Aga Khan Agency for Microfinance

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Microfinance in Tajikistan

The First MicroFinanceBank Tajikistan (FMFB-T) continues to be the leading microfinance institution in the country, reporting the largest portfolio of microfinance loans and helping to drive innovation in the local market. FMFB-T occupies an important niche in Tajikistan by providing a range of financial services from group lending for farmers and women to deposit services and small enterprise loans. In urban areas FMFB-T fills the sizeable gap between the commercial banks and the more than 65 small MFIs operating in the country, while in rural areas it reaches down to some of the poorest segments of the population – particularly those involved in subsistence farming. FMFB-T works closely with AKF’s rural support activities in the country in an effort to raise farm output and incomes.

The number and the value of loans outstanding nearly tripled over 2006, with a year-end portfolio of nearly 18,000 loans worth US$ 19.6 million. The striking loan growth was driven in part by a stronger than anticipated demand and the improved productivity of loan officers. In addition, FMFB-T acquired the loan portfolio and the staff of a smaller micro-lending fund that AKAM had also been operating in the southern part of the country. This acquisition provided 10 new lending outlets and assets of US$ 1.7 million to the bank. FMFB-T now also has nation-wide coverage with branches in all five major regions and credit outlets in most towns and larger villages.

The growth of FMFB-T was achieved despite an extremely cold winter and a severe energy crisis in early 2008 which continues to have repercussions on the country’s economy, undermining the business environment and dampening productivity. The energy situation is expected to worsen in the years ahead, as Tajikistan is devoid of any oil or gas resources, and is dependent on a hydroelectric power system that requires significant infrastructure upgrades and which suffers from lower than average water levels in key reservoirs.

It was also a year of transition for the bank, with the local staff assuming ever greater responsibility for day to day and strategic management of the institution. This is in line with AKAM’s efforts to build local capacity in all of the countries in which it operates and gradually transfer responsibility to local managers as their skills and knowledge is developed. The development of a dedicated Human Resources department has significantly increased the bank’s capacity to recruit, train and retain key staff.

Funding sources were further diversified with an additional US$ 7.0 million borrowed from international sources, including Deutsche Bank and the specialised microfinance lender Triple Jump. FMFB-T is also continuing efforts to build up its local deposit portfolio and encourage local saving by offering a wide range of flexible and fixed-term deposit products. FMFB-T has also increased the number of institutions using its payroll services product and the number of people receiving their monthly salaries via direct deposit has continued to grow.

New product design has been an important priority for the management team since inception. During 2007, significant work was carried out on the development of several housing products, which were piloted in the first few months of 2008. A pioneer in housing microfinance, FMFB-T is among the few banks in Tajikistan offering
housing loans, which include home purchase mortgages, construction and refurbishment loans and home improvement micro-loans. A special loan product was also developed in cooperation with Habitat for Humanity (HfH), which provides clients with additional guidance on building materials and construction techniques.

This objective of this partnership is to contribute to poverty alleviation through the provision of affordable and accessible housing to low-income families. This is an extremely important development for the people of Tajikistan, many of whom are living in sub-standard housing, whether crumbling Soviet-era apartment blocks in urban areas or simple mud and brick houses in rural areas. Improvements in the housing stock are lagging since none of the banks or MFIs in the country offer a specified microfinance mortgage or housing product. FMFB-T intends to build on its existing housing products by gradually lengthening the loan maturities available, so as to increase the accessibility of its housing loans to lower income groups.

The bank is also examining ways to enhance the impact of emigrant remittances on the local economy. There are an estimated 800,000 Tajiks who work in Russia or other ex-Soviet countries and transfer money home to their families in Tajikistan, yet little is saved or invested and much goes to short-term consumption, which in turn drives up the country’s inflation. Creating avenues for more productive utilisation of these funds is a priority, and FMFB-T is hoping to be able to provide entrepreneurial credit to remaining family members based on established patterns of remittance inflows from emigrants. There may also be a strong demand for savings accounts into which remittances can be directly deposited. Migrants are often more interested in having a place to safely store their funds rather than putting the money directly into the hands of relatives.

The outlook for 2008 is considered bright with loan growth expected to increase by 28% in number and 34% in value to a year-end portfolio of approximately US$ 26 million. These projections are based on even greater use of district offices and a 57% increase in staff. The appointment of dedicated savings officers and a renewed marketing and education campaign should also result in a significant increase in micro-deposits, though FMFB-T is working within the context of a population which has lived through several bank crises since the collapse of the Soviet Union in the early 1990s.

Key objectives for 2008 include completing the development of the bank’s Management Information System (MIS) and automating regular operational transactions. FMFB-T has been carefully monitoring the progress of the mobile phone banking pilot being carried out by its sister bank in Afghanistan and is considering whether a similar system could be replicated in Tajikistan. FMFB-T has also conducted an analysis of ATM systems and is assessing the impact of such a system on operating costs reductions and improved service delivery for its clients over the medium to long term. Additional objectives for FMFB-T will be maintaining the growth and quality of the bank’s loan portfolio, improving transaction volumes in existing branches and districts through capital asset upgrades and staff increases, and maximizing outreach through the provision of new and existing products and services.

FMFB-T will also be one of the AKAM institutions, along with FMFB Afghanistan, that will undergo a comprehensive financial and social rating in 2008. These ratings will help investors and donors to better understand the stability of the bank and also demonstrate how effective the institution is at pursuing its poverty alleviation goals. Finally, AKAM will be starting a pilot project called First Outreach Initiative during 2008 that is targeted at the very poorest in Tajikistan. It is designed to help them to move out of destitution and up to the point where they can access regular microfinance. The project is based on the successful BRAC programme for ultra-poor women in rural Bangladesh. AKAM expects to see early results form the initiative by the end of 2009 and will run a similar programme in Afghanistan.