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Microcredit Pushed in Uzbekistan

Tuesday 17 July 2018

TASHKENT (UzTAG) — Uzbekistan plans to substantially stimulate the issuance of microcredits, as stipulated by a recent decree of the President of Uzbekistan On measures to improve and improve the efficiency of work to ensure employment of the population.

According to the decree, at least 50% of the funds allocated to the Employment Promotion Fund from the republican budget and the funds of the regional funds generated will be directed primarily to opening credit lines. AKB Microcreditbank, AKB Agrobank and the Halk Banks are designated for the allocation of microcredits in favour of the implementation of small and mini-projects in the regions and cities.

At the same time, microcredits are allocated to small business entities, farmers and dehghan farms, subjects of family entrepreneurship for the organization of greenhouses, the purchase of seeds, seedlings, livestock and poultry, agricultural tools, irrigation devices for the development of production in personal subsidiary and dehghan farms, equipment and raw materials for processing, storage and packing of agricultural products, production of construction materials, foodstuffs and non-food consumer goods, the development of home-based work, especially among women, in rural areas and for other purposes.

Microcredits will be granted in the amount up to 500 times the minimum wage for a period of up to 3 years, with a grace period of 6 months, at an interest rate of 50% of the refinancing rate of the Central Bank of the Republic of Uzbekistan, including a commercial bank margin of 50% of the allocation rate credit.

At the same time, microcredits can be allocated without collateral to unemployed persons registered in employment promotion centres, to citizens who have returned from labor migration, to women in difficult life situations, to members of low-income families and other socially vulnerable layers of the population in the amount of not more than 100-fold the minimum wage.

The impact of microcredit is a subject of much controversy. Proponents state that it reduces poverty through higher employment and higher incomes. This is expected to lead to improved nutrition and improved education of the borrowers’ children. Some argue that microcredit empowers women. In the US, UK and Canada, it is argued that microcredit helps recipients to graduate from welfare programs.

Critics say that microcredit has not increased incomes, but has driven poor households into a debt trap, in some cases even leading to suicide. They add that the money from loans is often used for durable consumer goods or consumption instead of being used for productive investments, that it fails to empower women, and that it has not improved health or education.

The available evidence indicates that in many cases microcredit has facilitated the creation and the growth of businesses. It has often generated self-employment, but it has not necessarily increased incomes after interest payments. In some cases it has driven borrowers into debt traps. There is no evidence that microcredit has empowered women. In short, microcredit has achieved much less than what its proponents said it would achieve, but its negative impacts have not been as drastic as some critics have argued. Microcredit is just one factor influencing the success of a small businesses, whose success is influenced to a much larger extent by how much an economy or a particular market grows.

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