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Market Research Brief on Financial

Inclusion Sector in Kyrgyzstan

Financial Inclusion Sector

According to the World Bank, in 2014, only 18.5% of the 5.72 million people above the age of 15 in Kyrgyzstan
had an account with a bank or other financial institution. Additionally, for Kyrgyzstan’s poorest 40% this
percentage falls to just 14.8%. While this startling unbanked percentage represents a significant failing of
Kyrgyzstan’s financial system to extend financial inclusion in its current state in and of itself it is the number of
people who are underbanked which is even more alarming. In 2014, only 4.9% said that they had saved at a
financial institution in the year 2014 and only 13.5% said they had received credit from a financial institution
during that same time period.

From this data it is clear that banks and other financial institutions, including MFIs, do not currently satisfy the
demand for financial inclusion present in Kyrgyzstan. This causes the people of Kyrgyzstan, specifically those in
rural areas of the country, to turn to other methods of achieving their financial needs. In the same study 2014
study by the World Bank it was estimated that 37.4% of the population had borrowed money out of which 21%
people borrowed from family and friends.

The banking system of the Kyrgyz Republic consists of the National Bank of the Kyrgyz Republic and
commercial banks. Banking activities are regulated by the Law of the Kyrgyz Republic “On the National Bank”
and the Law of the Kyrgyz Republic “On Banks and Banking”.

The National Bank is a central bank of the Kyrgyz Republic owned by the Kyrgyz Republic. Powers and
functions of the National Bank include:

o Determination and implementation of the monetary policy in the Kyrgyz Republic;

o Issuance of licenses for all types of banking operations;
o Exercise of currency regulation, including issuance of guidelines for foreign currency transactions, as well
as purchase, sale and exchange of foreign currency in accordance with Kyrgyz law;
o Exercise of other functions and powers in accordance with Kyrgyz law.

Role Of Banks
Banking operations subject to licensing include: deposit-taking operations; investing own or borrowed funds;
opening and maintaining accounts of individuals and legal entities; independently establishing correspondent
relations; carrying out settlements upon the request of customers and correspondent banks; providing cash
services to them; issuing, cashing, accepting, keeping, and confirming payment instruments (cheques, letters of
credit, promissory notes, and other instruments), including credit and debit cards; purchasing and selling debt
(factoring); promissory note and bill of exchange forfeiting; issuing debt securities (deposit certificates, bonds,
promissory notes); performing financial leasing transactions; issuing bank guarantees; providing paid services
using electronic money in the form of prepaid cards.

First microfinance institutions (MFI) in Kyrgyzstan appeared with the support of international donors. Thus, for
example, FINCA Microfinance Company was one of the first to start operations in 1995. Today, Kyrgyzstan’s
microfinance sector has a great diversity of participants engaged in microfinance. According to the National Bank
of the Kyrgyz Republic, as of October 31, 2013, the microfinance sector consists of 4 microfinance companies
(MFC), 212 microcredit companies (MCC), 65 microcredit agencies (MCA), and 155 credit unions (CU), of which
12 CUs may take deposits from their participants.
The table below lists some of the distinguishing characteristics among different types of microfinance institutions
operating in Kyrgyzstan:
Business legal structure
Minimum size of charter capital
Other distinguishing characteristics
Open joint stock company

Closed joint stock company

Specific requirements for MFC founders are described in more detail below.
For current MFCs:
- KGS 10 ml. – for non-deposit-taking MFCs;
- KGS 50 ml. – for deposit-taking MFCs;
For new MFC:
- KGS 50 ml. – for non-deposit taking MFCs;
- KGS 100 ml. – for deposit-taking MFCs.
Are allowed to take time deposits from individuals and legal entities (if properly licensed)

Any business legal structure permitted for commercial organizations
Legal entities and individuals permitted by Kyrgyz law, irrespective of place of incorporation of legal
entities or place of residence or citizenship of individuals.
For current MCCs:
- KGS 50,000 for non-branch MCCs;
- KGS 100,000 for MCCs with branches.
For new MCCs:
- not less than KGS 5 million

