Starting from July 1, Uzbekistan is set to enhance the prerequisites for granting loans to its citizens. The Central Bank of Uzbekistan will implement a debt burden indicator, which is the proportion of average loan repayments to the average monthly income of the borrower. In January 2024, the number exceeded 16,000, which is double the number recorded at the end of 2022.
Microfinance organizations (MFIs) in the country have already adopted this approach. The lending limit in Uzbekistan will be set at 60% from the beginning of July this year, and it is planned to be further reduced to 50% the following year.
Sanjar Nosirov, the head of the Department of Methodology for Regulation of Credit Institutions of the Central Bank, stated in January that a similar limit is already applicable for microloans.
He referred to the global financial crisis of 2007-2008 that originated in the United States. He explained that in the US, a reduction in the base rate was implemented to counteract deflation, resulting in a substantial rise in lending to the public. To maximize profits, loans, particularly mortgages, were extended not just to creditworthy borrowers, but also to those with high credit burdens.
This surge in demand for homes triggered an artificial escalation in property prices. Consequently, borrowers facing financial challenges could effortlessly sell their continually appreciating properties to repay their loans, leading to a surge in the housing market.
Before these measures, the Central Bank specialists noted a significant surge in borrowers with negative credit history.
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