Education Credit

Banking System: Constant Attention and Care for Future Owners

Our children must be stronger, more knowledgeable, wiser, and, of course, happier than us!

Islam Karimov President of the Republic of Uzbekistan.

As is known, Uzbekistan is a land that rocked the cradle of great minds known worldwide for its science and art. On this blessed land, science and learning have flourished since ancient times; natural sciences, specifically medicine, mathematics, astronomy, etc., were taught, scientific academies were established, and renowned scholars who gained fame in the Maghreb and Mashriq emerged. The world knows and studies to this day the works created by Khorezmi, who created the foundations of cybernetics; the thoughtful scientist Beruni; our great philosopher Farabi; the unparalleled discoverer of medical laws, Ibn Sina; the great astronomer Mirzo Ulugbek; and the stars of poetry, Navoi and Babur.

Indeed, development in all spheres is directly related to how confidently the state is taking steps in the path of science and learning. Accordingly, in our country, during the years of independence, all necessary conditions were created for young people to receive education, demonstrate their talents, and work. As a result, today the interest of young people in acquiring knowledge is growing more and more.

In this regard, particular attention is paid to young people acquiring deep knowledge and mastering a specific profession, and helping them fully manifest their intellectual abilities and potential, approaching this as a priority task.

The results of large-scale reforms in the education system

In the large-scale reforms being implemented in our country, the state policy aimed at ensuring the active participation of young people, raising a morally high-minded, independent and free-thinking, comprehensively healthy and mature generation that has thoroughly mastered the achievements of modern science and learning, is being consistently implemented.

Since the Republic gained independence, just as in all other spheres, the education sector was fundamentally reformed, setting as its goal to train highly qualified personnel responding to the level of developed democratic states and high moral and ethical standards.

To achieve the fundamental reform of this sector, in accordance with the requirements of the Law of the Republic of Uzbekistan "On Education," the government approved the "National Program for Training Personnel," which is aimed at forming a new generation of personnel capable of proposing and solving prospective tasks, based on the analysis of national experience and global achievements in the education system, and possessing high general and professional culture, creative and social activity, and the skill to independently and correctly foresee long-term goals in socio-political life.

To implement the tasks set forth in this program, create broader opportunities for young people to receive education, and strengthen the social protection of citizens obtaining higher education, in accordance with Resolution No. 318 of the Cabinet of Ministers of the Republic of Uzbekistan dated July 26, 2001, "On Providing Education Loans for Study on a Contract-Payment Basis in Higher Education Institutions," the "Regulation on Providing Education Loans for Study on a Contract-Payment Basis in Higher Education Institutions" was approved.

Legal basis for the provision of education loans by banks

This Regulation establishes the procedure for the provision and repayment of education loans by commercial banks for study on a contract-payment basis in higher education institutions of the Republic of Uzbekistan.

The provision of education loans by commercial banks, their repayment, the security of payment, the term, and the conditions for their targeted use are carried out on this basis.

Education loans may be provided by commercial banks to students who are citizens of the Republic of Uzbekistan enrolled on a contract-payment basis in the full-time departments of higher education institutions, for their own study, or for the study of their parents or guardians.

Education loans provided by commercial banks are granted for a term of up to 10 years for students admitted to bachelor's programs and up to 5 years for students admitted to master's programs, taking into account the period of study at higher education institutions.

In accordance with this Regulation, for education loans provided by commercial banks:

• a zero percent interest rate (interest-free loan) is set for true orphans, those raised in "Houses of Mercy," and persons with disabilities of group I and II from childhood;
• variable interest rates not exceeding the current refinancing rate of the Central Bank of the Republic of Uzbekistan are set for other categories of students.

In accordance with this Regulation, the interest rate for education loans and the amount of fees charged by commercial banks may change depending on changes in the Central Bank's refinancing rate, which must be recorded in the loan agreement.

For students from low-income families, 50% of the accrued interest on the loan is paid from the funds of the State Fund for Employment Support by the District Centers for Employment Support and Social Protection of the Population.

Families entitled to use the aforementioned benefits are identified by the self-government bodies of citizens in accordance with the current procedure for registering low-income families and assigning and providing them with material assistance.

The calculation and payment of interest for education loans begin from the time the amount transferred to the educational institution is provided, and the repayment of the principal debt begins three months after the official term established for this type of education at the higher education institution is completed, without taking into account the period of retaking certain courses.

Interest rates for education loans are not calculated during the period when the student is serving mandatory military service.

Education loans are, as a rule, provided by commercial bank branches located in the populated place where the borrower resides.

