Sustainable financial markets essential for building shared prosperity and eradicating poverty, says IFC official

 

A. I visited Tajikistan to emphasize two points: First, that the private sector is key to this country’s growth, and second, that IFC is ready to deepen our partnership with Tajikistan to support the private sector.  President Emomali Rahmon shared with me his government's strategic priorities and discussed challenges to foreign direct investment.  I met Mr. Jamshed Nurmahmadzoda, the Chairman of the National Bank, and heard about the country’s financial sector development and ongoing reforms. I also met with private sector counterparts and other development partners to get their views on the business environment.

These meetings were interesting and useful. They confirm what we know. Tajikistan has made substantial progress over the past two decades. Its poverty rate fell from about 87% of the population in 1999 to 20% in 2015, while the economy grew at nearly 8% per year. But significant development challenges remain. Less than half (45%) of Tajikistan’s total working age population is in the labor force. The private sector’s role in the economy remains limited, contributing to only 13% of formal employment and 4.4% of the country’s GDP. Regulatory frameworks are clouded in uncertainty, particularly regarding taxation, limiting interest from potential foreign investors. These challenges expose Tajikistan’s economy to external shocks, particularly those impacting the country’s key trading partners.

What will make a difference is implementing an ambitious reform agenda that opens up more opportunities for the private sector to invest, create jobs, and contribute to the economy. The time to act on these reforms is now. 

 

A. It was clear from my conversations that Tajikistan’s leaders recognize that sound, inclusive, and sustainable financial markets are essential for building shared prosperity and eradicating poverty.

IFC has supported and will continue to support this work. And we see the fruits of our labor already through our Advisory Services. 

We have seen several microfinance institutions that we worked with grow into micro-deposit organizations, strengthen their risk-management systems, introduce new products, and improve lending practices. Recently, we provided long-term loans to Humo and Arvand, two micro-deposit organizations, to increase their home micro-loan lending to Tajiks living in rural areas. 

We see fundamental reforms in credit reporting and in secured-transactions systems. Tajikistan made the necessary reforms to establish a credit-reporting system and the first private credit bureau was created with a leading foreign credit bureau operator. This matters because it spurs lending to small and medium enterprises (SMEs) that create jobs and grow economies.

We see changes in the legal framework to enable the use of movable assets as collateral for loans. With a grant from the World Bank, we see the launch of a modern electronic collateral registry. Reforms like these helped Tajikistan improve its Doing Business rating.

We see at work a national financial literacy program that we spearheaded to instill debt-repayment discipline and improve basic financial literacy skills among the people of Tajikistan. IFC is fostering greater inclusion of the unbanked and underbanked in the formal financial services sector by reforming the regulatory environment and boosting innovations in financial services, especially for SMEs.

And because we see that more work needs to be done, IFC is working now with Tajikistan to bring together and foster greater coordination among all relevant policymakers to launch a national financial inclusion strategy.

 

A. If we are to succeed at expanding microfinance through local lending, I think we need to look at any challenges through two lenses.

First, we need to remember who we are serving. Greater financial inclusion means working closely with financial sector associations and institutions to develop and modify products suitable to the needs of low-income borrowers and micro-, small- and medium-enterprises (MSMEs). When financial products are not suitable, they won’t be used.

And second, we need to establish a level playing field for all players to be part of the solution. Creating a transparent and clear investment environment as well as ensuring that regulatory regimes are stable and predictable are important preconditions to attract investor interest in Tajikistan’s financial sector. And when these investors bring with them best practices and work hand-in-hand with local counterparts, we can drive better access to finance and introduce new financial services for Tajiks and MSMEs.

 

A. IFC does not lend directly to MSMEs or individual entrepreneurs. Rather, we work through financial intermediaries -- banks, non-banking financial institutions, or funds – that on-lend to MSMEs and individual entrepreneurs.

And we look for several things in selecting financial intermediaries with whom to partner and lend to. For instance, these intermediaries must be located and active in an emerging market that is an IFC member country. They must be technically and financially sound, benefiting the local economy by targeting investments or lending to high priority segments for the country. They must meet IFC’s environmental and social standards, as well as those of the member country.

 

A. IFC is committed to the growth of the Tajik economy and my visit to Tajikistan demonstrates our strong and ongoing interest in helping the country’s development. 

However, for the private sector to sustainably operate and contribute to the economy, we need ongoing government commitment to improving the business-enabling environment. To support this, within the World Bank Group’s partnership framework with Tajikistan, we will continue to work closely with government and private-sector counterparts to increase private-sector participation in the economy.  That’s what I discussed at length with President Rahmon and others during my trip.

Overall, my clear message to you is that IFC is committed to improving the business environment in Tajikistan and developing the private sector. And to do this, we look forward to working with all relevant stakeholders to boost private investment and increase shared prosperity in Tajikistan.