Development finance assessment

DIMENSION 3: 
PRIVATE-PUBLIC COLLABORATION
regions, where 70 percent of SMEs do not know any private BDS providers. Public−private 
dialogue, and especially the role of business associations in promoting BDS, remains limited. 
The microfinance sector in Uzbekistan is underdeveloped, fragmented, and unsustainable 
(IFC, 2016). The few microfinance institutions (MFIs) in the country have a very limited level of 
penetration and access to funding. Most of the MFIs are also small with limited to no branch 
outlets. Microcredit organizations account for only 10 percent of the overall micro credit 
portfolio, whereas 90 percent is provided by three commercial banks. Access to funding by 
MCOs is very limited, volatile and open to market disruptions. MFIs in Uzbekistan are not 
allowed to raise deposits. Consequently, all funding stems from their shareholders’ resources. 
However, these have proved to be limited and volatile over time thus hindering the growth 
and stability of the sector.
Corporate Social Responsibility
At present, data on domestic corporate giving is not available. However, the potential 
is there, especially as the Uzbekistan’s firms are maturing and advancing towards the 
international markets. CSR activities remain voluntary in Uzbekistan, with a narrow focus 
on responsibility to the own employees and the community (Ayupov and Komilova, 2010). 
Fair treatment, equal opportunities, proper treatment, and good working conditions are 
obligations of the employer who wants to demonstrate that it is involved in CSR activities. 
Similarly, the companies are also engaged with the community and may provide services, 
organize activities, fund community activities, or fund acquisition of a property for the 
benefit of the community, etc. CSR is not yet embedded into the Uzbek companies’ operating 
business model, whereas in the West companies engage in CSR to gain social legitimacy 
within the society they are operating. There is no strong stakeholder influence or supply chain 
requirements that would motivate them to engage in CSR
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The GoU’s main instrument to foster the above kind of CSR is through tax incentives. For 
example, charities may claim a tax deduction up to 75 percent of the granted sponsorship, 
up to a limit of 15 percent of the total amount of the giver’s annual taxable profit. Creating 
a more tax enticing environment, e.g. according to specific sustainable development criteria 
which would benefit from higher tax deductions, CSR activities could be harnessed for small 
and medium-size projects designed and implemented by the local communities. At present, 
due to the lack of compulsory reporting on the CSR undertakings, it is very difficult to 
estimate the volume and impact of CSR in Uzbekistan and generate better policies. 
Setting up a UN Global Compact Local Network could be a practical way forward to advance 
the Global Compact Initiative and its Ten Principles at the country level. This would help 
raising awareness regarding responsible business conduct and facilitate outreach, learning, 
policy dialogue, collective action and partnerships to put their sustainability commitments 
into action. Local networks of the UN Global Compact have proven efficient instruments to 
promote anti-corruption collective action
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The OECD (2019a) also recommends the active involvement of the business community, 
through business associations, in ensuring business integrity. This could be championed by 
the UN Global Compact Local Network for instance and support the implementation of the 
GoU’s anti-corruption policies across SMEs. To date, anti-corruption tools are implemented 
by multinational companies, foreign-equity firms and large SOEs. The GoU may want to 
consider instruments to incentivizing businesses to introduce anti-corruption instruments. 
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https://carecsr.com/2019/05/13/how-csr-can-help-businesses-in-uzbekistan/
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Through the anti-corruption Collective Action projects of the UN Global Compact, businesses, Governments and 
civil society can level the playing field and raise anti-corruption and compliance standards within their individual 
organizations as well as collectively.

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DEVELOPMENT FINANCE ASSESSMENT FOR THE REPUBLIC OF UZBEKISTAN
The newly established agency of the Business Ombudsman is a practical improvement to 
protect entrepreneur rights. 
Increasingly, the multinational companies operating in Uzbekistan have launched several 
society-centred programmes as a part of their CSR activities. For example, the American 
Chamber of Commerce (Amcham) in Uzbekistan has established a separate CSR Committee, 
with whom the GoU could collaborate to strengthen CSR policies and consider the role of 
MNEs to contribute a durable and resilient recovery of COVID-19
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. For example, setting 
up a COVID-19 Solidarity Support Fund to be financed by international businesses and 
philanthropists.
FINANCIAL SECTOR DEVELOPMENT
The financial sector in Uzbekistan is mainly represented by banking structures. The 
insurance market, leasing market, and the stock market are poorly developed and often the 
players in these markets are directly or indirectly connected with banks (they are subsidiaries 
of banks). Banking penetration is medium with 41 percent of the population having access 
to an account. Much of penetration is in the form of salary accounts which are accessible 
through ‘online’ cards. The government and the central bank are pursuing a policy of reducing 
the cash in the system by encouraging the payment of salaries into accounts and cashless 
payments for utilities, taxes, mobile recharge, and other services. 
The Tashkent Stock Exchange is currently dominated by state-owned banks, which are 
legally mandated to list shares. These shares account for 86 percent of the trading stocks 
on the exchange, limiting liquidity and the appeal of the exchange for foreign investors, 
who hold just two percent of the shares. Its market capitalization is a mere 5.3 percent of 
GDP, compared to 21.7 percent in neighboring Kazakhstan and 54.2 percent in Vietnam. In 
January 2019, authorities created the Capital Markets Development Agency (CMDA) with the 
aim to triple the market capitalization from the current level of USD 5 billion to USD 15 billion 
by 2025. The CMDA’s development strategy envisions a new wave of initial and secondary 
public offerings related to the government’s broader privatization drive
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The agency is also 
seeking to encourage the development of local retail investing and pension funds to enable 
Uzbekistan’s working and middle classes to participate in the expansion of the stock market. 
Improving Uzbekistan’s capital markets are crucial to financing the ongoing campaign 
of economic reforms. Presently, Uzbek companies are entirely dependent on bank loans 
to finance new investment, making it difficult for major enterprises to raise the significant 
funds necessary for much-needed upgrades to fixed capital. Revitalizing the stock exchange 
may support the country’s largest enterprises to issue securities to meet the financing 
requirements of their own transformation plans.