Why Are Loans So Expensive in Uzbekistan? Causes and Solutions

High-interest rates on loans in Uzbekistan remain a topic of concern. While obtaining loans is seen as a tool to expand financial opportunities, their cost remains prohibitive for many. Let’s examine the reasons behind this issue and explore potential solutions.

Key Reasons for Expensive Loans

1. Central Bank's Base Rate
   The base rate set by the Central Bank serves as a benchmark for commercial banks. Currently, it is relatively high in Uzbekistan, directly influencing loan interest rates.

2. Financial Risks
   Banks assess customers' creditworthiness when issuing loans. Loans given to low-rated customers carry a high risk of default, prompting banks to raise interest rates.

3. Limited Liquidity
   When banks have limited resources, they manage liquidity by setting high-interest rates. The lack of long-term and low-cost financial resources remains a critical issue in Uzbekistan.

4. Inflation Levels
   High inflation contributes to increased loan interest rates. Banks adjust rates to offset costs and ensure profitability.

5. Low Competition
   The underdevelopment of the financial sector and limited competition among banks also contribute to high loan costs.

Possible Solutions

1. Reducing the Base Rate
   The Central Bank can facilitate cheaper loans by lowering the base rate while maintaining inflation control.

2. Improving Financial Literacy
   Raising financial awareness among citizens can reduce risks for banks, as customers will better understand how to manage loans.

3. Increasing Bank Competition
   Encouraging the entry of new financial institutions, including international banks, can foster a competitive environment and reduce interest rates.

4. Introducing Alternative Financing Sources
   Mortgage bonds, investment funds, and resources from international financial organizations can provide access to cheaper credit options.

5. Leveraging Technology
   Fintech companies can streamline the loan process, reducing costs and making loans more affordable.

Conclusion

The high cost of loans in Uzbekistan stems from various factors. Addressing this issue requires banking system reforms, enhanced competition, and the adoption of international best practices. Cheaper loans will create new financial opportunities for citizens and drive economic growth.