Our mail goal – the trust of clients
Our main goal is confidence of our customers
A year passed since the arrival of a new bank in the banking market of Kyrgyzstan. On November 13, 2012, Bai – Tushum and Partners Microfinance Company became the first microfinance organization in Central Asia that received a full banking license from the National Bank of the Kyrgyz Republic as a result of transformation. What results has the Bank achieved during this short period of time? What kind of new services it offers to its customers? In this interview, the General Manager of the Bai – Tushum and Partners Bank Gulnara Shamshieva talks about this and many other things.
– What made the microfinance organization successful in all respects transform into a bank?
– This is not a fad or a tribute to a trend observed today in the microfinance industry. This is the choice we made to further develop the organization and improve services to customers.
In 13 years the organization has passed different stages of development. Our history begins in 1997 from a project of an American NGO ACDI/ VOCA. In 2000, Bai – Tushum Financial Foundation was created. Then there was no special law to regulate microfinance institutions. The foundation successfully developed and gained access to the international capital market. Later, the question arose about the future growth, and hence, there was a need to raise additional capital. To this end, the Bai – Tushum and Partners commercial subsidiary microcredit company was established.
Further development of the company and the market made us realize that in order to achieve strategic and social goals we need to offer customers not only loans, but also other types of financial services, in particular, deposits or savings. Savings are more important than access to credit. Therefore, in 2011, we became one of the first MFIs in Kyrgyzstan and, as of today, the only MFI to receive a deposit license. We started a wide scale program to improve financial literacy of customers. After all, the rich is not the one who has a lot of money, rather the one who is able to save them.
Obtaining a banking license became the next development stage.
– A frequently asked question is: why? After all, the law establishes higher regulatory requirements to banks?
– Yes, we consciously made this step despite high requirements to banks because we know that such regulation provides more opportunities. By this time, the Bai – Tushum and Partners has become one of the leading and largest microfinance organizations in Kyrgyzstan. Much larger than some banks in terms of assets, capital and loan portfolio, but due to regulation of microfinance organizations, we were dependent on banks, as we could not carry out transactions in foreign currency. This is one of the main reasons for the high rates in the microfinance sector.
However, the company, as a financial institution, was ready to operate in such a way.
– Usually, the first year is the most difficult period in the life of any organization. What were the challenges faced by your bank?
– We received a banking license on November 13 last year. However, preparations for the transformation began much earlier. We have been building up the organization as a future bank, taking into account the requirements of the National Bank of the Kyrgyz Republic and business processes of potential activities so as to offer our customers products on favorable terms.
Indeed, this period has not been without difficulties, and they are associated with the introduction of new products and services. In the past, we only offered loans and attracted deposits, now we offer a full range of banking products: settlement and cash services, issuing and servicing Elcart payment cards, payroll projects, new deposit and loan programs, and 7 money transfer systems not requiring opening an account. In the near future, we will install ATMs and payment terminals in the cities of Bishkek and Osh and in the regions. Naturally, the launch of new services implies additional functions related to the control and ensuring reliability of operating systems compliant with the banking regulations and business security, in general.
Clearly, the launch of new business processes requires hiring additional qualified personnel. And finding qualified staff today is quite difficult. All the banks must be facing shortage of personnel, this is related to migration and deteriorating quality of education. We had to recruit new staff and train them. All of this is associated with significant costs.
– Bai – Tushum is a recognizable brand in the microfinance market. Were you able to achieve similar success in the banking sector?
– Great things are not done in one day. But we have already created good preconditions so that next year we can take an even greater share of the banking market. To this end, we rearranged all the processes, recruited qualified personnel and expanded our product line.
The Bank is currently in a transitional stage of development, so we cannot boast high profits. But we were able to introduce all new banking processes without losses for the organization and its shareholders. The Bai – Tushum have sufficient liquidity because it has access to international capital markets. Now our task is to increase resources in the national currency by attracting deposits. In Kyrgyzstan, the culture of saving is still low. Therefore, together with our shareholder – Bai – Tushum Financial Foundation – we provide training to improve financial education. This year, over 2,700 people attended our training workshops.
– Who are the main customers of the bank?
– At this stage, our target group is small and medium business. We also continue to work with clients in rural areas – small farmers and small business. They are not attractive for commercial banks because of the small size and the nature of their collateral. We believe this group has a great potential for growth and we create favorable conditions for their service.
We gradually increase our customer base because we have entered the more or less well-established banking market. Our bank is different from the others in that it builds its relationships with customers so as to fulfill everything it declares. Our bank’s credo is “Less words – more deeds.” I think that clients who have been with us for many years appreciate this.
– Why has the Bai – Tushum chosen the small and medium business as a priority area?
– Today Kyrgyzstan’s economy is based on the sector, which, obviously, has huge untapped potential. But this does not mean that the bank will not work with other clients. On the contrary, we intend to develop relationships by offering all banking products and individual approach to every customer demand.
