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Microfinance Activities in Tajikistan

Loans from FMFB enable farmers to purchase agricultural inputs such as seeds, fertilizers, livestock, farm equipment and other capital investments.Loans from FMFB enable farmers to purchase agricultural inputs such as seeds, fertilizers, livestock, farm equipment and other capital investments.Tajikistan is one of the poorest countries in the world, with the lowest per capita GDP of the 15 former Soviet republics. Consumer financial services in the country remain limited and savings mobilization is among the lowest in the world. The immediate post-Communist period saw a flourishing of banks; however, the sector has since undergone significant consolidation as many of these banks were unsustainable, with consequent implications on the access of the poor to affordable finance.

In this context, the Aga Khan Development Network (AKDN) established the First MicroFinanceBank of Tajikistan (FMFB) in 2003, the first fully licensed commercial bank in the country to have a principal focus on micro-credit lending. In addition to its head office in Dushanbe, FMFB currently has branches in Khorog, Garm, Khujand and Kulyab which are supported by a network of district offices serving peri-urban and rural areas. The objectives of these operations include reducing poverty, decreasing the vulnerability of poor populations and alleviating economic and social exclusion.

As of February 2008, FMFB had a total loan portfolio in excess of US $19.9 million and a client base of over 16,900 people, 31 percent of whom are female. FMFB’s average loan size is about US $1,100 with a repayment rate of over 99 percent. To oversee these loans, FMFB employs a staff of over 270 dedicated professionals.

AKDN’s Approach
Through Loans from FMFB, Khaticha Hakimatova realized her dream of opening a bakery and has since purchased several industrial appliances to improve her output.Through Loans from FMFB, Khaticha Hakimatova realized her dream of opening a bakery and has since purchased several industrial appliances to improve her output.Two programmes of the AKDN have been lending to entrepreneurs and farmers in Tajikistan since the early 1990’s. The Mountain Societies Development Support Programme of the Aga Khan Foundation (AKF), provided credit to small farmers and women's groups during Tajikistan’s difficult transition to independence following the collapse of the Soviet Union. In addition, the Enterprise Support Facility (ESF), established in 1996 by the Aga Khan Fund for Economic Development (AKFED), provided loans and technical support to small entrepreneurs.

The activities of these two programmes have since been consolidated under the operations of one agency, the Aga Khan Agency for Microfinance (AKAM), founded in 2005, of which FMFB is an institution. The staff of ESF specifically provided the Bank with its core microfinance expertise and a solid client base on which to establish its lending activities. In its early years, FMFB also received vital technical support from Kreditanstalt fur Weideraufbau (KfW) and the Canadian International Development Agency (CIDA).

The initial shareholders of FMFB were AKFED and AKF. The shareholder base has since increased following investments by the International Finance Corporation (IFC), KfW and AKAM. Currently, the paid up charter capital of FMFB is 17,878,000 Tajik Somoni, or approximately US $5.25 million.

Credit Products
Central to the activities of FMFB are the range of microfinance loan products it offers to its growing list of clients.

Group Loans
One of the most important products that FMFB offers is a group loan, aimed at the poorer segments of Tajik population who have difficulty providing collateral to the Bank. Based on the principle of group solidarity, the loan is given to a group of 3 to 10 individuals and repayment becomes a collective responsibility; each member effectively guarantees the repayment of the other members. Group loans are often offered to groups of women, usually for small business start-up costs or to support small-scale agricultural production.

Dilovar Zavqiev has taken five loans from FMFB, the last of which he used to build a two-floor building housing shops and his own canteen.Dilovar Zavqiev has taken five loans from FMFB, the last of which he used to build a two-floor building housing shops and his own canteen.Individuals Entrepreneur Loans
FMFB offers credit to individual entrepreneurs who demonstrate that they have the need for business financing and an ability to repay their loan. Credit can be used for the purchase of trading stock, raw materials and fixed assets or for the improvement of business premises. For entrepreneurs who demonstrate a need for credit in hard currency, loans are disbursed and repaid in US dollars. This type of loan is aimed at entrepreneurs who import and resell goods from countries in the surrounding region.

