Boosting Uzbekistan’s Economy: The Role of Factoring

In Uzbekistan, the factoring portfolio is projected to grow from 1.5 trillion soums in 2024 to over 10 trillion soums in 2025. Abrorkhuja Turdaliyev, Deputy Chairman of the Board of the Central Bank of Uzbekistan, shared this information with Kursiv Uzbekistan during an international conference on new methods of business financing. The event was organised by the Central Bank in collaboration with the International Finance Corporation (IFC) and FCI on December 5.

What is Factoring

Factoring is a financial transaction in which a company sells its receivables (unpaid invoices) to a financial institution in exchange for immediate cash. This process enables companies to access working capital quickly.

Factoring is particularly beneficial for small and medium-sized businesses struggling to secure loans quickly or provide collateral. President Shavkat Mirziyoyev of Uzbekistan highlighted this in a dialogue with entrepreneurs in August of this year. He emphasised that by promoting Factoring, entrepreneurs could receive 20 trillion soums for their operations while exporting companies could gain access to $1 bn.

Factoring development in Uzbekistan

Abrorhuja Turdaliyev mentioned that Uzbekistan examined international practices in collaboration with the International Finance Corporation (IFC). “We studied the experiences of Turkey and China and selected the most effective structure for the Uzbek model,” he stated.

As part of this strategy, a presidential decree was adopted, which laid the groundwork for the establishment of private factoring platforms; there are currently four in operation as of December 2024. Today, over 2,000 companies and 25 banks have integrated into these systems, and limits have been set for 1,600 companies, exceeding 2.5 trillion soums.

Alexander Bogdanov, director of Oz Planet, one of the four digital platforms, explained the mechanism regarding limits: “It is extremely challenging for a bank to assess an average entrepreneur. For large clients, the assessment is much simpler. Therefore, we decided to develop the product by setting limits and risks based on large buyers, enabling them to provide their suppliers with their own Factoring or leverage effectively. This means that factoring financing is offered to small and medium-sized businesses against the limits set by large buyers, removing the need for credit risk assessments. Consequently, we accelerate transactions with suppliers, boosting the economy.”

Abrorhuja Turdaliyev added that a crucial aspect of Factoring is the speed of decision-making enabled by electronic platforms, alongside eliminating the need for collateral or complex documentation. This is particularly advantageous for small businesses. “This allows small businesses to access the necessary resources and enhance their production capabilities quickly,” he emphasised.

According to the Central Bank deputy head, this service will first be promoted domestically before expanding to foreign markets. “There is significant demand within Uzbekistan and from our main partners. Negotiations are already underway,” he noted.

Target audience

Neil McCain, the IFC manager for Uzbekistan and Turkmenistan, emphasised the importance of factoring for small and medium-sized enterprises (SMEs) in an interview with Kursiv Uzbekistan. He explained, “Factoring allows small businesses to transfer risk to larger companies. When a bank provides capital to a small business, it assumes the risk associated with the buyer.”

McCain noted that proper infrastructure and legislation are crucial for the success of Factoring, and he highlighted that improvements are being made through collaboration with the Central Bank of Uzbekistan.

He believes that implementing these initiatives will significantly increase the volume of factoring operations and create new jobs in the country.

“As an international financial institution, we often discuss the importance of foreign investment. However, it is important to recognise that most jobs and economic growth in any country come from small and medium-sized enterprises. In Uzbekistan, we need to create around one million jobs each year, with 80% of those jobs linked to the development of SMEs. The more financial instruments available to these companies, the faster they can grow and generate jobs.”

McCain also predicts that within two years, Factoring will play a significant role in the business operations of Uzbek banks, and specialised companies may emerge to focus on this financial instrument.

Challenges for development

Despite the current successes in the field, much work still needs to be done. Many entrepreneurs need to familiarise themselves with Factoring as a financial instrument, and banks need to enhance the qualifications of their employees. Alexander Bogdanov highlights that significant efforts are being made to increase the volume of factoring operations.

“We are actively assisting banks by sharing our expertise to help them introduce this product and offer it to their clients,” Bogdanov stated.

Some banks are already prepared for this innovation. Deputy Chairman of the Central Bank, Abrorhuzha Turdaliyev, mentioned, “Banks are ready; there are platforms available, and the legislation permits it. Now, businesses must learn how to utilise this tool,” he concluded.

Market and rates

Businesses need to consider the specific characteristics of factoring as a financial tool. Like any service, Factoring comes with costs. Alexander Bogdanov pointed out that the rates in the factoring market in Uzbekistan vary significantly. This variation largely depends on how each bank sources its funding: the cost of acquiring resources and the margin it adds when offering those resources.

“It is noteworthy that current factoring rates are within standard credit rates. Additionally, if the risks are transferred to a large buyer, the factoring rate may be comparable to that of large corporate clients. Small entrepreneurs can obtain financing without collateral at corporate rates, which they would typically be unable to secure through traditional bank loans. According to the specialist, this represents a key advantage for small businesses, as they often need help accessing such favourable terms through conventional lending”, adds the expert.