Any business legal structure permitted for non-commercial organization (except political parties, trade
unions, religious organizations)
Kyrgyz law does not specify a minimum size of the charter capital for a MCA since it is a non-commercial
MCAs may not distribute profit among their participants and may only use it for the attainment of their
statutory goals

10 or more Kyrgyz-resident individuals:
1) having similar occupations or professions or the same employer; or
2) residing in one or more nearest settlements or one district.
- not less than KGS 30,000 for credit unions not licensed to take deposits;
- not less than KGS 500,000 for credit unions licensed to take deposits from credit union participants.
CUs help their participants (members) by pooling personal savings of CU participants and using them
for mutual lending

To coordinate their efforts, protect and represent the common interests, and to carry out joint projects,
microfinance institutions establish their associations. Thus, the Association of Microfinance Institutions (AMFI)
was founded in 2005 with the mission to create and maintain the enabling environment and enhance the
capacity of microfinance institutions. The Credit Union and Cooperative Association was founded in Kyrgyzstan
in 2007.
The Kyrgyz Republic was the first among Central Asian countries to adopt, at the national level, the Medium-
Term Microfinance Development Strategy for 2006 - 2010, initiated the development of which was the NBKR.
After this strategy was completed, the National Bank of the Kyrgyz Republic jointly with the Association of Micro
Finance Institutions and the Government, with the technical support of the German Society for International
Cooperation (GIZ), have developed a draft strategy and plan for the development of microfinance in 2011 - 2015.
According to the NBKR, it is necessary to develop deposits in the microfinance sector and incorporate them into
a system of deposit protection. These changes are included in the concept development of the sector until 2015.
The Association of Microfinance Institutions (AMFI) was established in 2005 on the initiative of the four leading
microfinance organizations - Bai-Tushum, Kompanion, Frontiers and FINCA. The AMFI coordinates the
interaction of its members in the development of microfinance sector, execution of members’ joint projects, as
well as promotion and protection of common rights and interests of its members.

FMCC-First MicroCredit Company (FMCC) client in Kyrgyzstan.

FMCC was established in 2006 to provide microfinance facilities in the rural mountainous areas of the Osh and
Naryn provinces, which suffer from some of the highest poverty rates in the country. Despite the difficulties of
operating in the mountainous region and amid economic hardship, FMCC has now grown its network to 13
branches, and serves more than 14,000 clients, with over 90 percent in rural areas. FMCC is now the largest
microfinance provider in the southern region of the Kyrgyz Republic.
Most cooperatives in Kyrgyzstan are production cooperatives – successors of former collective farms. • There
are hardly any “pure” service cooperatives, although production cooperatives partially fulfill the function of
service cooperatives by providing farm services also to non-members.Cooperatives play a positive role in rural
life: o sufficiency of services in any given area improves when cooperatives step in to provide the services; o
farmers’ perceived wellbeing is higher for cooperative members than for outsiders
Bai Tushum is a bank in Kyrgyzstan which started out as a microfinance fund in 2000. It was set up to serve the
countries poorest with loans that would help develop their businesses and farms. In many parts it is also a Swiss
success story as a lot of funds have flown from Switzerland to boost the development of Bai Tushum. The
evolution of the organization has not only affected the company itself but also had a major impact on the
microfinance and general banking landscape of Kyrgyzstan and even Central Asia.
Kyrgyz Agricultural Finance Corporation (KAFC) was the country’s largest financial and lending institution in
terms of its microfinance credit portfolio and number of clients.

Financial Products And Services

Fees for settlement and cashing operations (opening accounts, disbursement of funds from accounts, non-cash
wire transfers, cash transfers without opening accounts) are set by each bank independently.
The Non-cash payments sector actively develops. Thus, gross non-cash payments have grown by 31%, while
clearing payments have grown by 14%.

