Kyrgyz Republic: Credit Unions and Sustainable Rural Finance Recommendations for Supervision and Development

An assessment and recommendations for the regulatory body of credit unions in the Kyrgyz Republic
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Poor and rural residents of the Kyrgyz Republic are served by a wider variety of service providers than is usually seen in developing regions. Credit unions provide loans that are much smaller on average than loans provided by banks or the Kyrgyz Agricultural Finance Company (KAFC).

Reported performance of credit unions is impressive, but there exist:

  • Concerns of misreporting and underhanded tactics to gain support from the Financial Company for Support of Credit Unions (FCCU);
  • At least one third of 310 credit unions that are not viable and perhaps only 40 to 60 would prosper without external support.

The FCCU, which was intended to become the apex organization, has suffered from poor governance and oversight. If the FCCU's loan portfolio is as reported, divestiture to credit unions or other investors are viable options. If loan quality is poor, the only option for FCCU is liquidation.


  • Any further assistance for credit union apex development and supervision and regulation should be provided in the context of the government's strategy for microfinance;
  • FCCU management should undertake no further work on the development of apex functions pending resolution of FCCUs future direction;
  • Consideration of extension of project closing date to end-2006 is subject to key conditions:
    • No disbursements for credit union loans after the current expiry date (end-2005);
    • Government to endorse by November 18, 2005, an action plan for resolution of FCCU, which includes, among other measures, an international firm to complete an independent valuation of FCCU by end-January 2006:
      • If FCCU is found to be insolvent by independent valuation, liquidate;
      • If FCCU has value and credit unions do not exercise option to purchase by end-June 2006, sell FCCU by tender.
  • Harmonize the approach to credit union regulation and supervision with that applied to microfinance apply a lighter regime to credit unions that do not take deposits.

About this Publication

By Andrews, A.