Second Small and Microfinance Development Project: Completion Report
sector: Finance | country: Uzbekistan
Promoting the success of MSE (micro and small enterprise) operations and helping PCBs (participating commercial banks) fulfill their greater developmental functions would address existing constraints. Access to finance is just one constraint hindering the development of MSEs. In a 2003 survey of SMEs (in Uzbekistan, the International Finance Corporation identified some of the negative factors hindering the operation of enterprises. These include administrative procedures, currency conversion, access to finance, taxation, and import and export restrictions. More effective consultation and dialogue among various market participants and government agencies regarding proposed reforms can limit inconsistencies between government policies and the formulation and implementation of rules and regulations.
Monitoring and analysis of the MSE (micro and small enterprise) sector would benefit from estimates of the credit gap to confirm additionality of ADB FILs (financial intermediation loans). This could also help ensure that private sector funds are not displaced given the features of sovereign loans. How FILs catalyze the entry of new funds into the market needs to be better documented, and FILs’ ability to move participants to more market-based finance needs to be improved.
The lessons presented in the project completion report (PCR) are suitable. There are constraints hampering the development of micro and small enterprises (MSEs) other than access to finance, such as administrative procedures and regulatory restrictions. These constraints also need to be addressed. Consultations and dialogue on proposed reforms among stakeholders that include government agencies can help resolve policy and regulatory inconsistencies. Monitoring and analysis of the MSE sector should benefit from credit gap analysis to establish additionality of ADB financial intermediary loans and to ensure that private funds are not displaced by sovereign loans. There is also a need to document how ADB support helped catalyze funds into the market and how participants moved to more market-based finance. This validation adds a lesson-that adequate due diligence needs to be undertaken to ensure that all participating commercial banks (PCBs) are financially sound. In addition to providing a credit line and capacity building through a technical assistance (TA) project, policy dialogues should also be mainstreamed into the project to make the effort comprehensive and to sustain the project’s outcomes and outputs. If this was done, the microcredit organization (MCO) component might not have been dropped from the project.