Good Practices: Banking Sector

Consumer Protection in the Microfinance Sector

Overview

1. 
   The Law on Microfinance Organizations defines three types of formal MFOs (MFOs) in Tajikistan. These are micro-credit deposit organizations (MDO), micro-lending organizations (MLO) and micro-lending funds (MLF). A MDO and a MLO shall be formed as a closed type joint stock company or a limited liability company, whereas a MLF may only operate as a social fund, with no capital requirement.
   

7.The relative size of the microfinance sector has practically doubled over the past five years. The MFOs’ microcredit portfolio has expanded from about US$44.6 million (1.21 percent of GDP) in 2007 to US$182.2 million (2.49 percent of GDP) as of September 2012, which represented an increase of 308 percent in absolute terms (106 percent in relative terms). In the same period, the microcredit portfolio of banks and credit societies¹⁰ increased 55 percent (from US$142 million to US$220 million). Thus, the MFOs’ share of microcredit granted by all formal credit providers increased from 24 percent in 2007 to 41 percent by March 2012 (Table ).

Table : Total Microcredit Portfolio of Microfinance Organizations

Type of	2007		2008		2009		2010		2011		IIIQ 2012
Microcredit Provider	US$ mill.	% of GDP	US$ mill.	% of GDP	US$ mill.	% of GDP	US$ mill.	% of GDP	US$ mill.	% of GDP	US$ mill.
Micro-credit deposit organizations	6.35	0.17	12.05	0.23	19.79	0.42	34.25	0.77	48.51	0.85	68.29
Micro-lending organizations	7.54	0.20	47.77	0.93	42.83	0.91	53.48	1.15	72.40	1.30	101.34
Micro-lending funds	30.73	0.83	19.16	0.37	9.68	0.21	10.81	0.18	11.42	0.18	12.58
Total MFOs	44.61	1.21	78.98	1.54	72.30	1.53	98.53	2.09	132.33	2.33	182.21
Total formal credit providers	186.62	5.05	307.17	5.99	245.67	5.21	288.21	5.14	344.70	5.45	441.50
Total MFOs / total formal credit providers	23.9%		25.7%		29.4%		34.2%		38.4%		41.3%

Source: National Bank of Tajikistan
8.The expansion of the microfinance sector has been led by MLOs. The value of the MLO microcredit portfolio has grown almost tenfold over the past five years, whereas its share of microloans granted by formal credit providers has increased from 4 percent in 2007 to 21 percent in 2011. In terms of clientele, the MLO segment increased its market participation from 7 percent to 53 percent in the same period. At the same time, the number of MLF clients decreased significantly, which led to a decline in the MLFs’ share of the number of MFO clients from 80 percent in 2007 to 17 percent in 2011. Table shows that before 2009 the greater number of MLO borrowers was associated with the entry of new MLOs; however from 2009 to 2011 only one MLO entered the market, and the number of borrowers increased by 73 percent showing higher penetration efforts of existing MLOs.

Table : Number and Outreach of Microfinance Organizations

	Number of MFOs							Number of borrowers
	2005	2006	2007	2008	2009	2010	2011	2007	2008	2009	2010	2011
Micro-credit deposit organizations	0	5	8	14	31	35	34	17,463	23,705	39,181	48,114	57,337
Micro-lending organizations	1	20	24	37	42	42	43	10,047	62,773	57,239	70,020	99,124
Micro-lending funds	20	30	38	41	43	44	45	113,367	67,316	45,251	30,087	31,651
Total MFOs	21	55	70	92	116	121	122	140,877	153,794	141,671	148,221	188,112

Source: National Bank of Tajikistan
9.There are two authorities with responsibilities on consumer protection issues for the microfinance sector in Tajikistan. The National Bank of Tajikistan (NBT) is an independent legal entity that reports to the lower house of the Parliament. Its main goals, according to its statutory law, are: to support a stable level of prices within the limits of its authority, to assure development and strengthening of the country's banking system, and to facilitate efficient and smooth operation of the payment system. The NBT also has the exclusive right to regulate and supervise the activities of credit institutions, with the main goal of maintaining stability of the system and protecting the interests of depositors and creditors. The Antimonopoly Agency (AMA) is in charge of enforcing and monitoring compliance with the Law on Consumer Protection, and has the rights to go to court when detecting infringements of consumer rights, to represent a class of consumers in court, and to demand the termination of an activity that violates the law, among others. AMA is also in charge of monitoring compliance with the Law on Advertising, and has the authority to order the cessation of violations of the law, and to go to court representing a group of consumers affected by noncompliance with the law. AMA also monitors compliance with the Law on Competition and Restriction of Monopolistic Activity on Goods Markets.

10.There is one industry association representing the microfinance sector. The Association of Microfinance Organizations of Tajikistan (AMFOT) is a non-commercial organization which offers different services to its member MFOs on a voluntary basis, including training, lobbying and dissemination of information. Although AMFOT was officially registered in January 2004, it started its activities in 2000 when several national and international NGOs involved in implementing microfinance programs in Tajikistan formed a voluntary microfinance coalition. AMFOT now has more than 70 members. Consistent with its mission, AMFOT contributes to developing a favorable legal environment, provides professional training and technical assistance to MFOs and promotes the introduction of standards in the microfinance sector.

11.There is also a consumer organization active in several economic areas, but not in the financial sector. Consumers Union of Tajikistan is a non-profit, public, non-governmental organization created with the purpose of providing assistance in consumers’ rights and interests’ protection, and building a fair and competitive market of goods and services in Tajikistan. The Consumers Union was founded in July 2002 as a local Dushanbe-based association, and in 2007 it transformed into a national organization, which now has offices in Khujand and Qurghon-Teppa. The Consumers Union has organized consumer rights awareness events for both the adult and young population, has developed a school program named “Basics of consumer knowledge” that is being taught in 20 schools in Tajikistan, and implemented special programs for judges and state officials on consumer rights protection. Since 2003, the Consumers Union has administered a hotline for consumers, which has helped them receive more communications from consumers. The Consumers Union has received over 3,500 consumer complaints and more than 60 cases have been taken to the courts. Most complaints relate to public utilities and housing projects. The Consumers Unions has not received any complaints related to the financial sector.