The Bank recently launched a major project to improve the quality of services provided to small and medium business. This project includes a unique financing program for small and medium business, which involves rapid review of business loan applications. Applications are reviewed within 2-5 working days, and unsecured loans up to KGS 300,000 are on offer.
We support customers with entrepreneurial skills who effectively use credit resources to expand their business.
Next year, the Bank is planning to expand services for corporate business.
– For what purposes do your customers use the loans?
– We have always been distinctive in that loans to agricultural development take a large part of the portfolio. Today, it accounts for about 43 % of all loans issued. About 30 % go to trade, services and manufacturing. The remaining 27 % are mortgages, leasing and consumer loans. These are the products that we plan to improve and expand.
We have big plans to build up our loan portfolio. We plan to complete this year at KGS 4 billion and the next year – at KGS 5 billion. This is a significant increase. To achieve it, we have a good team of professionals and the ability to attract financial resources. Confidence of creditors in the international market in us is very high, so there is no difficulty in attracting funds. The most important thing is political stability in the country, which will allow us to confidently assert ourselves on the international capital market.
– What, in your opinion, prevents banks from providing easier access to finance for businesses?
– Recently, we conducted market research and again came to interesting conclusions. In Kyrgyzstan, the issue of access to finance is quite adequately resolved. The problem is that many entrepreneurs do not keep open financial accounting that would ensure them access to bank resources. Without these data, it is difficult for banks to evaluate the creditworthiness of potential customers as well as to take into account all the requirements of the regulator. Many entrepreneurs cannot keep accounting due to lack of skills, others do not keep accounting to avoid taxation. These problems need to be addressed together with the Government through financial literacy projects and systematic programs to bring business out of the shadow.
Everyone would like to get long-term loans. It is necessary to consider the possibility of using such a financial instrument as leasing. For example, the agricultural processing sector is desperately in need of finance. Processors need long-term financing to buy modern equipment and technology. We believe, this sector has a great potential for the banking sector as a whole, and for the Bai – Tushum and Partners Bank, in particular.
There is the other side of the issue. To ensure long-term project financing, banks themselves should have “long” money. But their cost is very high due to our Government’s unreasonable policy on domestic borrowing. A couple of years ago, rates on government securities were over 20 %. Central banks’ refinancing rate is another important indicator. In the U.S. and Europe it is below 1 % while in our country it is about 4 %, and in the past it was as high as 12 %.
To attract a deposit at 12 % it is necessary to place these funds at a higher interest rate to work out the money and return to the depositor. Therefore, banks cannot lend at lower interest rates, that are often expected from them. It is a matter of sound macroeconomic policies. We need to create conditions so that people can deposit their savings for a long term at reasonable rates and be confident in security of their investments.
– How high is the demand for mortgage lending?
– – While still in the status of the microfinance organization, in 2003, the Bai – Tushum and Partners was one of the first financial institutions in Kyrgyzstan to introduce this product. We could not provide a large amount of funding due to a lack of “long” money.
Today, our Bank is the only one that increased the mortgage terms up to 15 years and offers finances for primary housing. Other banks prefer to work only in big cities where there is more demand for real estate and it is liquid. Given our social mission, we offer mortgage lending in the cities of Bishkek and Osh and in all the regions, including rural areas.
In July 2013, together with the German Development Bank (KfW) and the KR Ministry of Finance, we launched Jarkyn Jashoo product under the Housing Finance Program. Its goal is to provide access to soft term financing for property acquisition and reconstruction or refurbishment of housing to middle and low income families in rural areas. They can repay the mortgage from their farm income. It should be noted that the product is a great success. Recently, we received the second tranche. The interest rate of the Jarkyn Jashoo mortgage product is 19 % per annum in the local currency. But even this rate is attractive given not only its size, but also the general access to finance.
Mortgage lending has a great potential both in the corporate sector and housing finance. Today, construction is one of the fast growing industries for profitable investment. To assess the potential, just look at the city of Bishkek.
– How do you see the future of the Bank?
– After a year or two the Bai – Tushum and Partners Bank will be one of the leaders in the banking sector. This is an achievable task because we have required capacity and resources.
In the 13 years the organization has become one of the largest financial institutions in the Kyrgyz Republic with total assets of over USD 131 million and the client base of more than 32 million customers. Currently, the Bank is in the top seven banks in terms of assets, raised funds and the loan portfolio. The main goal is to provide customers with fast, quality and reliable service. Particular attention is paid to the introduction of modern technology since we need to keep up with competitors.
Accessibility of services should be manifested not only in low cost, but also in convenience and security. Clients should be able to use banking services anywhere any time through a computer, mobile phone or other means of communication. It is not only the Bai -Tushum Bank’s objective but also objective of the KR National Bank and the Government of the Kyrgyz Republic. Much has been said about the need to bring the shadow economy into the light, which cannot be achieved without increasing non-cash settlements. The Bai – Tushum and Partners Bank contributes to the achievement of this goal and provides highly professional customer service.