The Tajik banking sector has attracted investment and global partnership on the heels of solid economic growth
Tajikistan’s banking sector has witnessed rapid growth and expansion over the past decade. Microfinance stands out as the sub-sector that has made a meaningful impact on the country’s development, often undertaken with the involvement of foreign partners and investors. Developing financial literacy, introducing new technology and promoting sustainable development remain the core focus of the Ministry of Finance and the banking regulator, the National Bank of Tajikistan.
Following independence from the USSR in 1991, Tajikistan’s banking sector needed to adapt to tremendous change. Not only did the country have to reorient itself away from a command economy to a market economy system, but completely new legislation, monetary systems and institutions had to be developed.
Indeed, Tajikistan had to also create a new currency, one that could be kept stable during crisis and transition, following the collapse of the Soviet Ruble. The Tajik Ruble was introduced in 1995, but was later replaced in 2000 by the introduction of the Somoni (TJS). The currency takes its name from Ismoil Somoni, a ninth-century Tajik ruler and national hero of modern Tajikistan. Since this time, this currency has remained strong when compared to those of other countries in the region.
“When looking at the exchange rate of the Somoni to the U.S. dollar, we can see that when it was introduced in October of 2000, the rate was 2.2 Somoni to $1. In 14 years, that has gone up to 5.6 Somoni. Of course, for Westerners this looks like a serious depreciation, but maintaining a strong currency is incredibly difficult for economies like ours. The Somoni is very stable now,” says Abdujabbor Shirinov, Chairman of the National Bank and Tajikistan’s former ambassador in Washington.
Following the end of the 1990s and the introduction of this new currency, the banking sector of Tajikistan began to grow rapidly, both in terms of the number of organizations active in the sector, and the overall amount of transactions. Today there are 139 lending institutions in the country.
Between 2004 and 2014, the sector saw a particular explosion of growth. “Compared with 2004, the number of lending institutions has increased by 115, with 151 new branches opening up, providing the population with better access to banking services and credit,” says Jamolidin Nuraleiv, First Deputy Minister of Finance. “The strongest players in the banking sector of the Republic of Tajikistan are the commercial banks with foreign capital, which have doubled. The growth of the general balance of lending institutions has increased by more than 17 times, reaching 3 billion Somoni ($558 million) over the last 10 years.”
One of the important factors that accounts for this period of robust growth was the restoration of the population’s trust in the banking system. This led to an increasing number of deposits, the total volume of which has risen by 21 times since 2004. The country’s loan portfolio has reached approximately $1.5 billion, representing a nine-fold increase since 2004.
Notably, microfinance has emerged as a major driver of both the banking sector and the larger economy. Tajikistan’s 121 registered microfinance organizations mostly cater to micro and small and medium-sized enterprises (SMEs), often with a strong focus on agriculture and trade.
As Mr. Shirinov points out, “Our microfinance organizations have shown enormous success and the whole credit portfolio for microfinancing is quite large. This is very important, especially in rural areas, where there are smaller enterprises which need the access to capital that microfinance offers.”
The expansion of microfinance has played an important role in reducing poverty in the country, especially in often remote, mountainous parts of Tajikistan and in rural areas. In 2014 over $540 million in micro loans were issued, marking a more than 30% increase on 2013.
“Our approach to microfinancing is different to that seen in other parts of the world. Other countries, such as Kyrgyzstan or Bangladesh, have been using microfinancing in very small amounts, $100, $200 or $500, but we believe that this kind of microfinancing does not necessarily work in economies such as Tajikistan’s. So we have developed microcredit financing for amounts up to $50,000. For larger enterprises, we have seen microcredit institutions issuing loans of up to $70,000. In such cases, enterprises can help the economy by maintaining or creating additional jobs,” explains Mr. Shirinov.
A number of foreign financial institutions and international organizations have become involved in the sector as partners, investors or advisors. These include but are not limited to the United States Agency for International Development (USAID), the Aga Khan Development Network (AKDN), the European Bank for Reconstruction and Development (EBRD), the German state-led development bank KfW, the World Bank, the International Finance Corporation (IFC), and the Islamic Development Bank and Eurasian Development Bank.
The National Bank’s focus on education includes the promotion of financial literacy across the country. To encourage the utilization of banking services it has established a special study center close to northern city of Khujand. Located on the banks of the Kairakkum reservoir and adjacent to the luxury Bahoriston resort, this center has been used for training, seminars and high-level meetings. The National Bank has also loaned the facilities to other state institutions and non-government organizations to host events.
Due to the mountainous terrain of Tajikistan and the number of remote towns and settlements, it is often difficult for customers in these areas to travel to bank branches. As such, the development and domestic promotion of banking technology has also been a priority focus for the government. This includes mobile banking, which leverages off the coverage provided to the country by its four mobile operators.
“Last summer we announced the establishment of mobile and internet banking in Tajikistan. We hope that this technology will take root in the whole banking sector of the country,” says Mr. Shirinov.
Tajikistan also recently established a national bankcard processing center. The cards issued here – Korti Milli (national card) – are now being used by 12 Tajik banks, as well as microfinance organizations.
“Based on the results of a study, we realized that 96% of cards issued are very rarely used abroad” says Mr. Shirinov. “Our conclusion from analyzing this information was that if we created a national card we could help support our people, including both employers and employees, in need of transferring and receiving money. It has been a great success. We started with a small amount, and the now the number of Korti Milli cards issued is around half a million. By the end of the year, we hope to hit another million if not more.”