Banks in Kyrgyzstan operate with credit cards such as MasterCard, Diners Club, Visa, traveller’s cheques
American Express, Thomas Cook, CitiCorp, (CUP) China Union Pay and with registered cheques.
Banks take demand deposits and time deposits (for a term of 0 to 12 months) from legal entities and individuals
with an interest rate ranging between 0% and 16%.
Banks issue credits on the following conditions: maturity may vary from 5 to 10 years, with an annual interest
rate – from 12% to 38% both in the national currency and in foreign currency.
According to the World Bank’s Report, ‘Doing Business’, 2013, the Kyrgyz Republic ranks 12th out of 189
countries in the world in terms of the legal rights of borrowers and lenders, and the availability and legal
framework of credit registries.
FMCC’s activities focus on providing loans, approximately two thirds of which are in the livestock and agricultural
sector reflecting the macroeconomic characteristics of the country. The loan portfolio has grown rapidly, with
financing provided for animal husbandry, trading and enterprise activities, housing improvement and education,
as well as agricultural inputs for growing cotton, potatoes, vegetables, wheat. Loans have also been extended to
SMEs, which are generally involved in trade, manufacturing and service activities to enable clients to increase
working capital, acquire fixed assets and develop or renovate business premises. Women represent 44 percent
of FMCC’s borrowers.
FINCA Kyrgyzstan provides financial services to low-income entrepreneurs to help improve their financial
security and standards of living.In 2015, after two years of preparations, FINCA Kyrgyzstan obtained a banking
licence. This will further enhance the organization’s capacity and growth potential. The bank can now start
offering, for instance, savings products, and generate new income from banking services.
Market Influencers
he National Bank of the Kyrgyz Republic, as the regulatory and supervisory agency, has registered 104
microfinance institutions, of which 26 are microcredit companies and 78 are microcredit agencies. In addition,
the sector is represented by 305 credit unions.1 The Kyrgyz Republic has a law “On Microfinance Organizations”
and a law “On Credit Unions.”2 In addition, five commercial banks carry out microcredit programs with the
financial support of the European Bank for Reconstruction and Development (EBRD) and constitute serious
competition for microfinance institutions (MFIs).

Apex Microfinance Microcredit Company (MCC) is the central financial institution for the microfinance sector in
the Kyrgyz Republic. They render financial services such as refinance to the local microfinance institutions of the
country. They in turn give this money as credits to their members / customers as micro credits. The average
credit size is under 1.000 US$. The recovery rate in the credit union sector last year was approx. 98%. This is
better than in any bank or other financial institution!
The microfinance sector - especially the small and medium sized microfinance institutions (credit unions and
microfinance institutions) - suffer from a lack of refinance to satisfy the demand for credits of their customers - i.e
poor farmers, women initiatives, small traders etc.. Microcredits are vital for poverty alleviation, rural
development and political stability in the region.
Small credits to the poor in the rural areas will enable them to better their family income, start small businesses
and enable their children to go to school. More than 50% of the members of the Kyrgyz credit unions are women.

Regulatory authority-National Bank of Kyrgyz Republic

The Banking system of the Kyrgyz Republic consists of the National Bank of the Kyrgyz Republic (National
Bank) and commercial banks. Banking activities are regulated by the Law of the Kyrgyz Republic “On the
National Bank” and the Law of the Kyrgyz Republic “On Banks and Banking”.
The National Bank is a state owned bank of the Kyrgyz Republic. The principal goal of the National Bank’s
activities is the achievement and maintenance of price stability by implementation of proper monetary policy.
Powers and functions of the National Bank include:
* Issuance of licenses for all types of banking operations
* Approval of requirements of minimal authorized capital amount and capital base of banks, capital adequacy
standards, currency and interest risks, and other regulation of banking activities binding for all banks
* Application of preventive measures and imposition of sanctions to banks breaching or failing to comply with
established requirements
The National Bank acts as a financial advisor to the President of the Kyrgyz Republic, the Jogorku Kenesh
(Parliament) of the Kyrgyz Republic, and the Government of the Kyrgyz Republic on financial issues and other
issues related to banking.

