4. Key findings from the household survey

The survey shows that 30% of households have taken out money to finance activities with a climate mitigation or adaptation purpose in the past five years (Figure 4.1). Few (1%) respondents said they had invested in switching to crops that are more resilient to changing climate or weather or with less environmental impact (e.g. protect the soil, biodiversity, ecosystem services etc.). The same number (1%) said they financed improvement of their water use (e.g. more efficient irrigation systems, better access to clean water, etc.). More respondents (2%) said they had taken out a loan to finance energy-saving measures (e.g. house insulation, a more efficient boiler, etc.). Finally, 6% of respondents said they had invested in agriculture and disaster risk insurance. Switching livestock and crop varieties were the most common reasons and could make households more resilient and/or help increase production.

Only 0.5% invested the loan to produce energy from renewable sources. The same number of respondents financed improvements in forest management (e.g. to reduce risk from wildfires). Only one household (0.2%) responded they had invested in wastewater management. No one reported taking out a loan to finance protection of biodiversity, improve waste management or reduce air pollution. Table 4.1 provides an overview of these and other purposes respondents had chosen for their loan.

Types of green investment activities vary across oblasts (Figure 4.2).

In Talas, none of the respondents had invested in any green activities in the past five years. Similarly, in Osh city, the survey found little green investment behaviour. Bishkek is the only place where households said they had taken out a loan to invest in energy production from renewable sources (3.6% of total respondents in Bishkek, which corresponds to two households).

The two oblasts with the highest uptake of agriculture or disaster risk insurance are Osh and Jalal-Abad, followed by Chui. These oblasts have the most business entities (mostly individual entrepreneurs) engaged in agricultural production in Kyrgyzstan. In 2019, Osh oblast accounted for a significant proportion of such business entities – 125 000, or almost 28% of the total. Jalal-had more than 100 000 (or almost 23% of total agricultural entities) and Chui had almost 70 000 (or 15%) (National Statistical Committee of the Kyrgyz Republic, 2020[1]).

Agricultural producers are strongly impacted by weather-related events such as droughts, frost and hail, as well as disasters such as floods and landslides. Consequently, they have incentives to insure against agricultural losses. Many respondents also said they had invested in new livestock species and breeds and new feed crop varieties. Batken is the region with the largest proportion of respondents taking out a loan to finance new livestock species and breeds (37.5%), followed by Jalal-Abad and Chui. Overall, little to no diversity in green investment activity can be detected in Talas, Osh city and Batken apart from investment in new livestock species and breeds and new feed crop varieties. The findings also show that respondents in the regions of Osh, Jalal-Abad and Chui were willing to take out loans for agricultural and disaster risk insurance. This suggests that insurance provision in these areas could be scaled up.

Respondents were asked whether they would be interested in a loan or another financial instrument in the future to finance any activity related to climate adaptation or mitigation listed in Figure 4.1. Most (70%) said they did not know. The finding points to a clear gap in knowledge and understanding of the pros and cons of green investment and that respondents had not previously reflected on making green investments. In other findings, 14% of respondents would be interested in a loan to switch livestock, while 10% would use the loan for new and alternative feed crop varieties. In this regard, people who would be interested in a green loan have similar investment goals to those who already had a green loan.

There was some interest (more than 5%) to take out agricultural or other disaster risk insurance and to invest in energy efficiency measures (a little over 5%). Some respondents (3.6%) were interested in switching to more environmentally-friendly or resilient crop varieties and in investing in water management such as more efficient irrigation. Just under 3% of respondents would be interested in investing to reduce outdoor air pollution and to produce energy from renewable sources. These findings are important for commercial banks and the regulator. They point to demand for increased adaptation and mitigation measures these institutions could cater to and help grow. The regulator could consider whether to make such investment opportunities more attractive through direct or indirect support measures.

Few respondents were interested in investments in forest management or to protect biodiversity. This points to a need to raise awareness of the benefits of such activities.

