Central Asia, long overshadowed by its oil-rich neighbors, is emerging as a growing economic hub strategically positioned between the Middle East and East Asia. On December 5, 2024, at the Exploring Receivables and Payable Finance Conference, hosted by FCI, IFC, and the Central Bank of Uzbekistan, experts gathered in Tashkent to explore the region’s untapped trade potential and the role of trade finance solutions, particularly factoring, in driving growth.
Speakers, including Neil McKain, IFC’s Country Manager for Uzbekistan; Davron Ismailov, CEO of Yangi Finance; and Sanjar Nosirov, Director of the Credit Institutions Regulation Methodology Department at Uzbekistan’s Central Bank, highlighted how removing trade barriers and supporting SMEs could unlock unprecedented economic opportunities in the region.
Unlocking Intra-Regional Trade
Despite strong historical ties, trade between Central Asia’s five nations—Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan—remains limited due to inadequate infrastructure and high trade barriers. Neil McKain emphasized the importance of regional cooperation, stating, “Only two countries in Central Asia are members of the European Economic Union, Kyrgyzstan and Kazakhstan. Trade between those countries is the highest between any two countries in the whole of Central Asia, so there are lessons to be learned about what easier border controls and customs controls can really bring.”
While Uzbekistan’s top exports, including gold, natural gas, and cotton, dominate trade flows, the country has been diversifying into industrial goods such as textiles, machinery, and chemicals. These goods are finding markets within the region, but tariffs and border challenges hinder their growth. “Removing these barriers could be transformative for the region, giving its internal trade the boost it needs,” said McKain.
Factoring: Empowering SMEs
Uzbekistan is leading the way in adopting innovative trade finance solutions, with a focus on factoring to support SMEs. Factoring allows businesses to access immediate funds by selling outstanding invoices, a crucial mechanism for SMEs struggling to secure traditional loans. “Factoring is crucial for SME finance since [these organisations] don’t have a good credit score,” explained Sanjar Nosirov.
A presidential decree in August 2024 marked a significant step forward, establishing an electronic factoring platform and introducing reforms that align with international standards. This platform enables real-time debtor analysis and facilitates cross-border receivables trading. Nosirov added, “Factoring organizations can now register as non-bank credit institutions and facilitate innovative financial mechanisms like refactoring.”
Davron Ismailov highlighted the impact of these reforms on the financial ecosystem, noting, “This decree is the first document formalizing separate activity in Uzbekistan. It also resulted in innovation, like our marketplace at Yangi Finance, where any company can go and put their receivables.”
Infrastructure and Investment
Infrastructure challenges, such as the region’s vast size and low population density, have long hindered trade. However, increasing flight connections between Central Asian capitals and plans for a trade corridor linking China and Turkey are set to transform the logistics landscape. These initiatives aim to attract foreign direct investment and make trade easier across the region.
McKain noted the importance of such efforts, stating, “The future of Central Asia lies in improving the ability of companies to trade across borders, freeing up working capital, and fostering stronger trade ties with neighboring countries.”
A Bright Future
Uzbekistan’s ongoing economic liberalization, combined with regional cooperation and innovative financial tools, signals a promising future for Central Asia. By addressing trade barriers, improving infrastructure, and supporting SMEs through factoring, the region is poised to become a thriving center for global trade and investment.
As Ismailov aptly concluded, “The timing has never been as right as now for Central Asia to emerge as a key player in the global trade landscape.”
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