Financial Inclusion, Regulation, Literacy, and Education in Central Asia and South Caucasus Edited by Peter J Morgan and Yan Zhang ASIAN DEVELOPMENT BANK INSTITUTE Financial Inclusion, Regulation, Literacy, and Education in Central Asia and South Caucasus Edited by Peter J Morgan and Yan Zhang ASIAN DEVELOPMENT BANK INSTITUTE © 2019 Asian Development Bank Institute All rights reserved First printed in 2019 ISBN 9784899741053 (Print) ISBN 9784899741060 (PDF) The views in this publication not necessarily reflect the views and policies of the Asian Development Bank Institute (ADBI), its Advisory Council, ADB’s Board or Governors, or the governments of ADB members ADBI does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use ADBI uses proper ADB member names and abbreviations throughout and any variation or inaccuracy, including in citations and references, should be read as referring to the correct name By making any designation of or reference to a particular territory or geographic area, or by using the term “recognize,” “country,” or other geographical names in this publication, ADBI does not intend to make any judgments as to the legal or other status of any territory or area Users are restricted from reselling, redistributing, or creating derivative works without the express, written consent of ADBI ADB recognizes “China” as the People’s Republic of China Note: In this publication, “$” refers to US dollars Asian Development Bank Institute Kasumigaseki Building 8F 3-2-5, Kasumigaseki, Chiyoda-ku Tokyo 100-6008, Japan www.adbi.org Contents Tables and Figures iv List of Contributors viii Prefacex Abbreviationsxiii Overview of Financial Inclusion, Regulation, Financial Literacy, and Education in Central Asia and South Caucasus Peter Morgan, Yan Zhang, and Dossym Kydyrbayev1 Armenia Armen Nurbekyan and Naneh Hovanessian 46 Azerbaijan Gubad Ibadoghlu 85 Georgia Yaroslava Babych, Maya Grigolia, and Davit Keshelava 126 Kazakhstan Kassymkhan Kapparov 166 Kyrgyz Republic Savia Hasanova 187 Tajikistan Roman Mogilevskii and Shokhboz Asadov 225 Uzbekistan Muzaffarjon Ahunov 257 Index 287 iii Tables and Figures Tables: 1.1 Main Financial Inclusion Indicators for Central Asia and South Caucasus Countries 1.2 Elements of Financial Inclusion Strategies 14 1.3 Outstanding Loans by Type of Financial Institution, 2016 15 1.4 Regulatory Frameworks for Financial Inclusion in Central Asia and South Caucasus Economies 20 1.5 Strategies and Programs for Financial Inclusion 27 1.6 Financial Education Programs and Strategies 34 2.1 The Difference Between Universal Credit Organizations, Credit Unions, and Refinancing Credit Organizations 51 2.2 Financial Sector Participants 52 2.3 Global Findex Indicators for Armenia 55 2.4 Channels of Money Transfers 59 2.5 Accounts, Terminals, and Transactions 59 2.6 Difference in Prudential Measures Between Banks and Credit Organizations 63 2.7 Policies Promoting Financial Inclusion in Armenia 66 2.8 Assistance Programs for Small and Medium-Sized Enterprises 69 2.9 Results of Organisation for Economic Co-operation and Development Financial Literacy Survey 71 2.10 Quantitative Goals of the National Strategy for Financial Education of Armenia 74 2.11 Financial Literacy Projects 76 3.1 Summary Banking Sector Statistics 88 3.2 Summary Microfinance Sector Statistics 90 3.3 Account Penetration 91 3.4 Measures of Financial Inclusion and Development across Economies92 3.5 The Structure of Loans to the Economy by Type of Credit Institution (End of Period) 95 3.6 Formal Saving and Formal Borrowing 96 3.7 Transactions through Interbank Payment Systems 100 3.8 Regional Comparison of Different Financial Literacy Scores 114 4.1 Select Financial Inclusion Indicators for Georgia, 2017 140 4.2 Enterprise Survey for Georgia, 2013 144 5.1 Overview of the Banking Sector in Kazakhstan 168 5.2 Number of Commercial Bank Branches by Region in Kazakhstan 169 iv Tables and Figures v 5.3 5.4 6.1 6.2 6.3 6.4 6.5 6.6 6.7 7.1 7.2 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 8.9 8.10 8.11 8.12 8.13 8.14 8.15 8.16 Accounts in Formal Financial Institutions in Kazakhstan Financial Inclusion Indicators in Kazakhstan Status of Financial Inclusion Selected Indicators of Financial Inclusion in the Kyrgyz Republic, Global Findex Penetration of Bank Services Index of Trust for Government Financial Institutions Regulation of Financial Consumers’ Rights Coverage of State Support Basic Results of the Survey on Financial Literacy Financial Inclusion Indicators, 2017 Use of Mobile Payment Services Banking Sector Deposits Uzbekistan’s Banking System Ownership and Concentration Key Performance Indicators of Commercial Banks in Uzbekistan Geographic Outreach of Financial Institutions in Uzbekistan Banking Outreach and Use in the Regions of Uzbekistan Credit Information Sharing Bank Card, Internet, and Mobile Banking Use in Uzbekistan Major Events in the Development of Electronic Payment Systems Formal Account Ownership at a Financial Institution Debit Card Ownership Borrowing Behavior in Uzbekistan Saving Behavior in Uzbekistan Financial Inclusion Indicators for Small, Medium, and Large Enterprises in Uzbekistan Major Reasons for Not Using Formal Financial Services and Reasons for Having No Bank Account Top Reasons for Not Using Bank Loans/Lines of Credit Who Makes the Decisions about the Savings, Investment, and Borrowing in Your Household? Figures 1.1 Bank Branch Penetration per 100,000 