To obtain an education loan, the borrower submits the following documents to the commercial bank: a) an application for the provision of an education loan; b) a contract formalized in the prescribed manner between the student and the higher education institution regarding study on a contract-payment basis. The contract must indicate the established term of study and the payment amount per year. In cases where the payment amount for study changes in subsequent years, appropriate amendments are made to the contracts, and the higher education institution notifies the bank in writing within ten days, after which necessary amendments are made to the loan agreement between the borrower, the bank, and the higher education institution; c) a certificate issued by the self-government bodies of citizens or private housing ownership companies regarding the borrower's place of residence; d) a document regarding the security of loan repayment; e) relevant confirming documents submitted by true orphans, those raised in "Houses of Mercy," persons with disabilities of group I and II from childhood, and children from low-income families who have the right to receive preferential education loans.

When submitting the above documents to the bank, the borrower must personally present their passport. The bank has the right to obtain necessary copies and duplicates from the passport and other submitted documents.

To prevent the risk of non-repayment of the obtained loan, the borrower must submit one of the following forms of security to the bank, the implementation of which is a basic requirement imposed on them:

• pledge of property or securities;
• bank guarantee;
• guarantee of a third party;
• insurance policy of an insurance company stating that the risk of the borrower's inability to repay the loan is insured;
• guarantee of the self-government bodies of citizens (only for true orphans, those raised in "Houses of Mercy," persons with disabilities of group I and II from childhood, and those from low-income families).

The bank reviews the application and other documents submitted by the borrower for obtaining a loan.

If a guarantee or surety agreement is submitted as security for loan repayment, the bank evaluates the financial status of the guarantor and surety.

If the submitted documents meet the bank's requirements, a loan agreement is concluded between the bank, the borrower, and the higher education institution.

To provide education loans for the study of students from low-income families, a multi-party loan agreement is concluded between the bank, the borrower, the higher education institution, and the State Fund for Employment Support, with the rights and obligations of each party arising from this Regulation clearly defined.

Commercial banks must review the application and the complete set of documents attached to it submitted by the borrower requesting an education loan within 10 working days and either sign the loan agreement or, if a decision is made not to provide the loan, issue a written conclusion to the applicant indicating the reason for the refusal to provide the loan.

An education loan is provided by transferring funds from the borrower's loan account to the deposit account required by the higher education institution based on the borrower's personal written instruction.

Funds for education loans are transferred twice a year in accordance with the conditions specified in the loan agreement, by dividing the full annual payment amount for study into two equal parts. For newly admitted students, the initial payment for the first half-year is paid by October 1 of the current year, and for the second half-year, by March 15 of the next calendar year.

Starting from the second year of study, payments from the credit account are paid no later than the 5th day of the first month of each half-year (September and March).

Interest is paid by the borrower in accordance with the conditions specified in the loan agreement.

For students from low-income families, interest on education loans for their study is paid monthly by the borrower and the Fund in equal shares of 1/2 of the calculated interest amount.

The Fund transfers the calculated interest amount within three working days after receiving the bank's statement with the payment order.

After providing an education loan, the bank conducts monitoring of the loan security in the manner specified in the contract.

Like other types of loans, the borrower has the right to repay this education loan early, before the term specified in the loan agreement.

The wide implementation of this education loan by the government has created broad opportunities for young people to increase their interest in receiving higher education, especially for true orphans who have lost their provider, those raised in "Houses of Mercy," persons with disabilities of group I and II from childhood, as well as students from low-income families, and has created a broad basis for supporting their parents socially and economically.

At the same time, to create social and economic benefits for our youth and their parents to facilitate their broad learning, in accordance with the second paragraph of clause 31 of Article 179 of the Tax Code of the Republic of Uzbekistan, it was established that amounts of citizens' taxable wages and other incomes directed for study at higher education institutions of the Republic of Uzbekistan (for their own study or for the study of their children under the age of twenty-six) are not subject to income tax.

Advantages of the education loan established in the country's banks

If we look at the education loan distribution programs for developing the education sector in some countries today, in Australia, 8,170 Australian dollars, or up to 4,970 euros, are allocated per student per year; in the Netherlands, up to 8,904 euros per student per year for each student up to the age of 30; in Estonia, 20,000 Estonian kroons per student per year; and in Germany, education loans can be obtained by students aged 18 to 30. The maximum amount for this education loan is allocated up to 7,800 euros per year.

As a result of the state programs adopted for the development of the education sector in our Republic, the conditions for education loans in our Republic differ from the benefits in the education systems of the countries mentioned above with specific advantages. That is, while education loans in most countries of the world are distributed at the same interest rate for all students, in our Republic, education loans are distributed at a zero percent interest rate (interest-free loan) for true orphans, those raised in "Houses of Mercy," and persons with disabilities of group I and II from childhood, and at variable interest rates not exceeding the current refinancing rate of the Central Bank of the Republic of Uzbekistan for other categories of students. This indicates that the government provides special support to the socially vulnerable stratum of the population in our Republic.

Another important point is that there are no age restrictions for students receiving education loans in our Republic, and the amount of the education loan is distributed in an unlimited amount to students or their parents.