Figure 4.4 shows a large majority of respondents are hypothetically interested in a green loan of up to USD 5 000 (KGS 35 000).

The finding points to a clear gap in knowledge and understanding of the pros and cons of green investment and that respondents had not previously reflected on making green investments.

Respondents were asked to identify the theoretical barriers of taking out a green loan in the future (Figure 4.5). The answers show that respondents have a fairly informed understanding of the reality of borrowing money. The perceived barriers are similar to the ones listed by respondents who had taken out a loan Figure 4.21).

Respondents identified high interest rates as the biggest barrier to taking out a green loan. Around 30% thought they would face high interest rates if they took out a loan for green investments. In other findings, around 17% thought the lending term would be too short, while 10% responded that insufficient collateral poses a hypothetical barrier. Another 10% perceived the repayment schedule of green loans to be inconvenient. Almost 10% thought their insufficient knowledge on how to access and use banking services would hinder them from taking out a green loan.

Together with lack of bank accounts (around 6% of responses), lack of information on banking products (4.5%) and lack of information on purpose of green financial products (around 4%), these answers highlight the need to increase financial literacy, access to bank accounts and awareness of green financial products.

In all, 4% of people said they were afraid of integrity issues such as corruption. This percentage is significantly smaller than attitudes towards conventional loans (10% said they would not take out any financial product because they are afraid of corruption).

The survey sheds light on what drives lack of interest in green financial products (Figure 4.6). Almost 30% of respondents said they had no need for a financial product because they would use their own funding. Around 20% thought that green financial products would be too expensive or the equipment for them would be too expensive or unavailable in Kyrgyzstan (almost 8%). Almost 12% gave lack of sufficient information about green financial products and around 10% gave lack of information on funding purposes as reasons for their lack of interest. This answer points to the need for better information provision on green financial products. Around 4% said they had other funding priorities, while 2% said they were not interested in environmental protection or sustainable development. Only 3% gave lack of environmental regulation as a reason for not being interested. Religion played only a small role (0.3%) in preventing people from being interested in green financial products.

Respondents were asked what types of support could incentivise them to finance green investments (Figure 4.7). The answers are in line with the perceived barriers identified and shown in Figure 4.5. Further, they point to greater roles for commercial banks (in combination with some rewriting of current lending terms). Specifically, banks could make their products more attractive and increase information flows of the types and purpose of different products.

Almost 35% wish for support to lower interest rates. This is in line with other findings that financing in the Kyrgyz Republic remains expensive (Yamano et al., 2019[2]). Furthermore, 22% wish for longer lending terms or a grace period to repay the loan (16%). These two findings point to the need for more patient capital and more lenient repayment schedules.

Given that collateral requirements are quite high in the Kyrgyz Republic, it is not surprising that 6.5% of respondents wanted support for collateral requirements. One would expect this number to be even higher, but collateral requirements are more significant for businesses who tend to ask for higher loans than households. In all, 9% of respondents wished for more information on green financial products.

The OECD survey also investigated respondents’ general financial behaviour and use of financial products and services. The results are presented in the following section. The number of depositors with commercial banks is low in the Kyrgyz Republic. The survey found that 81% of the 1 000 respondents did not have bank accounts (Figure 4.8). Slightly more women had bank accounts compared to men (21% of female respondents compared to 17% male; the reasons for this difference were not explored as part of the survey). The low number of bank accounts is likely driven by a mix of reasons such as lack of access, small amounts of savings, distrust in the financial system and alternative, informal means of using money. Chapter 2 has explored the underlying drivers further.

A household survey in Kyrgyzstan in 2017 by the World Bank also found high numbers of people without bank accounts (60%) (Demirgüç-Kunt et al., 2018[3]). Other data shows that the number of bank accounts per 1 000 adults in Kyrgyzstan increased from 15% in 2011 to slightly over 50% in 2017 (World Bank, 2019[4]). In the OECD survey, 65% of respondents live in rural areas, which represents the general distribution of the population between rural and urban settings in Kyrgyzstan. In rural areas, access to banks is restricted, as elaborated below (Figure 4.9). Therefore, lack of access could explain why this survey finds higher numbers of people without bank accounts compared to previous surveys.

