Reducing borrower and lender risk in Tajikistan through context-sensitive product and portfolio design

Linda Jones; Nicole Pasricha

doi:10.3362/1755-1986.2007.015

Reducing borrower and lender risk in Tajikistan through context-sensitive product and portfolio design

How can MFIs be helped to move from mainly urban clients to smallholder farmers? This case study shows how sustainable financial services for rural households have been developed in Tajikistan. Since 2004, MEDA has been implementing a four-year $4.5 million CIDAfunded agricultural development programme that focuses on the horticulture subsector. A key component of the project is to partner with and develop the capacity of a local MFI (microfinance institution); and a $1 million agricultural loan fund has been made available for this purpose, along with technical assistance and temporary operational support. The primary technical challenges have been to assess the local context accurately and, based on the findings, assist the MFI to design appropriate products and develop a balanced portfolio to meet the needs of the borrower and lender, reducing the risk to both. Special attention has been paid to borrowers' sources of income and agricultural cycles. The disbursement and repayment of the $1m loan portfolio has been so successful that the MFI was able to cover operating costs of the portfolio from interest earned within 18 months and reported almost no default. Farmers continue to take loans, raise their incomes and seek out additional loan products. The context-sensitive design of products and the portfolio has enabled the MFI to expand successfully into rural lending. Building on this success, the MFI now manages microfinance funds of over $7 million and has become the leader in rural finance in Tajikistan over the past three years.

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