The First MicroFinanceBank increases financial inclusion in Tajikistan

How was The First MicroFinanceBank (FMFB) originally established here in Tajikistan?

FMFB just celebrated its tenth anniversary in Tajikistan. It was formed with a strong social mandate. A need was felt to provide financial access to the people and the Aga Khan Development Network (AKDN) recognized that a bank would be better able to serve the people under proper regulatory supervision and with a professional approach to meeting the financial needs in this country. The Aga Khan Agency for Microfinance (Geneva), Aga Khan Foundation (Tajikistan), IFC and KfW have been our shareholders since 2004, with a common goal to increase financial inclusion in Tajikistan.

We have a well spread out network all over the country, with branches in Dushanbe, Rasht, Khujand, Kurgan Tube and Kulyab and with Banking Service Centers in 28 places. The main reason for our wide spread is our social mission; we do not just open branches only in places with commercial potential but seek to reach out to all communities, paying special attention to financial inclusion.

FMFB is not just a microfinance institution. What other services, apart from microfinance, do you offer for clients?

Our origins were in microfinance as suggested by our name but we are a full fledged commercial bank offering lending products as well as deposits, FEX, Remittances and Cards. Over the years we realized that we needed to expand our products and services in order to have more impact and to be sustainable. We thus designed a broader commercial focus, with specific attention to Small and Medium Enterprises (SMEs). We have been lending to SMEs for three years now. Microfinance is one way to help the country with its development by reaching out to the underprivileged. Additionally, with our services to SMEs we help Tajikistan with job creation and the expansion of its businesses.

Our majority shareholder, the Aga Khan Agency for Microfinance (AKAM), had developed an SME portfolio and methodology in Afghanistan. We have taken over certain basic practices from this methodology and made various adaptations to suit the Tajik context as the way people and businesses function vary significantly from country to country. Amongst AKAM’s many microfinance organizations around the world we are now regarded as a leader in SME lending. We provide advice and guidance to our partners, and help them with advice and training.

How would you like to see FMFB growing over the coming years?

Our approach is long term. We feel deeply that we are not just here to make profits but we want to contribute to the economic and social well being of the country. We aim to bring the best financial products to the economy as a well respected and professionally run financial institution, a partner that helps to reach out to the people and contributes to the country’s growth.

Developing local talent is a major focus. Initially there was a requirement for expatriates here when we just started our bank and during the period when we introduced a more commercial orientation. Some of the skills we were looking for were not immediately available and we thus hired people from abroad. They have done a very good job but over the years we have been working on transferring skills and knowledge to develop a stronger local management. We are continuously looking at developing our staff and giving them opportunities to grow. Our trainings are considered as among the best in the country and have been appreciated by the National Bank of Tajikistan.

How do you leverage on the wider AKDN network in order to achieve your goals?

Of course, the availability of finance is an important aspect in any development approach in the world. But there are many other requirements to make development a success. AKDN is well placed to provide a number of those other components. AKDN is involved in various activities of Education, Health & Medical Care, Culture, Power Generation, Telecom, Hospitality and Tourism Promotion to name a few and has a widespread presence. We leverage on these connections with the communities and it makes it easier for us to reach out to the people. AKDN and the Bank have a very high credibility among the people which gives us a head start.

We cooperate on many activities with other AKDN agencies and we contribute to the overall stature by the transparent, ethical and professional way in which we work. The rights and obligations of our clients are always mentioned in all our branches so that our customers know what they can expect from us. Even those people who do not know their rights and privileges know that they will get a fair deal when they bank with us.

Could you elaborate on the projects you have established that touch on the social mandate?

We reach out with financial literacy workshops and other types of education for our customers. One interesting group we are working with is the Tajik diaspora in Russia. We help migrant workers there with opening accounts back in Tajikistan and support them to operate their accounts. It will take a few years for these services to contribute significantly to the bank but we believe that it is an important initiative and is very useful for the migrant workers. The migrants benefit from opening an account and we encourage and incentivize them to save their earnings in deposits. We offer attractive interest rates for the deposits and even better rates for the deposits opened in the names of their wives or daughters.  You might say this is a positive gender bias.

Additionally, we have set up projects to help people in mountainous areas in mitigating the impact of natural disasters such as earthquakes, landslides, or floods.

We also aim to encourage good client behavior. Our system rewards responsible behavior in the sense that customers with good credit history receive certain advantages. We have one of the lowest interest rates in the market and if customers have a good credit history with the bank with no defaults for a certain period of time we offer 1% to 3% discount. This incentivizes clients to behave responsibly and that has shown results in our low PARs so it has benefited the Bank also.

What do your financial services mean for individuals and the broader community here in Tajikistan?

I can say that we make a difference to the quality of life of our clients and their families. We have seen the history of improvements for many of our customers who have been banking with us for over seven or eight years. Clients who started with a loan of around $2,000 or less now take loans of $70- 100,000. We see that they have bought property, their children are receiving education and that their businesses are doing well. But these are anecdotal evidence. We are now conducting research in order to get more rigorous information about our clients on a regular basis. We have a fully-fledged Research and Development team working here on research into the impact on quality of life. They make use of the Progress out of Poverty Index, developed by the Grameen Foundation USA, as a measurement tool to obtain more in depth information on where our costumers stand and how their economic status change over time. This is the first time such an initiative has been taken by any bank or MFI in Tajikistan. In addition we are conducting Quality of Life research to assess the contribution of our products and services in the life of our clients. In three to five years’ time we will be able to have full statistical data on how we have contributed to the individuals and the broader community in Tajikistan.

FMB has been operating for a decade. How would you like to see the bank develop over the next decade?

Our microfinance business has been increasing significantly year on year and has contributed to our outreach. Our SME products have helped entrepreneurs grow and have helped increase employment. While we will continue growing microfinance we expect to have SME forming a bigger proportion of our lending portfolio.

Additionally we will be developing and offering more complex banking products for larger entities. As a full-fledged bank we offer FEX services and deposits but we would like to encourage more deposits. Today most banks depend a lot on investor funding and deposits could help us to become more self-sustainable. And in terms of management I would like to see our skilled local colleagues taking over more and more important roles.