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| Home > News & events > 2004 feature stories > Micro credit fuels Central Asian trade | |||||||||
Micro credit fuels Central Asian trade |
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Osh, Kyrgyz Republic -- It’s early morning in the vast Kara-Suu market where shopping is only for the bold and the nimble. “Posh! Posh!”cry the porters, warning shoppers to get out of the way or risk an ankle-bashing by the sharp front edge of a cart. The porters are men in a hurry: they’re the vanguard of micro entrepreneurship in the market, using their brawn as delivery men to build up nest eggs they’ll use eventually to set up their own market stalls. Whether it’s a porter, an itinerant tea-seller or a relatively prosperous textile merchant, the entrepreneurial zest in Central Asia’s markets gets full support from the EBRD’s donor-backed micro finance programme. This readily available credit alleviates poverty by building a sustainable private sector in the poorest countries of the former Soviet Union – the goal of the EBRD’s new Early Transition Countries Initiative. “The smallest loans we do, of $50-$100, are for people who just need a means of survival, selling food or cigarettes on the street,” explains micro credit expert Alexandra Schleier. “Then they graduate to larger sums, of $300-$400, which brings them enough income for something extra, like better education or clothes for their children. These entrepreneurs grow and grow – and they always repay their loans. We have repayment rate of more than 99 per cent.” “We have a lot of client stories along the lines of ‘I started with nothing and I’ve built my business to the point of borrowing $20,000.’ This is not unusual,” adds Ms Schleier, a consultant funded by donor governments to help the EBRD re-orient local banks toward lending to micro and small businesses. Appetite for credit Micro finance loan officers go where the entrepreneurial poor are, and in Central Asia that means the public markets on the Silk Route linking China with the Caucasus. Having withered during the communist era, the markets and the region’s old trading culture are enjoying a renaissance. The end of Soviet-era subsidies left many people with no option but to start trading for their living. Luckily, northern China’s new, booming factory towns offer Kyrgyz and Tajik traders in particular easy access to cheap goods. In many cases these traders then act as wholesalers of Chinese products to the rest of Central Asia, particularly Uzbekistan. “After the end of the Soviet Union the kindergarten in which I work disappeared,” says Oxana Joldoshova who sells handbags in the Kara-Suu market. “So rather than sit at home I came to trade in the market. My success has kind of surprised me because in the Soviet Union I could never have made this kind of money.” Mrs. Joldoshova has twice borrowed $2,500 from the micro finance programme for her business which employs her three siblings in Kara-Suu on the outskirts of Osh. Next she’d like to open a “proper shop” in the centre of Osh. “I might need up to $10,000 to do that. No problem, I can pay it back in a year, maybe less.” Grassroots impact It is this grassroots impact that attracts donors to the EBRD micro finance programme. Along with the International Finance Corporation, the EBRD invests in local banks, either through loans or by purchasing minority shareholdings. Donor governments further boost the programme by initially funding the training of young loan officers in this non-traditional form of lending. For example they’re taught that the character of the client, and their cash flow, are more important determinants of loan eligibility than is collateral. In order to achieve lasting change in the banking system dedicated micro and small business departments are set up in all partner bank branches. In the Kyrgyz Republic, where EBRD’s programme finances 30 per cent of all business loans, the donors include the United States Agency for International Development; Swiss State Secretariat for Economic Affairs, and the European Union’s Europe Aid Programme. Traders regularly borrow up to $10,000 from the programme, and often pay back the loans before the year term is up. Every trader interviewed said they would love to borrow more than that. None complained about the 30 per cent annual interest they are charged on loans of $10,000 or less. That rate is currently required to render the micro finance programme sustainable, as managing the small loans requires a lot of staff time. Ms. Schleier says that micro credit clients figure 30 