Technical Assistance Consultant’s Report Project Number: 43359 October 2013 Regional: Financial Sector Development in Central and West Asia (Financed by the Asian Development Bank’s Technical Assistance Special Fund) Tajikistan: Boosting Access and Development Prepared by David Lucock, Geraldine O’Keefe, Gulshakar Fatkullina, and Silke Mueffelmann of Frankfurt School of Finance & Management, and Lotte Schou-Zibell of Asian Development Bank This consultant’s report does not necessarily reflect the views of ADB or the government concerned, and ADB and the government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design.) TajikisTan’s Finance secTor Boosting Access and Development finance sector development / 2013 By david lucock, Geraldine o´Keeffe, Gulshakar fatkullina, and silke mueffelmann of the frankfurt school of finance & management and lotte schou-Zibell of the asian development Bank Appendixes iii Contents Foreword . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. v Abbreviations................................................................................................ vi Executive Summary ....................................................................................... vii The Finance Sector: An Overview ............................................................................ 1 General Outline of the Finance Sector . ...................................................................... 1 Economic and Financial Growth . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .......................1 Impact of Foreign Worker Remittances on the Finance Sector .. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ..2 Gender Issues . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .........................................4 Background .. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 4 Use of Financial Seervices .............................................................................. 5 Legal and Regulatory Framework. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 5 General Legislation ..................................................................................... 6 Monitoring of Financial Institutions . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ....................6 e-Banking . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .........................................6 Lending by Financial Institutions . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..........................8 Overview of Finance Sector . ............................................................................ 8 Microlending . .......................................................................................10 Small and Medium-Sized Enterprise Lending . ............................................................12 Agricultural Lending....................................................................................12 Small-Scale Renewable Energy Investments ...............................................................13 Leasing Services . ....................................................................................17 Funding of Loan Portfolios .. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 17 Efficiency of Financial Intermediation .....................................................................18 Finance Sector Infrastructure for Improving Loan Security .. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 19 Banking Sector Deposits . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ...............................20 General Indicators. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 20 Market Potential . ....................................................................................20 Interest Rate Structures . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ............................21 The e-Banking Environment . ..............................................................................22 Supply of e-Banking Services .. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 22 Demand for e-Banking Services . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ......................26 Finance Sector Constraints.................................................................................27 Overall Sector Analysis .................................................................................27 Specific Constraints . .................................................................................27 e-Banking Constraints .. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 29 Opportunities . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 31 e-Banking . .............................................................................................31 Improved Outreach of Services through Efficient Microfinance Institutions . .......................................32 Financial Product Development . ...........................................................................32 Agricultural and Rural Finance...........................................................................32 Marketing Financial Services to Businesses and Households . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 33 iv Tajikistan’s Finance Sector: Boosting Access and Development Activities and Donors .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 35 Government Finance Sector Interventions . ................................................................. 35 National Bank of Tajikistan............................................................................. 35 Donor Finance Sector Interventions . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 35 Asian Development Bank. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 35 International Monetary Fund . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 35 World Bank .. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 36 International Finance Corporation ....................................................................... 36 European Bank for Reconstruction and Development . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 36 Kreditanstalt für Wiederaufbau . ....................................................................... 36 Intervention Options . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .39 Summary of Intervention Options .. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 39 Output 1: Incorporation of E-Banking into the Finance Sector .. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 40 Step 1—Agency Banking Business Case ................................................................. 40 Step 2—Mobile Financial Services Regulatory Review and Development .. ... ... ... ... ... ... ... ... ... ... ... ... 40 Step 3—Support Piloting of Mobile Financial Services .. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 40 Step 4—Build Links Between Card and Mobile Systems . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 41 Step 5—Support Innovations to Increase Volumes Through Mobile Finacial Services . .......................... 41 Step 6—Financial Literacy and Capacity Building . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 42 Output 2: National Bank of Tajikistan Applies Enhanced Supervisory and Monitoring Methodology .. ... ... ... ... ... ... 42 Appendixes .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 45 Appendix 1: Statistical Tables .. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 45 Appendix 2: Electronic Banking . ...........................................................................50 Mobile Financial Services .. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 52 Appendix 3: Impact of the Proposed Microfinance Law .. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 54 Impact on Identified Microfinance Institutions . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 54 Micro-Impact of Proposed Legislation.................................................................... 55 Recommendations .. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 56 Comments Received Concerning the Proposed Legislation .................................................. 56 Appendix 4: Microfinance Institution Growth and Financing Options . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 60 Appendix 5: Draft Design and Monitoring Framework—Tajikistan . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 63 Currency Equivalents Currency Unit = TJS (6 March 2013) TJS1.00 = $0.2103 $1.00 = TJS4.7541 (31 December 2012) TJS1.00 = $0.2099 $1.00 = TJS4.7644 (as of 16 December 2011) TJS1.00 = $0.2101 $1.00 = TJS4.7589 Abbreviations v Foreword Tajikistan is the poorest of the former Soviet-bloc