The percentage of people without bank accounts across Kyrgyzstan is high, as stated above. The survey found that 25% of respondents in cities, however, do own a bank account compared to only 16% in rural areas. This empirically confirms statements from other studies that financial activity remains concentrated in larger cities (OECD, 2019[5]).

Jalal-Abad, Chui and Batken are the regions with the lowest ownership of bank accounts (Figure 4.10). This can be partially explained by the low rate of bank services available in these regions (as shown in Table 2.1. in Chapter 2) and further explained in the next section). As mentioned above, more people with bank accounts live in larger towns and cities, i.e. Bishkek, Naryn, Talas and Osh where access is higher.

The education system of Kyrgyzstan consists of these levels: preprimary; secondary general (including primary); secondary technical and special; postsecondary non-higher; and higher education (OECD/ILO, 2017[6]; Ministry for Education, Science & Culture of the Kyrgyz Republic, 2000[7]).1 The proportion of respondents without bank accounts is high across education levels, ranging between 60-96% (Figure 4.11). However, more people with college-level education (almost 40%) and higher education (over 30%) own bank accounts compared to those with lower education levels. Those with higher education levels may also have higher income levels and thus more incentives to deposit and invest money.

Mobile banking offers the advantage of accessing banking services anywhere at any time provided one has access to a mobile network and device. Mobile banking is defined here as using a mobile device to access a financial account or make a financial transaction remotely. Of those respondents with a bank account, 26% used mobile banking (Figure 4.12). This is a low percentage, but higher than that found in the Global Findex survey from 2017. According to the Global Findex results, only 10% with a financial institution account reported using a mobile phone or the Internet to access their account in the Kyrgyz Republic in the past 12 months in 2017 (Demirgüç-Kunt et al., 2018[3]).

Other research suggests that only slightly over 12% of the population use mobile phones for bank operations (Hasanova, 2018[8]). The OECD’s study is more recent; few banks provided Internet-banking access through mobile applications back in 2017/18 (Hasanova, 2018[8]) whereas now most banks do. This can help explain the difference in findings. In any case, use of mobile banking and digital payments in general in Kyrgyzstan is found to be lower than in other countries in the region where 35% reported using mobile banking in 2017 (Demirgüç-Kunt et al., 2018[3]).

There are regional differences (Figure 4.13). In Bishkek, more than 50% of respondents with a bank account use mobile banking. Use of mobile banking is even higher in Jalal-Abad (more than 70%) and Issy-Kul (more than 60%).

In Jalal-Abad, the comparatively lower access to physical banking infrastructure through bank branches (as shown in Table 2.1. in Chapter 2) might drive the higher percentage of people using mobile banking. In this case, mobile banking might substitute for lack of access to other banking infrastructure.

In Issy-Kul, however, access to physical banking infrastructure is less of a problem. Yet over 60% of respondents with a bank account still use mobile banking. Therefore, physical banking infrastructure might be less of a driver here.

In general, limited access to broadband Internet in rural areas restricts availability of digital services (Hasanova, 2018[8]). It could explain why mobile banking is not more widely used. However, it does not explain why uptake is low in metropolitan areas Naryn, Talas and Osh city. Lack of mobile banking applications and people using self-service terminals instead might be the bigger driver here.

As shown in Figure 4.14 and Figure 4.15, of those who use mobile banking, almost 70% of people with higher education levels (having at least achieved Lyceum level education or higher) use mobile banking.

Credit forms an important part of economic development. It finances production, consumption and capital formation, which in turn affect economic activity (World Bank Group, 2020[9]). Credit to the private sector and households and their access to credit are therefore a development indicator. Only 14% of respondents said they took out a loan once and the same percentage did so repeatedly from a bank over the past five years (Figure 4.16). Around 11% took out a loan from a microfinance or microcredit institution once and 12% did so repeatedly over the past five years.

