Supporting Tajik micro businesses with local currency loans

Sometimes relatively small loans can make a huge, even life-changing difference. That’s what comes to mind when considering microfinance institutions in Tajikistan, one of the poorest countries of the former Soviet bloc. 

Here, employment opportunities are so low that as many as one million Tajiks out of a population of seven million have decided to work abroad and send their savings home to help support their families.

This is why the development of micro and small-sized enterprises is so vital for the country. Not only does it drive job creation, but it also helps to free people from the risks of low and irregular income derived from informal businesses.  

Sustaining private sector’s growth

Micro businesses like Nafisa Haitova’s Café Mirzo in Khujand, which is the country’s second-largest city and is located in the northern Ferghana valley, encourage more sustainable growth in Tajikistan’s private sector. They also provide inspiring examples of determination and self-empowerment.

As a stream of traditional mutton dishes comes out of her kitchen, Nafisa shows a photograph of a young couple behind a small outdoor food stand.

“When my husband and I started our activity in 2003 we were selling our food from a tent in the street,” she says of the picture. “Today we have a real restaurant with many clients and we employ 15 people.”

This transformation was possible thanks to Nafisa and her husband’s hard work and substantial loans from Arvand, a local micro credit institution which allowed them to expand and build the current restaurant premises – where the constant coming and going of customers testifies to the quality of the food and service.

All this wasn’t achieved without a struggle, though, as Nafisa had to overcome a major set-back that brought her close to financial disaster.

In Tajikistan, as in many of the EBRD’s countries of operations, the local capital market is weak: up to a third of deposits are in US dollars and loans are commonly dispersed in foreign currency. Small businesses, however, operate almost exclusively in local currency. When in 2008-09 the financial crisis hit the global economy, the somoni, the Tajik currency, lost a third of its value against the US dollar.

“When two years ago we received a loan in dollars, the exchange rate fluctuations made repayments difficult,” Nafisa recalls. “It was a really stressful time for us.”

ETC Local Currency Lending Programme

To address this systemic problem and boost local currency lending, in 2011 the EBRD established the Early Transition Countries (ETC) Local Currency Lending Programme. Supported by the Early Transition Countries Fund and the Shareholder Special Fund and with funds from Switzerland and the United States, the programme is helping Tajik micro and small businesses to access affordable financing in somoni and to shield them from the risks associated with exchange rate depreciation.

Arvand received the equivalent of US$ 1 million from the programme, and is already lending somoni to more than 1,400 businesses that are as promising as Nafisa’s café.

“The second time we received a loan from Arvand it was in somoni,” Nafisa says. “I can repay the loan every month and it is very convenient. Things are going really well.”

In less than a year the ETC Local Currency Lending Programme has become active in four other countries besides Tajikistan: Armenia, Georgia, the Kyrgyz Republic and Moldova.

In Tajikistan the programme is becoming a model for businesses and lenders; more companies are asking to borrow in their national currency and more banks and financial institutions are approaching the EBRD to participate in the programme, which the EBRD is planning to extend to more ETCs in 2012.

Reforming the capital market

Crucial for a lasting impact is the commitment of local authorities and the national bank to create an environment that is friendly to local currency. The Bank is working to help them to implement economic reforms aimed at reducing dollarisation and inflation and to develop local capital markets.

“The EBRD’s work will directly help every family and every business participating in the programme,” says Jamshed Yusufiyon, deputy governor of the National Bank of Tajikistan. “It will make an important contribution to the welfare and well-being of the population of Tajikistan at large – and will address one of the most important needs of Tajikistan’s economy.”

So, thanks in part to the EBRD, Nafisa and many more entrepreneurs in Tajikistan will be able to count on wide support and plan the growth of their businesses with confidence in the years ahead.

By Lucia Sconosciuto

Last updated 23 January 2012