Uzbekistan’s Credit Gap Is Huge: IFC Is Testing a New Way Through

The International Finance Corporation has launched the first investment under its Catalytic First Loss Guarantee Programme through a partnership with Uzbekistan’s Ipak Yuli Bank. By using $18 million in risk-sharing protection to support a local-currency loan portfolio of about $100 million, the initiative aims to expand finance for microenterprises, women-owned firms and climate-related businesses that remain underserved by conventional lending.

For Uzbekistan's small businesses, the shortage of finance is not a marginal constraint. Micro, small and medium-sized enterprises account for more than half of the country's gross domestic product, yet their unmet demand for credit is estimated at $10.5 billion. The International Finance Corporation (IFC) is now testing whether a carefully structured guarantee can persuade banks to lend more to enterprises they have traditionally found difficult or costly to finance. In the first investment under its Catalytic First Loss Guarantee Programme, IFC is partnering with Ipak Yuli Bank to support a local-currency MSME loan portfolio of approximately $100 million.

The initiative combines $18 million in risk-sharing protection with advisory support for the bank. It will focus on microenterprises, women-owned businesses and climate-related projects, segments that may struggle to satisfy conventional lending requirements despite their economic potential.

The transaction will not close Uzbekistan's vast financing gap; it will test whether development finance can use a relatively limited guarantee to mobilise substantially more lending through a domestic bank.

An $18 Million Shield for a $100 Million Portfolio

The financing structure is designed to address a key reason banks hesitate to expand MSME lending: the perceived risk of losses from borrowers with limited collateral, short credit histories or less formal financial records.

IFC will provide $18 million in risk-sharing coverage through two tranches. The first consists of $9 million in first-loss protection, fully backed by the IDA-20 Private Sector Window. This layer is intended to absorb an agreed initial share of portfolio losses before the remaining risk reaches other participants.

A second $9 million senior tranche will provide additional coverage for Ipak Yuli Bank. Together, the guarantees are expected to mobilise around $82 million in additional lending, enabling the bank to establish a portfolio of approximately $100 million.

The use of first-loss capital is intended to make lending to underserved businesses more acceptable to the bank without requiring IFC to finance the entire portfolio directly. Instead, public and development resources absorb part of the risk while the domestic institution supplies most of the credit and manages relationships with borrowers.

Every dollar committed as guarantee coverage is expected to support several dollars in new lending, but the arrangement does not eliminate the underlying credit risk; it reallocates part of it. Ipak Yuli Bank will still need to assess borrowers, monitor repayments and maintain lending discipline.

The local-currency structure is also significant. Businesses that earn revenue in Uzbek currency can face additional pressure when borrowing in foreign currency, particularly if exchange rates move against them. Local-currency loans reduce that direct mismatch, although the terms and affordability of the eventual products will remain critical.

The Hardest-to-Finance Firms Are the Real Target

The programme's priority groups reveal where Uzbekistan's financing system remains least accessible. Microenterprises often require relatively small loans, but they can be expensive for banks to serve. The administrative cost of evaluating an application, monitoring a borrower and processing repayments does not decline proportionately with the size of the loan. Banks may therefore favour larger customers even when small firms are commercially viable.

Women-owned businesses may face further barriers where access to collateral, formal financial networks or established banking relationships is uneven. Climate-related enterprises can also require financing with longer repayment periods, particularly when investments involve new equipment, energy efficiency or business-model changes whose returns emerge gradually.

Ipak Yuli Bank Chairman of the Management Board Umidjon Khakimov said the guarantee would help the bank increase lending to microenterprises, women-led businesses and climate-focused firms while supporting entrepreneurship and inclusive growth. Whether those objectives are achieved will depend on how the portfolio is implemented. The number of approved loans will provide only a partial picture. Average loan size, interest rates, repayment periods, collateral requirements, geographic distribution and the share of first-time borrowers will offer a clearer measure of whether access has genuinely widened.

The programme also intends to channel more capital beyond Uzbekistan's capital. It could help distribute business investment more broadly, but lending outside major commercial centres may require stronger branch networks, improved digital services and more detailed knowledge of local enterprises.

The Partnership Is Moving Beyond Supplying Capital

The transaction builds on a relationship between IFC and Ipak Yuli Bank that began in 2018. IFC has since provided $87 million in financing to the bank, including a $67 million syndicated loan supporting small businesses, women entrepreneurs and companies engaged in trade. The new guarantee represents a shift from providing capital directly towards changing how the bank approaches risk across an entire loan portfolio.

Alongside the financial protection, IFC will provide advisory support to strengthen Ipak Yuli Bank's products and services for MSMEs. This component could prove essential because the credit gap cannot be explained by insufficient capital alone. Banks also need systems capable of evaluating smaller and less conventional borrowers. Lending models that depend heavily on fixed collateral or extensive financial histories can exclude enterprises that have viable cash flows but limited assets or formal documentation.

Advisory assistance could help the bank improve customer segmentation, product design and risk assessment. More suitable repayment schedules, streamlined applications or lending decisions based on business cash flow could make finance accessible to firms that remain outside traditional credit models.

Replication, Not One Portfolio, Will Define Success

A $100 million portfolio represents less than 1% of Uzbekistan's estimated $10.5 billion MSME credit gap. The investment should thus be viewed as a demonstration rather than a comprehensive response. Its broader value will depend on whether the guarantee produces evidence that smaller and underserved enterprises can be financed sustainably. Strong repayment performance could encourage Ipak Yuli Bank to continue serving these borrowers after the guarantee period and could make the model more attractive to other financial institutions.

Poorly designed guarantees, however, carry their own risks. If a bank expects external institutions to absorb losses, risk-sharing protection can weaken incentives for careful loan assessment. The two-tranche structure must therefore reduce excessive caution without encouraging weak underwriting.

Affordability is another unresolved issue. Businesses may technically gain access to loans but still find them difficult to use if interest rates are high, maturities are short or collateral requirements remain restrictive. Some enterprises may also need assistance with bookkeeping, financial planning and loan applications before they can benefit from expanded credit.

The most important indicators will be the amount of additional lending generated, the proportion reaching priority groups, the geographic spread of borrowers and the portfolio's repayment record. The extent to which lending continues after IFC's protection is reduced or withdrawn will be particularly revealing.

The transaction offers a targeted response to a structural problem: banks may have capital to lend but lack sufficient confidence to move beyond their established customer base. By absorbing part of the initial risk, IFC is attempting to change that calculation.