The Forum of Women's NGOs of Kyrgyzstan (FWNGO) was established in 1994 for the consolidation and
strengthening of a women's movement towards gender equality and empowerment. It works to increase
women's participation in Kyrgyz public life through NGOs.As part of its mission, FWNGO contributes towards the
development of women's NGOs, strengthening an active network across Kyrgyzstan and in Central Asia to
promote the integration of women's activist into the global effort for women's rights.
Local NGOs are:-
* Advocates’ Training Center
Advocates’ Training Center (ATC) – is an independent, nonprofit, non-governmental organization
established in December 2008 by three major legal organizations – public organization “Association of Lawyers
of Kyrgyzstan,” association “Union of Advocates of the Kyrgyz Republic” and the public fund “law Center. ATC
beneficiaries are lawyers and other legal professionals.
* Agency of Social Technologies
* Association of Civil Society Support Centers
* Bishkek Feminist Initiative SQ
Bishkek Feminist Initiative SQ is a group of feminist activists in Bishkek, Kyrgyzstan, working based on the
principles of collective emancipation, solidarity, mutual support, equitable decision-making and non-violence.
Their mission – to promote feminist values to opposing all forms of oppression (sexism, homophobia,
transphobia, nationalism, xenophobia, Islamophobia, class and socio-economic oppression) in Bishkek. Some of
our goals – to create a network of feminist people, communities, organizations and initiatives in Bishkek for
meaningful interaction, contribute to the development of solidarity with the existing civil movements that share
our values justice and human rights provide a feminist space and practice, including educational resources and
measures to counter oppression and violence, and to build informed alliances and partnerships.
* Coalition for Civil Society and Democracy
* Child Rights Defense League
* Crisis Center
The Crisis Center, a United Way of Central Alabama agency, has been providing 24-hour, 365 day per year
support, crisis and suicide intervention, community information and referrals through telephone counseling since
1970. An integral part of that mission is to correlate our services to the diverse and changing needs of the
* Golos Svobody
* Human Rights and Democracy Center
* International Human Rights Group
Lawyers of IHRG provide free legal advice and legal issues affecting the rights and freedoms. In cases of
gross violations of human rights and freedoms, a man for having precedential value, the lawyers and the lawyers
representing the interests of the IHRG carry victims of violations of human rights in national courts.
* Internet Movement
* Kylym Wamy
* Media Support Center
The Media Support Center Foundation, ever since it was launched in December 2002, has been promoting
freedom of speech in Kyrgyzstan by running the country’s only independent newspaper printing press and
offering newspaper printing without pre publication censorship. The structure of the Media Support Center also
include a commercial plate shop service for plates printing and the only one training laboratory in Central Asia for
conducting trainings for printing specialists. The Foundation provides regular consultations in editorial design,
layout and redesign of newspapers.
* Mental Health and Society
* NGO Association “Human Rights Advocacy Center”
* Public Association “Institute of Social Analysis”
NGO “Institute of social analysis” provides research, expert – analytical work on a wide range of civil
society, taking initiatives on various aspects of social life, makes proposals to the state and municipal authorities
and management on the development and improvement of democratic institutions and mechanisms, protection
of the rights and legitimate interests of citizens.
* Public Foundation Legal Clinic “Adilet”
* Public Foundation “Open Line”
* Public Foundation “Open Position”
Public Foundation “Open Position” develops legislation to with aim of establishing the best practice and
exercise of rights and freedoms. Among the developments of the foundation: to “The rights and freedoms of man
and citizen” of the Constitution of the Kyrgyz Republic in 2010, a draft law on peaceful meetings, the draft law
“On the enforcement of international human rights bodies,” the draft law “On guarantees of access of information
in the conduct of subjects leading “The draft law” On the religious organizations and the right to freedom of
religion “, etc.
* Public Foundation for Tolerance International
* Voice of Freedom
* The Youth Human Rights Group
The Youth Human Rights Group is a noncommercial nongovernmental organization, operating in Kyrgyzstan
for 16 years. The organization was established in November 1995 by the group of students from different
universities in Bishkek. The YHRG was registered by the Ministry of Justice of the Kyrgyz Republic in March of