Kyrgyzstan – Technical Assistance to the Bai Tushum Financial Foundation

Developing Microcredit Institutions to provide Rural Credit

Although Kyrgyzstan is one of the most progressive former Soviet states in terms of market reforms, credit remains unavailable to the majority of small-scale farmers. These farmers constitute a vital sector of Kyrgyzstan’s largely agricultural economy. Though access to loan capital is a key tool for agricultural growth and modernization, Kyrgyzstan’s lending institutions have historically been poorly run and unwilling to lend to small- and medium-scale farmers. Long-term development and sustainability in the agricultural sector requires a modern, stable and widespread microcredit system.

With funding from USAID, ACDI/VOCA and Swiss Caritas contributed a total of $1.2 million in capital to help establish the Bai Tushum Financial Foundation (BTFF) in September 2000. BTFF was originally a consolidation of three independent credit programs in Chui, Osh and Jalalabad that had been plagued with high delinquency and a variety of other problems; the loan portfolio of these associations totaled more than $700,000.

Upon the completion of the program in August 2005, BTFF had three branches in Osh, Jalalabad and Bishkek with 10 sub-offices throughout Kyrgyzstan, was operationally and financially sustainable and had outstanding loan portfolio of $5.6 million extended to almost 3,000 borrowers. In 2004 USAID presented the Eagle Award to Muhammad Junaid, ACDI/VOCA’s long-term technical advisor to BTFF for his “outstanding technical assistance and exemplary leadership in developing the microfinance sector in Kyrgyzstan.” ACDI/VOCA has continued to provide technical assistance to the foundation, which is headquartered in Bishkek, Kyrgyzstan.

BTFF has contributed significantly to the development of microfinance legislation in Kyrgyzstan and was the first local microfinance institution (MFI) in the country to register as a Microcredit Agency under new law in January 2003. Through its lending programs BTFF has also been able to create a large number of employment opportunities in the rural areas, particularly in the southern region of Kyrgyzstan. In addition to creating permanent employment, these SMEs and farm enterprises provide seasonal employment to a large number of people in planting, harvesting, and marketing seasons. It is estimated that for every $250 invested in lending capital, BTFF has provided and/or sustained employment of one person. BTFF enjoys strong support from various levels of the government and has established strong linkages with the National Bank of the Kyrgyz Republic. In 2003, President Askar Akaev of Kyrgyzstan presented awards to Muhammad Junaid and two BTFF staff members in recognition of their contribution to alleviation of poverty and creating employment in Kyrgyzstan. In April 2005, BTFF was rated by Microfinanza, an international rating firm and received an “A+” rating, demonstrating “strong capacity to meet their financial obligations and is stable even if affected by major external or internal events.” Due to their strong financial position, BTFF has been able to obtain commercial loans from BlueOrchard (Dexia Bank), HIVOS/Triodos Bank, Kyrgyz Investment & Credit Bank (KICB), Frontiers LLC, EBRD and IFC to expand operations.

Today Bai Tushum has developed into one of the leading financial institutions in Central Asia and recently registered a limited liability company, Bai Tushum & Partners Microcredit Co., with a chartered capital of $3.2 million to attract equity investments. Bai Tushum maintains 4,000 active clients and a portfolio of $10 million with 87 personnel in its 3 branches and 10 suboffices. These outlets offer short- and medium-term working capital loans to eligible small and medium-sized enterprises in crop production, livestock breeding, dairy farming, agroprocessing, trade, and tourism and hospitality. Bai Tushum provides loans ranging from $400 to $20,000 at market interest rates. Marketable collateral, sufficient to cover both principal and interest, secures the loans.

Bai Tushum has succeeded by employing conservative, yet competitive, portfolio management and pricing policies. The foundation now covers all operational and administrative costs with revenue from interest. With overhead taken care of, Bai Tushum can direct the original financial assistance from its founders and all principal loan repayments back into the revolving loan fund. Bai Tushum's long-term plan is to become a joint stock company and offer deposit services along with other new financial products.

In addition to serving on the foundation’s board of directors, ACDI/VOCA continues to work with Bai Tushum, providing guidance as it expands its client base into new geographical areas and introduces new loan products. The ultimate goal of ACDI/VOCA and USAID is to ensure Bai Tushum’s capacity to cover financing and expansion costs in addition to operational expenses. Once Bai Tushum secures this financial independence, it will be a permanent and positive force in Kyrgyzstan, contributing to the country’s economic development by providing access to credit for an underserved population.