per cent annually is better than 10 per cent monthly charged by loan sharks. Regardless, the micro finance programme’s success is fuelling competition between lenders and interest rates are falling as a result. (Loans over $10,000 are available at rates between 17-21 per cent but require greater collateral than smaller loans.) The dream is big Next door to Kyrgyz Republic is Tajikistan, the EBRD’s poorest country of operation. In the central market of the northern city of Khujand, Tutiniso Ismatova sells biscuits and sweets by the kilo. Her ‘shop’ is just a long, thin table propped against a wall in a market alleyway. To the outsider it doesn’t seem possible Mrs Ismanova could do much with such a tiny outlet. But she has borrowed and repaid micro loans of $1,300 and $5,000 from an EBRD-backed local bank. The money financed bulk purchases of stock for her wholesale clients; her modest stall is just a display case of what’s available in her bigger storage container located elsewhere. Now she wants to borrow $10,000. “The dream is…as big as possible!” she says. Moving up Shadieva Monandniso has moved up from selling cheap sweets in the alleyways of Khujand’s main market, to selling top-quality Chinese textiles at $100 or more per metre. She has twice borrowed $700 from the micro finance programme and is ambitious to borrow more. “I want to rent another shop in the market and have my daughter run it,” says Mrs Monandniso. “I also want to borrow more for working capital so that I can do one big textile shipment from China rather than a lot of small ones.” More Kyrgyz micro credit clients Household survival Mairam Djaroeva worked full-time as a nurse in Osh until the Soviet Union collapsed, taking the Kyrgyz publicly-funded health system with it. “I could no longer survive on my nurse’s salary” of $20 per month, says Mrs Djaroeva, a mother of two. The situation worsened when her husband abandoned the family.
“So I got my first micro loan of $100, got a stall here in the main market and
started selling,” she explains. “I could have borrowed from friends but they
would have charged too high a rate of interest.” Her sales of lingerie and
children’s apparel bring home as much as $50 per month; she augments her
income with a bit moonlighting as a nurse to neighbours. A bridge to a better life
Gulam Madasimov had a restaurant, cinema and barbershop on one side of the
Ak-Bura river in central Osh. But his clientele was over on the other bank.
“So I used an EBRD-backed micro loan to finish building a bridge across the
river, then to add extra rooms to meet the increased demand that came from the
market traders using the bridge,” says Mr Xodjaev. He’s still growing: a
second floor extension is under construction. Extending profits Osh businessman Rashid Xodjaev has used three EBRD-backed micro loans to build his restaurant. “When you extend a café, you extend your profits as well,” he says as he ferries drinks and plates of ‘shashlik’ – Central Asian meat brochettes – to his lunch time regulars. “Using these micro credits has been very profitable for me,” he says: in the last two years his sales have risen by about 30 per cent and his staff has grown from 10 to 22. Hats off to Kyrgyz tradition Islam Adikov worked as a horse trainer in the Kyrgyz capital, Bishkek, until the desire to be closer to his aging parents brought him back to a rural community just outside Osh. The problem was, there was no way to make a living in the area. “So my neighbours taught me to make our traditional Kyrgyz men’s hats,” he explains. One of those neighbours is Kurbanali Kalmatov, who worked as a shepherd on a collective farm until the collective fell apart with the end of communism. He and his wife and five children moved to the Osh area “with just 500 som ($12) in my pocket”. The credits the two families received from the EBRD-backed micro finance programme “were very important for us,” says Mr Adikov. “Otherwise we would never have been able to increase our businesses to the point we could buy our houses.” Mr. Adikov used his $500 loan to build his wool stocks so that he could wholesale the raw material to others engaged in hat-making. Mr. Kalmatov used his first loan of $320 to buy an extra supply of raw wool which the family turns into thick sheets of white felt, a labour-intensive process requiring a lot of muscle power. The hats are then lined with black velvet and decorated in black embroidery, topped with a tassle. The hats are sold in Osh and Bishkek markets and worn at traditional gatherings. 1 October 2004 |
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