there is a serious possibility offailure of the program. fact that the loans will be distributed without any complementary services, such as skills trainings, about inefficiency, wastefulness and non-sustainability of the program (Tsoy 2012). Given the about possible market distortions due tothe below-market annual interest rate of 7%, as well as selection and distribution of loans. The second argument is voiced by MFIs, who are concerned in transparency of is lack case previous the in like program such against argument first The announcement spurred the wide discussion of this program not only by the people but MFIs. collateral and individual loans based on property collateral (Dudka 2012). Unsurprisingly, the unemployed from rural areas. This non-profit initiative will provide group loans based on social Kumtor Operating CJSC. It is planning to spend another one billion KGSfor supporting the raised by those who did not receive loans (Bengard 2012). According to Bank’s representative, the complaints about nepotism and corruption are being Of 11.5 thousand applicants only 1.3 thousand farmers received loans at 7% annual interest rate. intotal. KGS 1 billion receive to are producers agricultural The 2012). (Tazabek out given were charge of the program is under investigation right now. So far 700 thousand Kyrgyz soms (KGS) much public criticism for ill practices in distribution ofcredits to the target group. Ayil Bank in During the recent press meeting of the Association of MFOs, Roza Otunbaeva leveled a This spring the government announced the new poverty lending line sponsored by The recently established poverty lending line “Accessible Creditsfor Famers -2” raised 25 CEU eTD Collection economic crises in partner countries, which are beyond the control, will not be considered here. on social and political issues. including (1) business training, (2) designing products to meet women’s needs, and (3) dialogue activities of MFIs based on three selected programmatic factors of Cheston and Kuhn (2002), women as a separate client group. the specific problems constraining the appropriate application of the microfinance idea to clients. The government and MFIs developing microfinancial programs need to pay attention to the conditions of accessing the microfinancial services by women, as they make up 65% of and MFIs in Kyrgyzstan. Tackling the general problems in the sector can by definition improve microfinancial services particularly. These problems emerge onthe side of both thegovernment that need to beaddressed to improve the performance of the sector overall and women’s use of 3.3 Problems Existing in theMicrofinance Sector and Ways Out Themof meet social goals but will have sustainable effect on target groups. programs, it needs to set a dialogue with MFIs and develop financial products that will not only towards loss-making programs or opposing itself against MFIs through poverty reducing government has toreview its relations with the microfinance sector. Instead offorcing MFIs dependent on macroeconomic performance, which needs to beimproved (Dudka 2012). The rely onfull donor support and therefore have tosustain themselves. MFIs are completely expense of the market-oriented microfinance sector. Inher view, MFIs in Kyrgyzstan nolonger Additional external factors complicating the work of MFIs, such as political instability or instability as political such ofMFIs, work the complicating factors external Additional Problems specific to women will be discussed as part of problems emerging from Despite thesignificant achievements in microfinance the sector, there arestill problems 26 CEU eTD Collection discussion of possible setting of ceilings for loans. While it is good to regulate the MFIs to certain who were “surprised” by theannual interest rates reached 100%exorbitant (Tazabek 2012). This drew the attention ofparliamentarians, rates set by some MFIs. As a result, theythe hedging costs increase the costs of loansstarted to ordinary clients by 10% (Bairamukova 2011). the that is a bad sign for the national budget (Dudka 2012). The steady growth of interest rates makes as in previous years (Tsoy 2012). Last year the interest rate of government bonds reached 35% engaged in currency conversion operations for MFIs charge a 12-13% interest rate instead of 4% demand for money and thethe level of bonds because of heavy publicinterest spending through domestic borrowing. This raised the rate in thebudget planning in theMinistry of Finance,country in recent years the government has been increasing (2012). As (Tsoy 2012).a Second, accordingresult, to Daniyar Imanaliev, who was responsible for medium-term commercialfrom banks international financialthe shortage of internal resources, MFIs from Kyrgyzstan take loans at19-20% interest rates institutions,in Kyrgyz soms, whereas MFIs take theirloansfrom external lenders inforeign currency.Given as compared to 3-4%inflating prices of their services. First, the governmentrate requires MFIs to give loans to their clients set for developedare as ifthey appear makeMFIs and sector banking commercial the than higher times two countries Unfavorable fiscaland socialpolicies look at them in detail. microfinance in their interests create numerous obstacles to the application of these efforts. Let’s forecasting and planning, as well as political forces in power manipulating with theissue of microfinance sector, the existing fiscal and social policies, legal framework, the absence of government the emergingfrom Problems Recently the National Bank closed down MFIs, such as Money Trust and