MICROFINANCING PROBLEMS IN THE REPUBLIC OF UZBEKISTAN AND THEIR SOLUTIONS

Аннотация

Microfinance plays a key role in supporting small and medium-sized businesses (SMEs) in Uzbekistan. In 2023-2024, the sector has experienced significant growth, with the issuance of microloans and microcredits more than doubling, and the revenue and profit margins ofmicrofinance organizations (MFOs) reaching record levels. However, new risks have emerged, including an increase in non-performing loans, financial stress among borrowers, and challenges in the regulatory and infrastructure environment. The article analyzes the main problems of microfinance, assesses the state of the industry based on statistics, and suggests solutions, including strengthening supervision, expanding limits, improving access to financing, and developing Islamicand digital financing. Keywords: Microfinance, MFIs, small and medium-sized businesses, microloans, microcredits, NPLs (problematic loans), regulation, financial stability, financial inclusion, Uzbekistan, Islamic financing, digitalization. As you know, microfinance is the provision of small loans (usually up to $5,000–$10,000) to small businesses, individual entrepreneurs and startups, especially those who cannot get a bank loan duetolack ofcollateral, credit history orformal income. The goals of microfinance are: support small and family businesses, increase financial inclusion (involvement in the financial system), reduce poverty and unemployment, develop women and youth entrepreneurship, stimulateeconomic activityin rural areas. Microfinance for business entities is provided by microfinance organizations (MFOs), credit unions, non-bank financial institutions, pawnshops, PPP projects, and government programs (such as theFirst Step to Business inUzbekistan). Microloans in theRepublicofUzbekistan have certain characteristics, presented in Table 1. Tabl.1 -Main characteristics ofmicroloans Parameter Description AmountFrom From 1to 300million soums(in Uzbekistan) Term Usually Usually upto 24 months Security Often optional orsimplified Loan interest rate Rate Higher than inbanks Purpose Purchase of equipment, raw materials, rent, etc. Small and medium-sized businesses are considered the backbone of Uzbekistan's economy, but they face limited access to financing, high levels of bureaucracy, insufficient collateral, and other obstacles. Microfinance organizations (MFOs) and pawnshops have emerged as alternatives to traditional bank loans, particularly for entrepreneurs without access to collateral or formal income. In 2024, MFIs and pawnshops issued loans worth 16 trillion soums, which is 85% higher than in 2023; of these, 14.4 trillion were issued through MFIs (an increase of 2.04 times compared to 2023). https://ijmri.de/index.php/jmsi volume 4,issue7,2025 613 In 2024, the sector's (MFIs and pawnshops) total revenue amounted to 3.4trillion soums, and the net profit exceeded 1 trillion for the first time. Soums — MFIs received 833 billion soums, pawnshops — about 170 billion. The volume of microloans in 2024 amounted to 45.83 trillion soums(+59.4%), micro-loans —17.4trillionsoums (+52.9 %). The share of non-performing loans (NPL) increased from 2.2-2.4% (beginning of 2024) to 2.6 - 2.9%(beginning of2025). As of September 2024, the share of NPL (overdue for more than 90 days) was around 3% with a portfolioof 6.3trillion UZS. In 2024, about 70% of MFI customers were located in rural areas, and access to formal financial services increased to 45%(from 30%in2020). Themain problems of microfinance business in Uzbekistanare as follows: 1. High cost of loans and transaction costs. For the client, the loan includes additional expenses fortravel, insurance, notary, commissions, etc. 2. Limited limits and conditions. In 2023, the maximum microloan was only 50 million soums, which covered theneeds ofabout 9%ofentrepreneurs. 3. The quality of the loan portfolio and the growth of NPL. The increase in the share of problem loans indicates therisk ofdeterioration in thequality ofassets and an increase in non-payments. 4. Financial stability. The IMF warns that rapid growth in microcredit without sufficient supervision could threaten financial stability. 5. Bureaucracy and infrastructure barriers. Small businesses suffer from a lack of collateral, high fees, and difficulties in accessing resources. 6. Lack of capital and institutional support. Sometimes, entrepreneurs are unable to obtain loans dueto alack ofcollateral ordeveloped business models. To support the process of microfinance for businesses, the country has developed and implementedthe following support measures: -Expansion oflimits and financial resources • From January 1, 2024, the microloan limit has been increased to 100 million soums, and from August 2024, to 300 million soums; loans up to 100 million are now issued without collateral. Thetotal amount ofsupport underthe First Step to Business program is 10trillionsoums. • In 2024, banks and microfinance institutions allocated 3 trillion. soums against previously allocated family