Uzbeks facing growing debt amid high loan interest rates

Need a car? Get it on installment? Need money? Take out a loan. Want a new phone? Buy it with installments. For many, credit has become the go-to solution for economic challenges. While loans provide people with the means to purchase what they need, they also come with high-interest rates, creating a burden of debt.

Currently, the average bank loan for Uzbeks stands at $1,490 per person in a population of 37 million. According to the Central Bank, citizens owe a total of 490 trillion sums to banks, equivalent to approximately $38.8 billion. This figure only includes bank loans, excluding installment payments on products from non-bank organizations, car dealerships, real estate, and household appliances. 

Credit and installment plans are essential components of the financial sector, facilitating economic development. However, it is evident that loan interest rates in Uzbekistan are notably high. This raises the question: why are interest rates so elevated, and does this signal an impending financial crisis, as often speculated on social media?

High loan interest rates in Uzbekistan

According to a 2022 report by "Theglobaleconomy," which utilized data from the World Bank, Uzbekistan ranked 6th among 109 countries for high loan interest rates. Data from the Central Bank shows that the average loan rate in Uzbekistan is 21.2%. However, in many banks, interest rates range from 24% to 49%, though they offer the advantage of instant loans without additional paperwork.

Over the past decade, the average loan interest rates in Uzbekistan have fluctuated as follows:

- 16.2% in 2014
- 14.2% in 2015
- 14.1% in 2016
- 15.0% in 2017
- 19.9% in 2018
- 24.8% in 2019
- 20.6% in 2020
- 21.3% in 2021
- 22.4% in 2022
- 22.9% in 2023

The lowest loan rates match the refinancing rate of the Central Bank, which is 13.5%. However, not everyone can access these preferential loans, as they are mainly available for family businesses and educational purposes for women.

Why are loan interest rates so high?

According to Dr. Tulkin Bobokulov, a professor of economics, high loan interest rates in Uzbekistan are driven by several factors beyond inflation.

“Indeed, loan interest rates are very high here. The first reason is the high level of inflation. In an environment with high inflation, commercial banks are unable to offer low-interest loans. 

The second factor is the scarcity of affordable resources in Uzbek banks. A key affordable resource is a soft loan, which is provided by the state. 

The third reason is the high risk associated with lending. Many preferential loans have been issued, but banks have struggled to recover them, resulting in significant debt.

Finally, there is currency risk,” explained Dr. Bobokulov.

President Shavkat Mirziyoyev has urged banks to lower loan interest rates for years. Economists argue that, rather than pressuring banks, it is essential to improve economic conditions and foster a more competitive environment to achieve a reduction in rates.

Successful entrepreneurs often advise against taking loans to start a business, though ideally, loans should primarily support the development of small businesses. Unfortunately, high-interest rates and inflation hinder this objective.

Mortgage loans

For many, mortgage loans are the most accessible way to achieve the dream of homeownership. In developed nations, mortgages account for a significant portion of consumer loans. For instance, in the United States, mortgages represent 70.2% of consumer debt.

However, in Uzbekistan, mortgage loans are not as popular due to their limited appeal. The Central Bank reported a decline in the mortgage market in 2024, with 6.88 trillion sums allocated for mortgages in the first half of the year, compared to 7.01 trillion sums during the same period in 2023.

A survey conducted by QALAMPIR.UZ revealed that installment payments, known as installment dominate the trade of equipment in the market. 

It is well known that installment purchases come with added costs. Inflation and current economic conditions are primarily to blame for the high prices of installment.

What are the loan interest rates in the countries of the world?

According to a 2023 comparison by the World Bank, Japan offers the lowest loan interest rates worldwide, at just 1.8%, which is 12 times lower than the average rate in Uzbekistan. Following Japan, Switzerland has the second-lowest rate at 2.9%.

In most European countries (excluding Ukraine), loan rates range between 3.5% and 10%. Russia has a rate of 11.6%, China stands at 4.3%, while the United States and Canada have rates of 8.5% and 6.9%, respectively.

In Central Asia, Turkmenistan boasts the cheapest loan rate at 8.19% (for individuals, based on 2023 data). Average rates in the region are 19.1% in Kyrgyzstan, 18% in Kazakhstan, and 23.5% in Tajikistan.

On July 25, the Central Bank of Uzbekistan reduced the refinancing rate to 13.5%. Ideally, this should lead to lower loan interest rates across banks, but due to persistent economic challenges, there is little optimism for a significant reduction. High interest rates are problematic for both citizens and banks; the lower the rates, the more borrowers can access loans.

Economic issues such as low income, unemployment, and rising prices have driven people to rely on loans. While loans may initially seem to ease financial difficulties, they often lead to deeper financial problems due to high interest. Many borrowers end up paying off debts for years, and, tragically, there are cases where individuals have taken their own lives over insurmountable debt.