Ala-Too, whose almost MFIs of rates interest make that factors two are there fiscalpolicy, of area the In Though the current government is making efforts to assist the development of 27 CEU eTD Collection credits and provide clients with information on how to engage in business, introduce new be designed differently. He thinks that thestate should notfocus on provision but theuse of distortions. Babur Tolbaev believes that though such initiatives should bewelcomed, they should However, others believe such programsare not effective investment and can create market 2012). (Dudka government. state on the are risks All MFIs. commercial on impact negative believes that these kinds of programssuch program on them. Ulan Termechikov, Chair of Board of the leading MFI Kompanion, are important for the the advantagesextremely and disadvantages of such programs. MFIs divided intheir view of the impact of poor and will not haveprograms for the agricultural a producers and the unemployed. This already raised the debate about 2012). (Tsoy ceilings the government should think of policies that would naturally decrease rates without theneed for ceilings, setting of instead saysthat Partners & BaiTushum of Torobaeva Nurgul market. the on Lack of predictability and consistency in government actions will have an opposite negative effect international organizations, such WTO, as well as for the investment climate (Tazabek 2012). in some Latin American and African countries (AMFO 2011, 9). calculated (Mambetshaeva 2012). The failure of such ceiling “experiments” have been observed government will not know about it, as MFIs will conceal information how the rates for loans are even push them out ofthe market. This will increase the price of loans but the clients and the loss. According to National Bank, this may drive MFIs underground and reduce transparency or only if it pays for the difference it creates in the market (Kutueva 2012). 2012). The interest rates are regulated by the Civil Procedure Code. The state can lower the rates the National Bank, the current law prohibits this kind ofintervention in rate setting (Tazabek extent, heavy intervention is not good forthe market, which was declared liberal. According to In the area of social policy, recently, the government introduced two poverty lending This kind of intervention in the private sector is not good for the image of the country in The artificial interest rates can bebelow the market rate, and MFIs will be operating at 28 CEU eTD Collection government, MFIs cannot consult their clients on these issues. Inaddition, when the government etc. Since there is where to sell them, whereno to obtain information and technologies,quality what the weather will be like, forecasting and planning andplanning forecasting ofmacroeconomic Absence for the agriculturaland dishonest MFIs. sector by the stateThis kind of provision is important if the state wants to differentiate between socially-oriented interest rate calculation which could allow choosing between different MFIs (Turgunbaeva 2011). the government to consider and adopt the changes. and savings. So far, MFIs have developed documents for amending the law. Now is the time for showed interest in such services, as money transfers, mobile banking, micro insurance, leasing study conducted by M-Vector for the Association ofMicrofinancial Organizations, people 2011 the to According revised. lawis if the services, of range awider include may Kyrgyzstan then beultimately put ontheclients. conversion operations and allow them to give cheaper loans to clients. Though, these risks would reviewed the law and allowed MFIs to giveOrganizations thatloans establishes the currency requirements in for MFIs. The governmentforeign could have currency, reducing risks of MFIs in framework legal Inadequate poor develop commercially sustainable enterprises. jointly with MFIsto avoid the andundesirable unexpected and outcomes tohelpthe extremely active poor,thegovernment’s social initiatives However, areneeded. they should bedeveloped technologies and develop associations (2012). Given that MFIs largely focus on the economically The law also lacks the mandatory provision for informing borrowers about the effective in Microfinance loans. giving to MFIs of activity the lawlimits the Additionally, Today the problems with services by MFIs emerge from the Law on Microfinancial As 80% of clients of MFIs are villagers, they need to know which kind of crops to grow, for the agricultural sector 29 CEU eTD Collection region (AMFI KR 2011, 10). The study conducted by M-Vector for the Associationeach in offices representative mainly of with MFOs offices branch of in number limited have MFIs 2012). covers only 10% of people. The remaining 90%also need financial assistance (Berezovskaya Low penetration in regions complementary services. penetration in regions, over-indebtedness, existence of dishonest MFIs, and little range of emergingfromMFIs Problems consistently, the government has to demonstrate its support and stop politicizing it. damages the reputation ofwell-performing MFIs. For the microfinance sector to develop this 2012).Obviously, (Tsoy a“scapegoat” MFIs and make problems economic away from the microfinance sector, to reduce the rates. Some suspect this is done to take people’s attention Parliament is in thepopulist promises by some politicians, who are not aware of the situation in in thecountry (Samsalieva 2012). The fact that discussion ofceilings on interest rates reached the Administration pushing for reduction of interest rates and threatening with the