By Governor Mamarizo Nurmuratov, Central Bank of Uzbekistan
Financial inclusion in its broadest sense was put on the central bank’s agenda at the end of 2017, when its priority areas were revised as part of reforms and efforts to ensure the openness of the national economy. Before then, efforts had been focused mainly on financing small businesses and entrepreneurships, while the issues of greater financial inclusion, consumer protection and financial literacy remained unaddressed.
Realizing the importance of financial inclusion and its impact on the development of the financial sector and economy as a whole, the central bank identified these issues as important priorities in 2017. In 2019, with the adoption of the revised Law of the Republic of Uzbekistan “On the Central Bank of Uzbekistan”, they were reflected in the article on regulatory roles that provides for “measures to ensure the protection of the rights and legitimate interests of credit organization service consumers, ensuring a higher level of financial inclusion and a higher level of financial literacy among the population and business entities.”
The financial sector and financial services in Uzbekistan are predominantly represented by banks. Therefore, when speaking about financial inclusion, I will be referring to activities in this sector.
In order to ensure greater accessibility of banking services to a population of more than 33 million people, we decided to approach the issue from an efficiency point of view. As such, we abandoned the practice of opening large uneconomical bank branches in favor of replacing them with smaller banking service offices with reduced managerial staff and operating costs to ensure wider coverage in remote regions.
Four hundred and fifty-seven newly-opened banking service offices have replaced 60 closed bank branches with an additional 200 such offices planned to be opened in 2020.
As of the beginning of this year, there are 30 head offices of commercial banks, 850 bank branches, 595 mini-branches, 457 banking service offices and 902 self-service points available 24/7.
As in many countries, we consider digital channels to be an effective method for increasing the accessibility of banking services. We intend to address issues surrounding the coverage of banking services through the development of remote banking services, especially in small towns and rural areas.
Before moving onto the development of rural banking services, I would like to note that the Law of the Republic of Uzbekistan “On Payments and Payment Systems” comes into effect in February 2020. This is a new document that sets out the procedures for the control and monitoring of payment systems, licensing of payment system operators and payment organizations, requirements for payment system security and data protection, procedures for regulating the electronic money market and the identification of electronic money owners.
The adoption of this Law enables smooth payment transactions and the widespread introduction of innovative technologies, as well as ensuring the effective, reliable and safe functioning of payment systems.
In order to develop a payments ecosystem, the central bank established the National Interbank Processing Center and HUMO payments system, in addition to the existing Uzcard system, which is a private company. More than 180,000 payment terminals and over 2,000 HUMO system ATMs were installed across the country over a short period of time. Therefore, we are promoting market competition and providing more choice to consumers.
In total, there are over 392,000 POS terminals and 4,000 ATMs operating in the country, with over 20.5 million cards in circulation.
The National Interbank Processing Center, which is HUMO’s payment system operator, has established relations with both Visa and MasterCard payment systems, allowing international cards to be used for transactions in Uzbekistan. The transport project in the Tashkent metro has been successfully completed and all stations are now equipped with devices (validators) that accept contactless fare payments.
Scheduled activities for 2020 include the issuance of HUMO International cards, which would enable overseas transactions, as well as the implementation of the HUMO Pay payment service, which would enable contactless payments using mobile phones within the HUMO infrastructure.
Remaining on the subject of remote banking, we can safely say that remote banking services (RBS) mobile systems are popular among bank clients with over 9.5 million individuals using the service.
The central bank is currently developing and testing a system for the use of QR codes based on the Clearing Settlement System. Several commercial banks are participating in these tests using the mobile applications of the respective commercial banks.
Meanwhile, work is underway to organize remote and biometric identification of individuals, mechanisms that make it more convenient for clients to use services regardless of the time of day, location or bank branch network.
In addition, we have developed the central bank’s instant payment system – our own model for implementing instant payment system with tailored approaches for the implementation and interaction with the banking system based on the analysis of international expertise in creating and operating instant payment systems.
The goal of these initiatives is to create an innovative payment service for interbank payments by individuals and legal entities around the clock in real time.
When it comes to financial market infrastructure, the quality of banking risk management should not be ignored. In order to reduce information asymmetry between credit organizations and potential borrowers, as well as to promote competition in the credit market, the credit bureau and credit information exchange system processes have been updated. Credit scoring has been introduced. This system covers and analyzes information from more than 150 organizations, including financial institutions, utility providers and a number of trade organizations selling goods through installments.
The effective use of established conditions and products in the financial market is clearly based on financial literacy and consumer protection, which will establish a basis for inclusion and further interaction between financial institutions and their clients.
We have also done a great deal of work in the area of consumer protection. First, we adopted the Law “On Banks and Banking Activities”, which enshrines the protection of the rights and legitimate interests of financial services consumers in a separate chapter.
In accordance with the new provisions of the law, the terms of banking services, including information on commission fees, tariffs and interest rates, have been published on the bank’s official website.
Banks are now required to have call centers and customer feedback forms on their websites for filing complaints.
Information sheets containing key loan information have been introduced to help consumers compare loan product terms and choose the best product for the consumer.
We have also developed and implemented a methodology for calculating the total cost of consumer loans and microloans that must be communicated to consumers and reflected in loan agreements.
In order to prevent excessive debt burdens on consumers, credit institutions are prohibited by law from charging interest, levying commissions and penalties (e.g. fines, late fees) under microloan agreements, as well as loan agreements concluded by pawnshops, amounting to more than half the amount borrowed per year.
In addition, various commission payments levied by banks for the consideration of loan applications, loan account servicing, issuance of loans as well as early loan (microloan) repayment penalties from individuals and small business entities are also prohibited.
All consumer protection activities will be accompanied by educational activities to increase public awareness. At the same time, we intend to establish a framework for a functional system that allows for the development of financial literacy from an early age and to ensure the continuity of education until a very advanced age.
In a short period of time we have achieved a great deal of work in the area of financial inclusion. However, much remains to be done. Therefore, we are currently developing a strategy that will determine our priorities for the near future.
AFI membership allows us to learn from international experiences and adopt best practices for implementation. In addition, the academic and expert potential of the Alliance is a significant asset for countries that are just starting activities in this area.