Bai Tushum Financial Foundation, Kyrgyzstan

This study aims to show that with the support of international donors, Bai Tushum Financial Foundation (Bai Tushum) overcame a difficult macro economic environment, an unfavorable legal climate, and lack of an indigenous credit culture, to become a strong local institution serving the needs of rural and urban borrowers. The paper discusses the following aspects of Bai Tushum:

• Activities and background;
• Challenges faced:
  • Portfolio concentration in agriculture;
  • Diversion of agricultural loan proceeds;
  • Competitive loan environment;
  • Inadequate loan appraisal and monitoring systems;
  • Poor staff training;
  • Legal constraints.
• Responses:
  • Portfolio diversification;
  • Revision of interest rate structure to enhance competition;
  • Improved controls and management information system;
  • Consistent staff training;
  • Creative response to collateral constraints.
• Progress towards sustainability;
• New loan products;
• Donors and investors.

The paper also lists the following lessons learned:

• Financial institutions can be profitable even with half of their portfolio in agricultural activities;
• A diversified portfolio better meets the needs of rural people, while reducing institutional risk and operating costs;
• Lenders should not assume that a loan product intended for agriculture will necessarily be used for agriculture;
• MFIs should devote resources to staff training and to the development of sound policies and procedures;
• Donors should support well-structured consistent capacity building.

The paper concludes that Bai Tushum has imbibed these lessons to become one of the more successful MFIs in Central Asia.