third revolution dishonest MFIs (2012). Recently, there have been protest actions in front of the President’s microfinance issue may drive the best MFIs underground and reinforce moneylenders and issue microfinance the of Politicization performance of Ministry of Agriculture that is responsible for the sector. (Musaeva 2008), lowering prices and revenues of local producers. This shows the unsatisfactory this 40% ofnational grain reserves were filled up with cheap grain from neighboring states instances when the government promised grain producers to buy their products but instead of makes promises to buy some kind of commodity from farmers, it should keep them. There were As put byRoza Otunbaeva, microfinance is like “drip irrigation” in Kyrgyzstan and low including public, the in discussed problems several are there MFIs, of side the On According to Damir Dosumbetov of MFI Kompanion, the politicization ofthe 30 CEU eTD Collection MFOs recommends equipping the National Bank with more powers for developing market assist the public and clients in differentiating “good” MFIs from “bad” ones. The Association of ensure that clients use the services of socially-oriented MFIs, the government and MFIs have to and problems reputation these avoid To 13). 2011, KR (AMFI methods (violent) criminal using debt bondage (Tsoy 2012). Often credit repayment in informal ordishonest MFIs is “ensured” without informing their clients preliminarily about rate calculation methods, they put them into damage thereputation of the microfinance sector overall. Charging interest rates up to100% and are dishonest Some asvisible. are not that institutions small-scale are 418MFIs remaining high quality of services, equality of members and clients, and professionalism (AMFO n.d.), the Existence of dishonest MFIs information exchange. possess all credit histories.among MFIs. CIB Ishenim does not cover all MFIs in the country and therefore does not Therefore,(Dudka the government 2012). To address needs National theBank, this happens becauseto clients problem,of MFIs and their devisecreditability are not analyzed well theremechanisms to According 2012). is(Tsoy (98.5%) records repayment a good of need because a crisis into turning forfacilitating a better exchange ofAccording credit history to Credit InformationOver-indebtedness Bureaucontributions for staff members of MFIs could have reduced the priceIshenim, of loans (2012). expenses, especiallyit in regions. InDamir Dosumbetov’s view, reductionhas oftaxes and mandatory reached(AMFI KR 2011, 17-18). However, the biggest expenses born by MFIs today are operational30%. The areas rural from mostly families by services microfinancial for need the revealed Kyrgyzstan problem is not Besides 36 MFIsin Kyrgyzstan who agreed to abide bytheprinciples of transparency, The problem of over-indebtedness in the microfinance sector is the most discussed today. 31 CEU eTD Collection who urgently need agricultural equipment, agricultural need urgently who but are not present or underdeveloped, are remote areas. Among the complementary services, which have big potential and are in demand in offices branch operating of costs such ashigh factors, other and framework legal inadequate designing products that would meet the needs of clients, women in particular, because of the Programme for Kyrgyzstan n.d., 17). “access to information is key to entrepreneurial activity of women” in Kyrgyzstan (EU CA Invest consider opening of hotlines and information resource centers in regions because as investors say by them, tending and storage issues. Inaddition, to extending information to regions, MFIs could engaged in cropfarming, the training programs could specifically cover the sorts of crops grown are women most skills. Because basic training and awareness inraising MFIs and agencies situation, the solution tothe problem lies in developing joint measures between the relevant state this In 2012). (Tolbaev productivity their affect would that conditions natural regarding agencies primitive skills ofplanning their business. Moreover, they lack information from relevant state information about animal husbandry and crop farming. Farmers run their enterprises based on expertise inof clients arefrom rural areas, they need advice onagriculture as well. However, MFIsoftenlack this field.consultations for clients on the issues Baburof business planning, marketing, etc. in the field. As 80% TolbaevKR 2011, 15-16). MFIs organize trainings for their staff, who in turn hold trainings and suggests that agricultural components complementary credit Few producers 39). 2011, need tomechanisms stimulating honest competitionbe and transparency of services by MFIs (AMFIgiven KR (2) microleasing offered today only by commercial banks and very convenient for villagers (1) savings most demanded in rural areas due to distance of banks, in limited are MFIs services, advisory and training with loans complementing Besides (AMFI commerce and farming, crop husbandry, animal for taken loans are most Today 32 CEU eTD Collection improving their image and for women by empowering them. promotion of women’s issues in society and politics would be a win-win situation for MFIs by issues, there is a good possibility for media coverage and public discussion. Appropriate activities that show their social responsibility. If these MFIs show their interest in women’s government, media and civil society. The leading MFIs have supported many public events and working with theprotected by law, the state, whose taxpayers areinformal concealing revenues, and MFIs, who