Adults 1.2 Relation of per Capita Gross Domestic Product to Formal Account Penetration for Adults, 2017 1.3 Relationship between per Capita Gross Domestic Product and Loan Penetration for Adults, 2017 1.4 Share of Small Firms with a Bank Loan or Credit Line, 2013 1.5 Ratio of Life Insurance Premium Volume to Gross Domestic Product 172 174 197 197 199 204 208 214 215 234 239 259 259 261 263 264 265 267 267 268 269 270 270 272 274 276 281 10 10 11 v vi Tables and Figures 1.6 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 2.12 2.13 2.14 2.15 3.1 3.2 3.3 3.4 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 Ratio of Non-Life Insurance Premium Volume to Gross Domestic Product Asset Allocation in the Armenian Financial System (2016) Credit and Deposits as a Percentage of GDP Assets of the Banking Sector in Armenia Assets of the Credit Organizations in Armenia Assets of Insurance Companies in Armenia Bank Branch Density in Armenia ATM Density in Armenia ATM Density for Rural and Urban Areas Deposit Account Penetration per 1,000 Adults Credit Penetration per 1,000 Adults Number of Mortgage Loans per 1,000 Adults Penetration of Banking Cards Number of Insurance Contracts per 1,000 Adults Access to Finance for Small and Medium-Sized Enterprises Amount of Guaranteed Deposits in Armenia Product and Service Offering Nonbank Credit Institutions Sectoral Breakdown of Loans in 2016 Use of Banks, Microfinance Institutions, and Other Nonbank Credit Institutions by Income Quartile Overview of Financial Product Awareness by Financial Institutions Share of Financial Sector Assets Controlled by Different Financial Organizations in Georgia Outstanding Deposits with Commercial Banks, (Total, Household, Small and Medium-Sized Enterprises) Household Loans as a Share of Total Commercial Bank Loans Domestic Credit to the Private Sector in the South Caucasus Countries Branches of Commercial Banks per 100,000 Adults in the South Caucasus Number of ATMs per 100,000 Adults in the South Caucasus Countries Getting Credit—Distance from the Frontier in the South Caucasus Countries Borrowers from Commercial Banks per 1,000 Adults Household Debt Service—Principal Payments to Income Ratio Market Real Interest Rates on Loans in National Currency, by Category Attitudes toward Expenditure 12 48 49 49 50 51 53 54 54 55 56 56 57 58 60 65 89 95 97 115 128 130 131 132 138 139 141 142 142 145 155 Tables and Figures vii 4.12 4.13 6.1 6.2 6.3 6.4 6.5 6.6 6.7 Trust in the Banking System Taking Care of Life in Retirement Commercial Banks’ Loans and Deposits Structure of Credit Portfolio Role of Microfinance Institutions Use of Financial Products by Households Development of Small and Medium-Sized Enterprises Poverty and Remittances What Would You Do if Your Income Suddenly Declined? % of Respondents’ Answers 6.8 Scheme of the Program to Improve Financial Literacy 7.1 Gross Domestic Product Structure by Sector, 2016 7.2 Deposits 7.3 Loans 7.4 Loan Structure by Performing and Nonperforming Status, End of 2016 7.5 Number of Clients in Different Financial Institutions 7.6 Number of Banking Cards by System 7.7 Number and Volume of Transactions via Payment Cards 7.8 Development of Card Infrastructure 7.9 Banking and Microfinance Penetration Indicators 7.10 Currency Structure of Banking Accounts 7.11 Actual and Potential Use of Mobile Banking Services 7.12 Minimum Capital Requirements for Microfinance Organizations 8.1 Banking Sector Credit to Gross Domestic Product Ratio in Transition Economies in 2016 8.2 Domestic Credit and Gross Domestic Product per Capita 8.3 Weighted Average Interest Rates on Loans as of May 2018 8.4 Official and Black Market Exchange Rates (Sum/$) 8.5 Financially Literate Adult Population in Transition Economies 156 157 190 192 193 198 201 202 216 218 226 228 228 229 230 231 232 232 236 236 240 244 258 262 276 278 280 vii List of Contributors Muzaffarjon Ahunov is an assistant professor at Endicott College of International Studies, Woosong University, Republic of Korea Shokhboz Asadov is a senior research fellow, Institute of Public Policy and Administration, University of Central Asia, Tajikistan Yaroslava Babych is an assistant professor of economics at the International School of Economics, Tbilisi State University (ISET), Georgia Maya Grigolia is an instructor of statistics at the College of Engineering and Technology, American University of the Middle East, Kuwait Savia Hasanova is an economic expert at the Public Association "Investment Round Table", Kyrgyz Republic Naneh Hovanessian is an economist at the Central Bank of Armenia, Yerevan Gubad Ibadoghlu is a senior policy analyst at the Economic Research Center, Baku, Azerbaijan Kassymkhan Kapparov is the managing partner at the Economics and Management Consulting Group, Kazakhstan Davit Keshelava is a researcher at the ISET Policy Institute (ISET-PI), Georgia Dossym Kydyrbayev is a managing partner at the Rakurs Consulting Group, Kazakhstan Roman Mogilevskii is an associate director and senior research fellow at the Institute of Public Policy and Administration, University of Central Asia, Kyrgyz Republic Peter J Morgan is a senior consulting economist and vice chair of research at the Asian Development Bank Institute, Japan viii List of Contributors ix Armen Nurbekyan is head of the Economic Research Department, Central Bank of Armenia, Yerevan, Armenia Yan Zhang is a project consultant at the Asian Development Bank Institute, Japan ix