Explanatory Note on the Regulation Regarding the Procedure for Lending to Small Business Entities in National Currency

EXPLANATORY NOTE ON THE REGULATION REGARDING THE PROCEDURE FOR LENDING TO SMALL BUSINESS ENTITIES IN NATIONAL CURRENCY

Liberalization of Lending Procedures

An explanatory note on the Regulation "On the Procedure for Lending to Small Business Entities in National Currency," registered with the Ministry of Justice of the Republic of Uzbekistan on December 27, 2013, under No. 2546.

In recent years, a number of measures have been defined to fundamentally improve the business environment in our republic and grant broader freedom to entrepreneurship.

In particular, special attention is being paid to the banking services provided by the banking system to small business and private entrepreneurship entities, their financial support, and increasing the volume of lending.

As a result, during 2013, the loans allocated by commercial banks to small business and private entrepreneurship entities from all sources of financing increased by 1.3 times compared to 2012, amounting to 6 trillion 982 billion soums. Of this amount, projects equivalent to 1 trillion 366 billion soums were provided with microcredits, and this indicator also increased by 1.3 times compared to 2012.

In this regard, the main focus was directed towards increasing the role of small business in the economy by allocating long-term loans for investment purposes and initial capital formation to small business entities, as well as by expanding micro-lending, and organizing new jobs.

It should be noted that the work being carried out by the banking system in our country regarding the structural transformation of the economy, modernization of industrial sectors, and specifically financial support for entrepreneurs is highly appreciated.

In the "Doing Business" report published by the World Bank and the International Finance Corporation in October 2013, the business environment in Uzbekistan improved by 10 positions, and the rating indicators in the lending sector rose by 24 positions, which indicates the positive results of the work being carried out by the head of state and the government to create a favorable business and investment environment in our country.

This, in turn, leads to an increase in the interest of foreign investors and international financial institutions in Uzbekistan.

It should be noted that the existence of legal and regulatory documents regulating the provision of convenient banking services to small business and private entrepreneurship entities was separately evaluated in the preparation of this "Doing Business" report.

Taking into account the rapid development of small business and private entrepreneurship and the conditions being created for them, the procedures established by the Central Bank in the "Procedure for Lending to Farm Holdings and Small Business Entities in National Currency by Commercial Banks" (Registration No. 907, March 7, 2000) were reviewed.

Specifically, instead of this Procedure, the Regulation "On the Procedure for Lending to Small Business Entities in National Currency" (Registration No. 2546, December 27, 2013), approved by Decision No. 22/9 of the Board of the Central Bank dated November 23, 2013, was adopted, and a number of norms creating further convenience for small business entities were introduced into it.

As is known, in the Decree of the President of the Republic of Uzbekistan "On the Program of Measures to Support Enterprises of the Real Sector of the Economy, Ensure Their Stable Operation, and Increase Export Potential" dated November 28, 2008, it was primarily established as a priority task to activate processes of modernization, technical, and technological re-equipment in the basic sectors of the economy, implement modern adaptive mini-technologies that ensure the production of high-quality, export-oriented competitive products, further increase the competitiveness of our country's manufacturers' products in domestic and foreign markets, expand the volume of sales of new types of goods by exporting enterprises, and master promising markets for product sales.

This Decree also placed special emphasis on the obligation of commercial banks to take timely necessary measures to provide financial support to enterprises of the real sector of the economy, replenish their working capital based on justified orders, and allocate credit resources for the implementation of investment projects.

Based on the above, the Regulation established that banks allocate credit funds for replenishing the working capital of small business entities for a period of up to 18 months. Additionally, the norm prohibiting the issuance of loans for financing investment projects for a period of up to 5 years without the right to extend the repayment period was abolished, and it was established that the financing period for investment projects should be reflected in the "Bank's Credit Policy" approved by the Council of the commercial bank.

At the same time, the Regulation on the procedure for lending to small business entities in national currency granted commercial banks the right to take into account expenses related to the formalization of the borrower's collateral in the total amount of the loan.

Additionally, it was stipulated that borrowers have the right to repay the loan amount ahead of schedule and to pay interest calculated only for the period actually used.

As is known, based on the Decree of the President of the Republic of Uzbekistan "On Fundamental Reduction of Statistical, Tax, Financial Reports, Licensed Types of Activity, and Permitting Procedures" dated July 16, 2012, state statistical, financial, and tax reports, as well as other types of reports, were abolished, and the volume of such reports, as well as the frequency and deadlines for their submission, were reduced by merging forms that repeated each other.

Taking into account that economic entities submit certain reports to tax and statistical authorities once a year, newly established business entities were exempted from submitting additional financial reports during the process of allocating credit funds from a commercial bank.

In the new Procedure, to create further convenience for small business entities, the geographic restriction on lending was abolished.

Now, to expand the volume of banking services provided to small business entities using information and communication technologies (internet banking, mobile banking, etc.) and to improve their quality, and to increase lending volumes by using attractive financial instruments, a system for accepting loan applications from borrowers via electronic systems has been established.

To prevent violations of the rights and freedoms of business entities in the branches of commercial banks, the creation of various bureaucratic obstacles, greed, arbitrariness, abuse of official position, and to ensure the consideration of loan applications within established deadlines, the introduction of a "Book of Application Registration" and the issuance of a "Reference Document" (also in electronic form via the internet network) to the borrower have been implemented in banks.

In this regard, the "Book of Application Registration" and the "Reference Document" are numbered, stitched with a thread, and certified by the signature of the Deputy Chairman of the commercial bank in charge of lending issues or the responsible person for this matter, as well as by the seal of the main bank.

The "Book of Application Registration" and the "Reference Document" are distributed centrally by the Head Office of commercial banks to their branches.

It should also be noted that the Regulation "On the Procedure for Lending to Small Business Entities in National Currency" provides for the liability of persons who violate its requirements in accordance with legislative acts. This, we believe, will further increase the responsibility of responsible employees of commercial banks.

Kamil Akhmedov, Head of the Department Department for Monitoring the Investment Portfolio of Banks