MICROCAPITAL BRIEF: Amid Concerns of a Bubble In Kyrgyzstan, 94 Microfinance Institutions Are Shut Down, 31% of Borrowers Owe Multiple Loans

According to a quote attributed to Fatima Eshimbekova of the World Bank Group’s International Finance Corporation (IFC), MFIs in Kyrgyzstan have doubled their aggregate loan portfolio since 2010. However, the Kyrgyz National Bank recently shut down 94 microfinance lenders, citing above-market interest rates. Interest rates in the country reportedly range up to 70 percent per year. Many small MFIs have sprung up, with a minimum capital level of KGS 100,000 (2,175 USD) required to launch. An unnamed IFC-funded study quoted by Eurasianet, an affiliate of the US-based nonprofit Open Society Institute, indicates that cross-indebtedness, wherein customers are in debt to multiple lenders, is 31 percent and increasing in Kyrgyzstan.

There is debate about whether the market is in a dangerous condition. Nonprofit FINCA Kyrgyzstan, one of 21 microbanks affiliated with US-based nonprofit FINCA International, has taken steps to improve stability, such as raising its minimum capital level, improving reporting, mandating regular audits and restricting its rate of growth. CEO Babur Tolbaev of for-profit microlender Mol Bulak reportedly states that repayment rates are still 97 percent and that there is “room for growth”. A group of MFIs led by Mol Bulak has opposed increased regulation.

By Webster Hughes, Research Associate

About Kyrgyz National Bank: The bank is the central bank of Kyrgyzstan. Under its 1997 charter, the bank implements monetary policy and establishes policy for banking operations, accounting and reporting.

About International Finance Corporation: A member of the World Bank Group, the International Finance Corporation (IFC) offers loans, equity investments, advisory services and technical assistance to private companies with the intent of alleviating poverty and promoting open and competitive markets in developing countries. As of 2011, IFC has 182 member countries, total assets of USD 68.5 billion and USD 12.2 billion mobilized to 518 projects.

About FINCA Kyrgyzstan: FINCA Kyrgyzstan is a branch of FINCA International, a US-based microfinance organization, that was established in 1995 with a USD 6.2 million grant from the United States Agency for International Development (USAID), a US government agency that supports global economic and humanitarian assistance. According to FINCA Kyrgyzstan, approximately 70 percent of the unemployed in Kyrgyzstan are women, which is why the organization mainly targets female bazaar workers as its clients. As of March 2011, FINCA Kyrgyzstan reported loans outstanding of USD 50 million and 110,000 clients with an average loan balance per client of USD 646.

About FINCA International: Founded in 1984 by Dr. John Hatch, a pioneer of the village banking model, the Foundation for International Community Assistance (FINCA) International is a microfinance network based in Washington, DC, that provides financial services to poor families through a network of locally managed institutions. FINCA targets its services to poor women living in the Americas, sub-Saharan Africa and Eurasia. In the 2010 fiscal year, FINCA International served approximately 760,000 clients through its subsidiaries in 21 countries. As of 2010, it had total assets of USD 496 million, with an operating profit of USD 10 million. In December of 2011, FINCA launched a subsidiary, FINCA Microfinance Holdings LLC, with funding from the International Finance Corporation (IFC), KfW Bankengruppe, Nederlandse Financierings-Maatschappijvoor Ontwikkelingslanden NV (FMO), responsAbility, and Triple Jump.

About Kompanion: Kompanion Financial Group Microfinance Closed Joint Stock Company was established in Kyrgyzstan in 2004 through the consolidation of five microcredit agencies affiliated with Mercy Corps, an economic development and aid organization based in the United States. Kompanion describes itself as a “community development financial institution that seeks to combine conservation and development goals.” As of December 31, 2010, Kompanion reports to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 50 million, a gross loan portfolio of USD 30 million, return on assets (ROA) of 4.78 percent,  return on equity (ROE) of 20.82 percent and 119,000 active borrowers.

About Mol Bulak Finance: Mol Bulak is a microfinance institution (MFI) that was established in the Issyk-Kul region of Kyrgyzstan in 2005. It provides small, unsecured enterprise loans for rural individuals and groups, primarily women. As of 2010, Mol Bulak reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 34 million, a gross loan portfolio of USD 25 million, return on assets (ROA) of 4.24 percent, return on equity (ROE) of 26.8 percent and 59,100 active borrowers.

Sources and Additional Resources

Eurasianet.org story, “http://www.eurasianet.org/node/65527

MicroCapital.org Article, March 17, 2012, “Reports of Overheating in Microfinance Sector in Kyrgyzstan”, https://www.microcapital.org/microcapital-brief-reports-of-overheating-in

MicroCapital.org Article, June 26, 2012, “Fund Managed by Incofin Loan $5m to FINCA Kyrgyzstan, Bai Tushum of Kyrgyzstan; Take 35% Stake in Unguka Bank of Rwanda”, https://www.microcapital.org/microcapital-brief-funds-managed-by-incofin-

MicroCapital Universe Profile: Kyrgyz National Bank, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Kyr

MicroCapital Universe Profile: International Finance Corporation,
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Int

MicroCapital Universe Profile: FINCA Kyrgyzstan, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=FIN

MicroCapital Universe Profile: FINCA International, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=FIN

MicroCapital Universe Profile: Bai Tushum, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Bai

MicroCapital Universe Profile: Kompanion, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Kom

MicroCapital Universe Profile: Mol Bulak Finance, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Mol

Browse the MicroCapital Universe and add you entry to the wiki at:
https://www.microcapital.org/microfinanceuniverse/

 

 

 

 

 

 

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