Uzbekistan legally liquidates credit unions

Business Materials 5 January 2013 13:29 (UTC +04:00)

Uzbekistan, Tashkent, Jan. 5 /. Trend D.Azizov /

In Uzbekistan, the law "On amendments and additions to some legislative acts of the Republic of Uzbekistan", providing, in particular, the abolition of the law "On credit unions" has entered into force.

According to the introduced changes the concept of "credit union" is also excluded from the Law "On the Central Bank", "On microfinance" as well as from the Tax Code and other legislative acts.

The law "On amendments and additions to some legislative acts of the Republic of Uzbekistan" was adopted by the Legislative Chamber of the Uzbek parliament in November and approved by the Senate in early December of last year.

The law was approved by the President and published in the media on Friday. According to the final article of the law, it will come into force from the date of publication.

Establishment of credit unions was undertaken in Uzbekistan since 2002 as an addition to bank credit facilities used to finance entrepreneurship activities.

Credit union was considered an organization created by natural and legal persons on the basis of a voluntary equal membership for provision of loans. Members of the credit union could be legal entities and individuals (at least 50), who made equity contributions to the statutory fund.

Under the law "On credit unions", they operated under license of the Central Bank. The minimum share capital was initially set for credit unions in the amount equivalent to $10,000; by the end of 2011 - €100,000 for the CU created in Tashkent, and €50,000 for the CU created in other locations.

In 2002, the Asian Development Bank (ADB) has provided the government with a loan of $20 million to support credit unions in the framework of the development of microfinance in the country.

In July 2011, the Central Bank has suspended the operation of credit unions associated with the involvement of public deposits.

The ban has been associated with abnormalities in the existing credit union activities, endangering the timely and complete return of deposits. Failure to comply with these requirements results in liability in accordance with the law.

According to local analysts, the Central Bank was not satisfied with the interest rates on deposits in credit unions that were several times higher than in banks.

As a result, by the end of 2011 100 of the 120 operating credit unions were shut down..

Under the law "On microfinance" institutions providing microfinance services are banks, microcredit organizations, pawn shops and other lending institutions. Organizations providing microfinance services are providing these services at their own expense.

In 2006, the law "On microcredit organizations" - legal entities engaged in microfinance in the form of micro-credit, micro-loans, micro-leasing and providing other microfinance services, was accepted.

According to the law, the sources of funds for provision of microfinance services are equity capital, funds provided by investors, including foreign loans to banks, state trust funds, grants and loans from international financial institutions and non-profit organizations.