This program comprised 29 policy actions: 11 for subprogram 1 and 18 for subprogram 2. The total number of policy actions was significantly large, particularly in subprogram 2, and represented a challenge in monitoring and implementation. The number of policy measures should be limited so that ADB can monitor compliance with them effectively throughout the program.
PFM and SOE reforms to ensure fiscal sustainability, like those in the program, have political and economic implications and are difficult to undertake without strong ownership. The implementation success of such policies resides in (i) a good understanding of vested interests; (ii) the government’s strong commitment; (iii) the institutional capacity of government agencies; (iv) effective partnership and coordination between ADB and the government; and (v) a strong appreciation for overall program benefits. All these were observed in the program.
This program was developed in close consultation with the government and development partners including the International Monetary Fund, World Bank, Agence Française de Développement, and United Nations Development Programme, and was designed through a holistic approach. It demonstrated that a holistic consultation process can ensure effective diagnosis of the issues, leading to a relevant policy matrix that prioritizes reform measures in collaboration with the development partners.
This program supported the preparation of the medium-term framework (MTBF) and MTBF manual, including gender-responsive budgeting tools at the MOF. Program experience has highlighted that institutionalizing change-management practices among those charged with implementing reforms requires enhancing both technical and change management competency. It is also necessary to enable the government to sustain capacity development programs beyond the life of a program for instance, by providing training experts, particularly to develop soft capacities.
This program successfully tackled a wide range of highly complex, interlinked issues. In addition to the appropriate sequencing of reforms, its success was attributable to the development of adequate capacity among key stakeholders, including the Ministry of Finance (MOF), Central Bank of Uzbekistan, and State Asset Management Agency. Capacity development was made possible by the provision of ADB technical assistance.
First, it entails enhancing the policy and regulatory environment. Second, it means developing the market infrastructure. In the case of the MDP, it was developing and adopting the performance standards for microfinance and drafting the bill for the credit information system that was successfully passed into law. Third, it means developing the capacity of MFIs for sound and sustainable microfinance operations. Fourth, it entails increasing the capacity of end-clients in accessing and using financial services through financial literacy, consumer protection, and BDS.
Key success factors are government buy-in and an appropriately designed program. The key factors that contributed to the success of the MDP were (i) the strong commitment of the government and support from stakeholders to develop the sector and achieve sustainable microfinance; and (ii) a well-designed program that appropriately addressed the key constraints, accompanied by TA to support the program objectives and a grant for capacity development.
Within the broad context of inclusive growth, the growth and commercialization of the microfinance sector increased access to financial services, created jobs, and increased financial literacy. However, outreach to households below the poverty line remains limited. In view of the program’s stated objective to improve household income, reduce poverty, and reduce the vulnerability of the poor, there is a need to improve the breadth and depth of outreach to the poor. Support for strengthening social performance of MFIs may be considered to improve outreach to the poor. The initiatives of BSP, People’s Credit and Finance Corporation and microfinance network organizations in promoting financial literacy and consumer protection should be continued, as these develop the capacity of the poor to increase access to and use financial services. Further, MFIs should take full advantage of BSP’s responsiveness to advances in technology through mobile banking and e-money, as these offer tremendous opportunity to deepen and expand outreach to the poor.
The issuance of EO 558 initially threatened the foundation of the government’s market-based financing strategy for the sector. It did not have any significant adverse impact on the policy environment, as the market-oriented framework was already well established and institutionalized in the sector. Nonetheless, DOF-NCC needs to stay vigilant and continue to play a proactive role in preventing policy reversals that would threaten the market-oriented framework for microfinance.
A project such as this one can be successful in easing the constraints to local currency cash loans, loan terms, and the capacity of participating commercial banks for MSE lending. However, it cannot address other constraints identified at appraisal such as restrictions on dollar-denominated cash loans, and those encountered during implementation, such as restrictions on microcredit organizations and cash balances of banks. Incremental measures aimed at easing constraints and eventually dismantling credit market distortions need to be included in the project design.
In addition, to achieve good project performance, the project design needs to include continuous policy dialogue and knowledge sharing of international best practices.
ADB should have taken a more cautious stance in the selection of PCBs, especially when Agrobank had earlier failed to meet the covenant on return on assets.
The PPMF was a useful input to the design of the ADB policy-based loan supporting the Financial Market Development and Integration Program in 2012. It is also a good practice for ADB to support a post-monitoring program with technical assistance. However, the PPMF should monitor not only actions and outputs but also outcomes.
The $1.5 million TA project was aimed at supporting the continuation of the reforms beyond the CMDPC, including the policy measures in the post-program monitoring framework. The other TA project amounting to $1.2 million TA project, with limited components, supported the implementation of a $600 million loan program with 93 policy actions to be completed by several government agencies. It is unclear whether additional budgetary resources were provided for program implementation; future programs may want to ensure appropriate resources for implementation.
The CMDPC supported a complex program with 93 policy actions (46 for subprogram 1 and 47 for subprogram 2). Limiting the number of policy actions in a program is consistent with the IED recommendations in the evaluation of ADB assistance to capital market development in 2008.
A longer term and flexible framework for reforms, supported by a timely monitoring and evaluation system, would provide a context for the phasing of reforms and identifying the content of specific programs which typically cover 3–5 year periods.
Private savings through pensions and a more developed capital market will mobilize long-term finance. These reforms, however, are long-term in nature involving legislative changes and institutional strengthening. Capacity building is required to assist government in this endeavor, and to support more knowledge-intensive solutions and analytical work since these sectors are likely to be underdeveloped.
The DMF was reasonably well-designed and the performance indicators—with the exception of the initial program impact indicators—targets, and baseline data were precise and generally easily measurable. However, the PCR assessed the program against the DMF prepared for subprogram 3, which, like subprogram 2 had no indicators to measure impact, although these were included for subprogram 1. The impact indicators under subprogram 1 were not reflective of the impact statement—measuring the reduction in the fiscal deficit, absolute poverty, and income distribution against the impact of higher living standards and more employment opportunities, particularly for women. The impact statement and its measurement need to be more closely aligned to the program and as such, indicated a design deficiency in the DMF. The risks for subprogram 1 related to a deteriorating external environment and delays to reforms, and weak economic growth that impact expenditure efficiency; weak economic growth was not included for subprograms 2 and 3.