Revolving Lines of Credit
The revolving line of credit product is designed to provide clients, particularly retailers, with continuous and flexible access to funding. The product eliminates the need for businesses to repay a loan before accessing further financing. This flexible financing product is offered to clients once they have been able to establish a credible credit history with the Bank.

Agriculture and Livestock Rearing Loans
FMFB also offers credit products to large and small-scale farmers. Loans in agriculture are typically used for the purchase of agricultural inputs such as seeds, fertilizers, livestock, farm equipment and other capital investments such as irrigation equipment or building facilities.

FMFB also offers loans tailored to the needs of individual livestock breeders in mountainous areas. The product caters to clients who require loans that are linked with the rearing cycles of yak, sheep and cattle. The loans are provided with longer maturities - up to three years - and have longer grace periods for repayment.

Agricultural loans are also offered in a group loan structure to finance working capital and fixed-asset purchases in horticulture, crop planting, livestock rearing and other agricultural activities.

Housing
In February 2008, the Bank launched a variety of housing microfinance products in an effort to fill the need for affordable home financing. FMFB currently offers three housing microfinance products, including credit for the purchase, construction, or refurbishment of homes and working capital for home improvement. FMFB has also launched a pilot project with Habitat for Humanity International for housing refurbishments, in which loans are disbursed to borrowers by FMFB, while Habitat for Humanity manages the purchase of materials and the end-to-end construction and refurbishment process.

Other Services
Deposit and Savings
In addition to its core microfinance loan products, FMFB is committed to facilitating savings and wealth accumulation as part of its poverty reduction initiatives. It encourages its borrowers to save through a range of deposit products and services. Interest rates are dependent on the amount, term and currency of the deposits.

FMFB is also introducing a variety of savings products, including a monthly contribution savings plan, child savings and pensioner savings accounts. These products will allow customers to make small monthly deposits over time while accruing interest at competitive rates.

Emigrant Remittances
Emigrant remittances are vital to the Tajik economy, representing nearly one third of the country’s GDP and contributing to both economic development and reduction of poverty. Since November 2006, FMFB has facilitated the transfer of remittances through partnerships with several money transfer system including Anelik, Contact, Migom and Western Union. FMFB encourages remittance receivers to deposit some of their funds into formal savings accounts.

Commercial Banking
FMFB offers a range of commercial financial services that meet international standards for security and professionalism. FMFB has established a strong reputation with the embassies, NGOs, businesses and individuals in Tajikistan to whom it offers these services. FMFB offers foreign exchange as well as domestic and international money transfer services through its network of correspondent accounts.

The Bank also offers payroll services to its commercial clients. Until recently, the vast majority of companies and international organizations in Tajikistan paid their salaries in cash. In offering commercial payroll services, FMFB allows agencies and organizations not only to easily manage their payroll, but to do so in a safe, transparent, modern and efficient manner.

Looking Forward
FMFB has a strong and expanding presence in all regions of Tajikistan, with urban branches supported by a network of district offices.FMFB has a strong and expanding presence in all regions of Tajikistan, with urban branches supported by a network of district offices.FMFB is looking to introduce housing, consumer microfinance and leasing products to better serve the needs of its client base. It also intends to further develop its cooperation with the International Finance Corporation in the cotton sector and strengthen outreach efforts toward women.

Continuing its ongoing efforts, the Bank is seeking to automate its regular transactions through electronics means, particularly through the introduction of Automatic Teller Machines (ATMs). Automating bank transactions will enhance the accessibility and convenience of the Bank’s services, thereby increasing the social impact of its operations.

With overall strong prospects for enhanced growth and operational sustainability, FMFB looks forward to continuing to meet its mandate through innovation, dedication and the provision of services with exceptional quality and high standards.

> Find out more on AKDN's microfinance activities

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