It should be noted separately that in most countries of the world, tax benefits are not established for the amounts of citizens' taxable wages and other incomes directed for study. However, this benefit has also been taken into account by our government, and in accordance with the second paragraph of clause 31 of Article 179 of the Tax Code of the Republic of Uzbekistan, to create social and economic benefits for our youth and their parents to facilitate their deep learning, it is established that amounts of citizens' taxable wages and other incomes directed for study at higher education institutions of the Republic of Uzbekistan (for their own study or for the study of their children under the age of twenty-six) are not subject to income tax.

Calculation chart of education loans by commercial banks

*For students from low-income families, 50% of the accrued interest on the loan is paid from the funds of the State Fund for Employment Support by the District Centers for Employment Support and Social Protection of the Population.

Activity of banks in providing education loans

In the credit policy of commercial banks, supporting our youth, who are the owners of the country's future, materially and providing comprehensive assistance through loans for their becoming competent, knowledgeable, and mature, has been established as a priority task. This is also confirmed by the fact that the amount of education loans distributed to student-youth by banks is increasing year by year.

Specifically, based on the "Regulation on Providing Education Loans for Study on a Contract-Payment Basis in Higher Education Institutions" approved by Resolution No. 318 of the Cabinet of Ministers of the Republic of Uzbekistan dated July 26, 2001, commercial banks have provided education loans to more than 50,398 students in a total amount of 148.4 billion UZS over the last four years (including the first 6 months of 2014).

Amount of education loans distributed by commercial banks over the last four years

No.	Years	Number of Students	Amount of Distributed Loans (in billion UZS)
1.	2011	11,256	31.8
2.	2012	13,310	33.1
3.	2013	17,053	57.8
4.	First 6 months of 2014	8,779	25.7
Total		50,398	148.4

If we analyze in more detail the education loans distributed by commercial banks as of July 1, 2014, it can be seen that in just the first 6 months of 2014, education loans in an amount of more than 25.7 billion UZS were distributed to more than 8,779 students across the republic. This indicator is 1.3 times higher than the same period of the previous year. Of this, education loans were provided to 22 students (more than 52 million UZS), who were true orphans, those raised in "Houses of Mercy," and students with disabilities of group I and II from childhood, and the remaining 8,757 students (more than 25.6 billion UZS) received education loans distributed in the general order.

The importance of the distribution of education loans by commercial banks in the life of our country is also manifested in the following aspects:

• wide distribution of education loans contributes to an increase in the quality level of the education system and an increase in the number of personnel with higher education in society;
• social protection of various vulnerable strata of the population and their financial support for receiving education;
• increasing parents' attention to educating their children through benefits granted to their incomes and thereby supporting their children's education;
• education loans create broad opportunities for the emergence of modern, qualified, striving, and professionally working young personnel who work perfectly on themselves in various spheres of society.

In conclusion, we can say with pride and honor that Uzbekistan has long been the center of science of the entire East. This place where great figures emerged and studied will continue to be the cradle of science, learning, and creativity.

Indeed, the wide opportunities and conditions created by our government for the education of our country's youth are clearly manifested in the example of young people who are finding their worthy place in independent labor activities and actively working for the development of various spheres of our country, having received education at any higher education institution they wish, and becoming highly qualified and competent personnel responding to high moral and ethical standards, contributing to the economic, political, cultural, and educational development of our country. This is the practical result of one of the most important works at the level of state policy regarding the social protection of youth in our country.

Muzaffar SATTOROV, Senior Specialist of the Department for Coordination of Methodological Work in the Banking System of the Central Bank of the Republic of Uzbekistan.

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Borrowers	Credit Interest Rate	Credit Term
True orphans (orphans who have lost both father and mother)	0%	Granted for a term of up to 10 years for students admitted to bachelor's programs and up to 5 years for students admitted to master's programs, taking into account the period of study at higher education institutions.
Students raised in "Houses of Mercy"	Variable interest rates not exceeding the refinancing rate of the Central Bank of the Republic of Uzbekistan (from January 1, 2014, 10%)	Granted for a term of up to 10 years for students admitted to bachelor's programs and up to 5 years for students admitted to master's programs, taking into account the period of study at higher education institutions.
Persons with disabilities of group I and II from childhood	Variable interest rates not exceeding the refinancing rate of the Central Bank of the Republic of Uzbekistan (from January 1, 2014, 10%)	Granted for a term of up to 10 years for students admitted to bachelor's programs and up to 5 years for students admitted to master's programs, taking into account the period of study at higher education institutions.
Other categories of students	Variable interest rates not exceeding the refinancing rate of the Central Bank of the Republic of Uzbekistan (from January 1, 2014, 10%)	Granted for a term of up to 10 years for students admitted to bachelor's programs and up to 5 years for students admitted to master's programs, taking into account the period of study at higher education institutions.
Students from low-income families	Variable interest rates not exceeding the refinancing rate of the Central Bank of the Republic of Uzbekistan (from January 1, 2014, 10%)	Granted for a term of up to 10 years for students admitted to bachelor's programs and up to 5 years for students admitted to master's programs, taking into account the period of study at higher education institutions.