DEG improves access to finance for Tajik SMEs

• Credit guarantee fund secures local banks' loans
• First loan extended to sugar importer
• Know-how transfer in the country's financial sector

A lack of access to credit is a major challenge for small and medium-sized enterprises in developing countries. In Tajikistan, one of the lesser developed countries of Central Asia, DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH, is focusing on setting up a credit guarantee fund. DEG is the initiator of the Credit Guarantee Fund Tajikistan GmbH (CGFT), and is contributing EUR 5 million to capitalise the guarantee fund. Further sponsors are the Development Bank of Austria (OeEB), which is also providing EUR 5 million, and the Dutch development bank FMO with a contribution of EUR 2.5 million.

The CGFT has been issuing guarantees to local banks in Tajikistan since August 2015. Through this measure the CGFT is assuming part of the default risk the banks face in extending loans to SMEs and start-ups, and thus facilitates their lending capacity. Local SMEs that require a loan ranging from USD 10,000 to USD 500,000, receive access to financing under market conditions. Financing such as this is currently not available due to an absence of the necessary legal framework conditions and a lack of utilisation possibilities for the usual bank securities.

The first loan is now being extended to a local entrepreneur. IMON International, one of the four CGFT partner institutions is providing a loan amounting to approx. USD 71,000 to an importer and trader of sugar and cement. The loan is 60% secured by the CGFT and will be used for importing more sugar. Furthermore, the company, which employs a staff of eleven, is for the first time in a position to rent warehouse space. Sugar is currently in high demand for making fruit into preserves for the winter.

DEG, OeEB and FMO additionally provide funds for technical assistance, which CGFT uses to offer its partner banks management consultancy services, support in structuring customer-oriented SME loans and implementing risk management systems.

With the CGFT, DEG is following on from a successful investment in Afghanistan, where in 2005 it began to set up a credit guarantee facility. Meanwhile this facility has been converted into the independent Afghan Credit Guarantee Foundation. To date, it facilitated a guaranteed credit volume totalling USD 141 million which has been extended to more than 4,100 Afghan SMEs. The average rate of default was 1% p.a.