Microfinancing is an opportunity to get small credit by the people who have small business and need to finance it. As a rule, collateral is not required, and the creditor stands minimum requirements to documents.

Nevertheless, ability of the borrower to pay back credit is investigated thoroughly. High rate of repayments of received credits proves capability of the microcrediting companies to conduct adequate analysis of the borrowers, and it reveals that small credits can also bring benefits to the borrowers.

Microfinancial system was launched in our country in 1994 with a help of the projects of the World Bank, UNDP, Asian Development Bank, International Mercy Corp, ACDI/VOCA, Swiss NGO “Karitas”. First institutions were established, and they started their operation. They were FINCA, the Kyrgyz Agricultural Financial Corporation (currently “Aiyl Bank”), the Financial Company on support and development of credit unions.

Microfinancing is aimed, first of all, at those groups of population who initially have not being considered by the commercial banks as the customers. Banks were not satisfied with lack of financial reporting of many potential borrowers, living standard, lack of savings or any other guarantees or property, which can serve as a guarantee. Microcrediting companies are less demanded what led to dynamic sector development.

Now, the situation is changing. Many banks started to establish the microfinancial units. But we will talk about them in other section. Also, the banks fundamentally did not want to lend credits, which can be unprofitable due to their size.

For example, an average size of credit in microcrediting of many countries is not more than 0, and in African and Latin American countries this amount is much less. If we consider that the citizens of rural, less developed and remote regions are mainly consumers of such loans, this product was never a subject of interest of the commercial banks, which activity is aimed at increasing of capital of their owners.

The microfinancial companies operate on basis of socially responsible methods of business administration and solve these problems through crediting, first, less secured groups of the population. Definitely, the microcrediting companies are not charity organizations. But more loyal attitude to the borrowers led to fact that Kyrgyzstan has over half of million clients in the microfinancial sector at present.

Besides solution of social objectives such as improving of living standard, the microfinancing also promotes:

  • self-employment of the population;
  • development of small and medium business in remote and rural regions;
  • new jobs;
  • increasing of tax collections in the state budget;
  • obtaining knowledge in financial sector and business administration;
  • create credit history for further development of clients in the banking sector.

Principle of group crediting is based on group guarantee of all members of groups, what means following:

– all members of credit group have joint responsibility for repayment of credit amount their received on their names as well as total amount of credit received on the credit group;

– the groups select members of their groups, and such interrelation allows making pressure of the comrades what helps to ensure timely repayments on credit;

– the group obtains full and accurate information on methods of credit lending, procedure of repayment through consultations of the credit experts;

– experts of organization provide regular support to the formed group through consultations on basics of management, book-keeping and marketing.

Advantage of this method is that people living in rural area and remote regions of the republic, who do not have collateral to get banking credit, have an opportunity o get loan through setting up the credit groups.

Mainly, women are clients of the microfinancing (according to statistics, about 70%), living in rural area.

Main idea of microfinancing is to give the borrower opportunity to establish own business supplying with required material – money. The microcrediting companies are not charity organizations, their activity is aimed at provision of services ensuring positive capital return.  Speaking figuratively, they give the clients fishing rod and train then to catch fish instead of caught fish.

Group-based crediting using principle of solidarity of the borrowers of one group is a foundation of microcrediting. Thus, the low income groups of the population get access to the loans what allows them o start their business, improve their financial situation and stand on their own feet.