Central Bank to Regulate Installment Market Amid Debt Worries
Central Bank of Uzbekistan to Regulate Growing Installment Payment Market
The Central Bank of Uzbekistan is set to establish regulations for the country’s rapidly expanding installment payment market, with a specific focus on the increasingly popular "Buy Now, Pay Later" (BNPL) model. This initiative aims to mitigate the rising risk of consumer over-indebtedness and to address the current lack of oversight in a financial sector that has gained considerable traction.
During an International Monetary Fund conference on May 2, Central Bank Chairman Timur Ishmetov emphasized the importance of these regulations. He highlighted that the regulator regularly conducts stress testing in collaboration with international financial institutions to identify risks and vulnerabilities, particularly in unregulated sectors that could threaten financial stability.
“BNPL has expanded significantly, and we recently convened a meeting with key market participants to discuss effective regulation in this area,” said Ishmetov. “Our goal is to ensure that banks fully consider individuals’ debt burdens and to safeguard consumer interests.”
Despite the growing popularity of BNPL and point-of-sale (POS) financing options in Uzbekistan, banks currently face challenges in accessing comprehensive information about borrowers’ debts in these non-traditional sectors. This gap makes it increasingly difficult to assess consumers’ total financial obligations accurately, heightening the risk of excessive borrowing.
As consumer debt linked to BNPL remains outside the formal banking system, lenders often extend loans without a complete picture of the client’s overall liabilities, particularly when issuing consumer loans or microloans.
The Central Bank first revealed plans to regulate installment payment schemes in January. Proposed regulations will require companies offering goods on installment plans to report credit data to credit bureaus, thereby enhancing transparency in the market.
According to a KPMG Caucasus and Central Asia report from April 2024, the POS financing and installment market in Uzbekistan was estimated to be worth between $450 million and $500 million in 2023. Notably, Uzum Nasiya and Alif Nasiya accounted for two-thirds of the market share. The report predicts that the market could burgeon to between $1.5 billion and $2 billion by 2027.
KPMG also points out that POS financing often includes additional costs for consumers, with markups on product prices ranging from 0% to 68% for installment plans spanning 3 to 12 months. Some market players have adopted a more traditional BNPL model, offering short-term plans of 3 to 4 months with no markup, where sellers bear the commission.
In a related move, the Central Bank has already implemented stricter regulations for microloans, which will take effect on July 24. Under these new rules, banks are restricted to ensuring that microloans do not exceed 25% of their lending portfolios. Moreover, borrowers will not be charged more than 50% above the principal amount within any one-year span, which includes interest, fees, penalties, and other associated charges.
As Uzbekistan’s installment payment market continues to evolve, these regulatory measures aim to foster consumer protection and financial stability in an ever-changing economic landscape.
