Bishkek, September, 13, 2002—
Financing options for small and medium-sized businesses (SMEs) in Uzbekistan have improved considerably through a new leasing decree developed with the support of the International Finance Corporation, the private sector development arm of the World Bank. Decreed by Uzbek President Islam Karimov, the new rules will help increase SMEs’ access to credit for business expansion.
Experts from the Swiss–IFC Partnership Central Asia Leasing Project office in Tashkent, Uzbekistan and IFC’s Southern Europe and Central Asia department helped Uzbekistan lay the groundwork for the decree, which will remove the significant tax barriers to leasing in Uzbekistan.
Leasing—a key source of medium and long-term financing particularly for SMEs in countries with transitional economies–is an economically-efficient solution to the problem of asset acquisition. Leasing improves access to capital for small business by basing their credit risk upon their projected generated cash flow, rather than from credit history or collateral. Leasing often provides a much-needed boost to the small business sector, which is a key source of job creation in developing and transitioning economies.
IFC has long been a champion of leasing for developing and transitioning economies. IFC has advised 35 countries on developing leasing, and invested almost US$1 billion dollars in leasing operations in 50 countries over the last 30 years.
The new decree, issued by the President on August 28, 2002, removes the majority of tax barriers to leasing and levels the playing field for leasing and bank loans. Before this decree, Uzbek tax policy excluded lease financing from the significant tax advantages given to banks for loans. By making these tax advantages available for leasing, it is now a much more attractive financial mechanism for Uzbekistan, particularly in the financing of small and medium-sized businesses. The decree also requests the Cabinet of Ministers to develop for the Parliament changes to the legislation for leasing and procedures for repossession, a critical issue in leasing.
Gorton De Mond, regional representative for IFC Central Asia, said: “This decree is a significant step forward to building a favorable investment climate for IFC and other private investors in the leasing sector, which should bring much needed capital for small and medium-sized businesses.”
Deputy Prime Minister of Uzbekistan Rustam Azimov, said: “The decree will support the development of a critical financial tool for the country’s economic development. We expect substantial growth in leasing from commercial banks, the existing six leasing companies, and new leasing companies. This will bring significant expansion in access to financing for small and medium-sized business.”
IFC has worked in the leasing sector in Uzbekistan since 1995, serving as one of the founding shareholders in the first leasing company in Uzbekistan, Uzbek Leasing International. In a show of faith for the upcoming legal and tax changes, IFC recently approved a $2.5 million loan to Uzbek Leasing International to increase their available lease capital. IFC plans to expand its involvement in leasing, by making the necessary changes to its credit lines to allow those banks to use the credit lines for leasing as well as loans, and by reviewing additional investment in the sector.
The Uzbek presidential decree specifically removes VAT levied on leasing payments, and VAT and customs duties levied on equipment imported for leasing. It also provide a tax holiday on property tax for lessees, and allows lessors to expense before taxes interest payments made on loans taken out to purchase equipment for leasing. These specific taxes have been one of the hindering barriers to the development of leasing within the country.
IFC’s Southern Europe and Central Asia Department has worked steadily with the Uzbek government to amend the existing Law on Leasing. This work became more intensive with the addition of extensive on the ground support for the law from the Swiss – IFC Partnership, which was launched in 2001 by the Swiss Sectariat for Economic Affairs (SECO) and IFC to promote private sector development in the Central Asian countries of Kyrgyz Republic, Tajikistan, Uzbekistan, and Turkmenistan.
SECO’s economic development cooperation program has four main objectives: 1) to help transitional countries reach the stage of development most favorable to growth and investment, 2) to mobilize private sector resources as a means of increasing the flow of finance to transitional countries, as well as technology transfer, 3) to improve productive and social infrastructure, 4) to achieve greater integration of developing countries in international trade.
IFC’s mission is to promote sustainable private sector investment in developing countries, helping to reduce poverty and improve people's lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, and provides technical assistance and advice to governments and businesses. Since its founding in 1956 through the close of the last fiscal year on June 30, 2002, IFC committed more than $34 billion of its own funds and arranged $21 billion in syndications for 2,825 companies in 140 developing countries. IFC’s committed portfolio at the end of FY02 was $15.1 billion for our own account and $6.5 billion held for participants in loan syndications.