Respondents used microfinance/-credit institutions almost as often as banks. Credit unions, however, are used very little. Only around 1% of respondents took out a loan once or more than once from a credit union over the past five years. The findings show, nevertheless, that female loan takers used credit unions five times as often as male. Almost 2% of female respondents used credit unions compared to 0.4% male. The study did not explore the reasons for this difference.

Figure 4.17 shows the financial institutions used by respondents who took out a loan per oblast. It shows that use of banks did not strongly outweigh use of microfinance/- credit institutions or vice versa in any oblast.

In all, 92% of respondents took out a loan up to KGS 350 000 (USD 5 000) (Figure 4.18). Of those, 30% took a loan in the range of KGS 35 001-70 000 (USD 501-1 000), which is in the range of two to four average monthly salaries. Around 20% of respondents, respectively, took out loans up to KGS 35 000 (USD 500), loans ranging from KGS 70 001-140 000 (USD 1 001-2 000) and loans of between KGS 140 001-350 000 (USD 2 001-5 000). Around 8% took out loans of KGS 350 001 or higher.

The relatively small size of the loans already indicates that most respondents did not likely make major investments with the money. The overview below shows the main purpose for taking the loan (Figure 4.19). More than half of respondents wanted to cover private consumption, while almost 14% aimed to pay back a mortgage or undertake other housing expenditure, i.e. household investment. Almost 30% used the money for business reasons: around 19% took out a loan to cover operational business expenditure and just under 10% used the money to invest in their business. Around 4% of respondents took out a loan to pay back other debt.

Through a regional lens, the main reason for taking a loan is private consumption. As shown in Figure 4.20, more than 80% of respondents in Naryn took out a loan to finance private consumption. In Bishkek (22%) and in the Talas region (17%), more respondents borrowed to develop their business compared to other oblasts. Whereas in Jalal-Abad and Osh city, 12% and 14%, respectively, took out loans to develop their business, under 5% did so in Issy-Kul, Naryn and Batken. A significant share of respondents took out loans to support operational expenditure of their business in Chui (almost 30%), the Osh region (almost 30%), Jalal-Abad (26%) and Batken (almost 20%).

As shown in Table 4.2, more than 20% of respondents in rural areas borrowed for operational expenditure compared to fewer than 10% of urban respondents. Urban respondents are almost three times more likely to borrow to invest in their business as rural respondents. One can interpret this in different ways. On the one hand, the definition of investment in fixed assets versus operational expenditure might be driving results. For rural agricultural producers, buying seeds or new livestock could be investing in an asset and increasing production. Thus, for agricultural producers, the definition of operational expenditure here could also include to a certain extent investment in fixed assets. On the other hand, some rural borrowers may lack working capital. Gaps in financial flows can arise due to the seasonal nature of the business, which is particularly the case for agricultural producers. At the same time, Figure 4.1- in the section on green financial products – shows that a significant share of loan takers use the money to switch livestock species and breeds and to buy new or alternative feed crop varieties. This could be considered as investments in “fixed” assets. One can assume the reality for rural respondents is likely a mixture of both reasons: borrowing for working capital and reinvesting the money to increase production.

Most respondents said they were satisfied with the service received. However, 42 respondents (18.6% of those who took out a loan) were dissatisfied because they felt interest rates were too high.

The more than 70% of respondents who had not taken out a loan mentioned different reasons for not having borrowed money. For most, interest rates were too high. (Respondents could choose multiple answers. Therefore, percentages were adjusted for the number of responses rather than total number of respondents). In other findings, 11% said they had not taken a loan because they had no bank account. Around 10% were afraid of corruption or bribes, which reflects the low trust in the financial system identified in Chapter 2. Another 9.5% said they did not need to borrow money because they had enough.