take risks of is not labor whose women, for problems creates sector. microenterprises informal run to prefer women So far MFIs(Isaeva 2012). Thefact that the government does not know or havedoes not want to know why these been sector informal/shadow the within successful are enterprises women’s 70%of Today informally. will work in communicatingsociety get reduced (CCI KR n.d.). Even if a women starts up her own enterprise, most likely she and in afamily rights and status her aresult, As awoman. buys basically side the man’s withwhen ransom, bride will, and/or her against marriage into istaken she when stealing, bride of practice depriving them of income. Often a woman enters the husband’s family through thenotorious north of the country. Conservative traditions of south keep their women within households initiate. Gender analysis of SMEs revealed that women’s entrepreneurship is more developed in services would contribute to their empowerment. againlabor migrants from abroad (AMFI KR 2011, 20-23). Provision of women with these remittances, but not allowed by law for MFIs, Dialogue onsocial and political issues of women is another component that MFIs could (5) mobile banking also not allowed by law but with promising demand from villagers and send relatives whose villagers, among demanded highly services payment and transfer (4) (3) microinsurance developed at informal level but not present in formal MFIs, 33 CEU eTD Collection functioning of the microfinance sector in Kyrgyzstan, as well as theimpact of microfinancial diversified and supported by the state. complementary components are insufficient for effective use of services by clients and need to be borrowers into bad loan conditions and damages the reputation of “good” MFIs, and few credit 30% of clientspoor, women in particular, over-indebtedness creates potential risks for MFIs and their clients as are borrowingregions due tohigh operation costs creates physical constraints for accessing services by the too many creditsMFIs. of at once, existencein information vacuum, and politicization of the microfinance issue that damages the reputation ofplanning for the agricultural sector that makes rural borrowersdishonest plan and organize their enterprises allows dishonest MFIs operate in the market, absence of macroeconomicMFIs forecasting and puts and MFIs by products and services of diversification impedes that framework legal inadequate unfavorable fiscal and social policies that indirectly inflate interest rates of loans for borrowers, result from the activities of the government and MFIs. the microfinance sector, access of women to microfinance is constrained by the problems that economic empowerment of women. However, research shows that despite theachievements in for a tool as seen is activities income-generating small for accessibility Itsrelative income. and reducing poverty, especially amongwomenwho were traditionally excluded fromformal finance and economic crises and draws the public attention because it has significant potential for political of at times sustainability its proved It areas. in rural even enterprises medium and small Conclusion The limited scope of this research suggests the need for further study of evolution and Apparently, on the side of microfinance institutions, the problem of low penetration in Research reveals that the problems emerging on the side of the government include Microfinance is one of the economic “miracles” in Kyrgyzstan that has been supporting 34 CEU eTD Collection in designing their development and gender strategies. states Asian Central neighboring guidefor as alessons couldserve and country the in sector the programs on clients and population in general. This could help toimprove the performance of 35 CEU eTD Collection Mombekov, Ulan Mombekov, Daniyar Imanaliev, Dosumbetov, Damir Annex: List ofInterviewees and Interview Questions List of interview questions Name of interviewees List 8. 7. 6. 5. 4. 3. 2. 1. 9. In your view, which factors contributed to quick development of MFIs in Kyrgyzstan, as It is believed that Kyrgyzstan has the highest interest rates for group credits. Why? In your view, what is necessary to improve in the work/services of MFIs to provide more Were the best international practices used in the work of MFIs in Kyrgyzstan? In your view, which measures should the state undertake to help MFIs? In your view, to which extent are MFIs sustainable without foreign donor support? Which challenges/problems MFIs in Kyrgyzstan face in their activity? How would you do assess it? What is the role of MFIs in local economic development in Kyrgyzstan affordable and effective services that meet the needs of clients? compared to other countries of Central Asia? Ayil Bank Representative Office, Former Regional Head of Ministry of Finance Department, Policy Budget Division Medium-term Budget Forecast Former Senior Specialist, Kompanion Microfinancial company Department, CreditAdministration Head of this research this Experience relevant to 36 May 20, 2012 May 29, 2012 May 31, 2012 May Date CEU eTD Collection Dudka, Irina. 2012. Anjelika Li. Anjelika 2012. Irina. Dudka, Dosumbetov, Damir. 2012. Interview by author. Budapest. May 31. 2010. Milford. Bateman, Cheston, Susy and Kuhn, Lisa. 2002. Empowering Women through Microfinance. Paper CCI KR (Chamber of Commerce and Industry). No date. “Zhenschiny v Biznese” (Women in CGAP. No date. “Who Are the Clients of Microfinance?” Cawthorne, Alexandra.2008. TheStraight Facts on Women in Poverty. Brix, Laura. 2009. 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