National Bank of Uzbekistan
This summary covers a loan by Standard Chartered Bank of the United Kingdom and/or any of its subsidiaries (“SCB”), and other potential lenders yet to be identified (collectively the “Lenders”) to the Joint-stock company “National Bank for Foreign Economic Activity of the Republic of Uzbekistan” (“NBU”). SCB has applied for a MIGA guarantee of up to EUR [152.0] million for a period of up to 10 years against the risk of Non-Honoring of Sovereign Financial Obligations of a State-Owned Enterprise (“NHFO-SOE”).
The proceeds of the MIGA-covered Loan will be used by NBU as direct financing to support its Small and Medium Enterprises (“SMEs”) in various sectors, including trade finance, to develop the service sector, and manufacturing (the “Project”). The proposed Project would be MIGA’s first non-honoring transaction in Uzbekistan and also the first with NBU. The Project will support NBU’s efforts to expand servicing
the underserved SMEs segment, which plays a pivotal role in Uzbekistan’s growth and job creation.
NBU provides retail, SME, and corporate finance services to clients in Uzbekistan. The Project will support lending to SMEs. SME transactions are typically considered low to medium-risk transactions, with environmental and social (“E&S”) risks and impacts that can be addressed through mitigation measures. This project has thus been categorized as FI-2 in accordance with MIGA’s Policy on Environmental and Social Sustainability (2013).
The main E&S aspects of this project relate to NBU’s ability to identify, assess, and manage the E&S risks and impacts associated with its SME lending activities and the management of labor matters. MIGA analyzed NBU’s portfolio for types of transactions, tenor, size, industry sectors, and exposure to MIGA’s Exclusion List. MIGA also analyzed NBU’s E&S risk management procedures for lending activities in line with the requirements of Performance Standard 1: Assessment and Management of Environmental and Social Risks and Impacts (“PS1”), and NBU’s labor practices in line with the requirements of Performance Standard 2: Labor and Working Conditions (“PS2”).
As of November 2023, NBU’s portfolio included the following business segments – corporate loans, 71%, SME loans, 16%, and retail loans (mortgages and consumer loans), 13%. The main sectors supported include manufacturing, transport and communication, services, trade and agriculture. NBU currently has no exposure to activities on the MIGA Exclusion List.
For the purposes of the MIGA guarantee, NBU will be required to assess SME transactions against: (i) MIGA Exclusion List; and (ii) applicable E&S laws and regulations in Uzbekistan.
In relation to E&S risk management, NBU is in the process of developing an environmental and social risk management system for assessing the E&S risks and impacts associated with its SME lending activities. The system will include screening against the MIGA Exclusion List; categorization of E&S risks; assessment of E&S risks and impacts via an E&S due diligence questionnaire, including sector-specific screening for the cotton sector; and compliance with local E&S laws.
NBU has emergency response procedures which are in line with the requirements of PS1. NBU also has labor policies and procedures that address terms of employment, recruitment, renumeration, benefits, grievance management and non-discrimination.
For the proposed guarantee, MIGA and the Lenders will monitor the project’s compliance to the E&S requirements through annual reports.
The Project will support NBU, the largest bank in Uzbekistan, in its efforts to expand servicing SMEs, contributing to job creation and closing the SME financing gap in the country. At the same time, the Project will demonstrate the business case and financial viability of lending to SMEs, encouraging other banks (state-owned or private) to increase availability of credit to this underserved segment. SMEs are crucial for the future growth of Uzbekistan - investing in increasing their productivity and competitiveness is imperative for sustaining a private sector led growth model. As of end 2022, SMEs represented 51.8% of GDP, 74% of employment and 30% of exports. Therefore, the Project is expected to support increased access to finance for SMEs, and possibly improve their contribution to the economy.
The proposed Project is aligned with the World Bank Group priorities in Uzbekistan, as noted in the Country Partnership Framework (“CPF”) FY22-26. By supporting increasing access to finance for SMEs, the Project is aligned to High Level Objective 1 “increase inclusive private sector employment”, under its objective of enabling private sector growth and investment. The Project is also aligned with MIGA’s FY23-26 Strategy and Business Outlook under its strategic directions of supporting all clients and development areas such as SMEs.