Most of the other reasons relate to access and use, ineligibility for loans or lack of understanding of the financial product. Around 9% mentioned the lending term was too short. Around 7% had trouble accessing and using banking services, which relates to the use of banking services explained above. Around 6% had insufficient collateral to pledge. For around 5%, the repayment schedule was inconvenient, while 4% lacked information about how they could use the loan. Around another 4% lacked information about financial products. Religion (around 1%) was not a major reason for why people did not take out a loan.

These findings suggest that financial products and services that do not meet the needs of potential users are the main reasons for not borrowing money. It does not suggest that most people would not be willing to take out a loan (except for those who said they have enough money or did not answer the question). Rather, the findings suggest that people have actively tried but were unsuccessful or deterred by the reasons shown in Figure 4.21.

The reasons for not taking out a loan differ by oblast, but there is no clear trend across oblasts except for integrity issues, as shown in Table 4.3. Across all oblasts, integrity issues – defined here as people fearing corruption or bribes – are a strong deterrent for not taking out a loan.

Respondents in Talas ranked lack of bank account as the strongest barrier. In Batken, respondents ranked high interest rates as the biggest deterrent for not taking out a loan. Respondents in Naryn ranked short lending terms as the strongest barrier. In Osh and Osh city, respondents reported low levels of information on financial products as the primary reason they did not take out a loan. In Issy-Kul, respondents reported religion as the reason, together with fearing integrity issues, as a strong deterrent for not taking out a loan.

More than 80% of respondents who took out loans were satisfied with the quality of the financial product and services. At the same time, 4.2% of respondents who took out a loan expressed dissatisfaction with the quality of the financial product due to the high borrowing rate.

References

[3] Demirgüç-Kunt, A. et al. (2018), The Global Findex Database 2017: Measuring Financial Inclusion and the Fintech Revolution, (database), https://databank.worldbank.org/source/global-financial-inclusion (accessed on 12 February 2020).

[8] Hasanova, S. (2018), “Financial inclusion, financial regulation, financial literacy, and financial education in the Kyrgyz Republic”, Working Paper, No. 850, Asian Development Bank Institute, Tokyo, https://www.adb.org/publications/financial-inclusion-regulation-literacy-education-kyrgyz-republic.

[7] Ministry for Education, Science & Culture of the Kyrgyz Republic (2000), System of Education of Kyrgyzstan at present, http://merope.bibl.u-szeged.hu/oseas/kyrgyz_system.html (accessed on 24 October 2020).

[1] National Statistical Committee of the Kyrgyz Republic (2020), Сельское хозяйство Кыргызской Республики (Agriculture of the Kyrgyz Republic 2015-2019), National Statistical Committee of the Kyrgyz Republic, Bishkek, http://www.stat.kg/ru/publications/sbornik-selskoe-hozyajstvo-kyrgyzskoj-respubliki/.

[5] OECD (2019), Roadmap for a National Strategy for Financial Education in Kyrgyz Republic, https://www.oecd.org/education/financial-education-cis.htm.

[6] OECD/ILO (2017), How Immigrants Contribute to Kyrgyzstan’s Economy, International Labour Organization, Geneva/OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264287303-en.

[4] World Bank (2019), Global Financial Development Database: October 2019 Version, World Bank, Washington, DC, https://www.worldbank.org/en/publication/gfdr/data/global-financial-development-database (accessed on 11 February  2020).

[9] World Bank Group (2020), Domestic Credit to Private Sector by Banks (% of GDP), (database), https://data.worldbank.org/indicator/FD.AST.PRVT.GD.ZS (accessed on 16 June 2020).

[2] Yamano, T. et al. (2019), Kyrgyz Republic: Improving Growth Potential, Asian Development Bank, Mandaluyong City, The Philippines, https://www.adb.org/publications/kyrgyz-republic-improving-growth-potential.

Note

← 1. Higher education is offered by academies, universities, institutes and colleges and is itself segmented into three levels: incomplete higher education, basic higher education (Bachelor degree and speciality) and complete higher education (Master’s degree and speciality teaching) (Ministry for Education, Science & Culture of the Kyrgyz Republic, 2000[7])

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