I remember it was my first day in Khujand, in northern Tajikistan, when I first heard there were 100 or more microfinance organizations in Tajikistan. I was slightly shocked. Clearly this was some mistake. The next day, I found out it wasn’t.

There are many small and medium MFI’s (Microfinance Institutions) in Tajikistan, around 90, and there are also a few large ones, and a few banks as well. The most interesting aspect to me is that there are so many that even the AMFOT- Association of Micro-Finance Organizations of Tajikistan, doesn’t have exact numbers of the amount of MFI’s in the country. The closest you have is CGAP’s 2009 Analysis which said there were 104, but the number is fluid to say the least. All of this for a country slightly smaller than Wisconsin, and with a lot less area that can be lived in (50% of the country is above 9,000 ft).

This seemed like too much of a good thing, and I thought it couldn’t be good for the microfinance sector or those who use it. Turns out I am not the only one who thought this, and it turns out Tajikistan is also not the only country with this problem.

From Armenia to Bolivia to Zimbabwe, as microfinance begins to transition into its “Sophmore Year” after becoming one of the main ways international funders channel money to reach the poor, the number of organizations has exploded. 20 years ago in the 1990’s, microfinance professionals would have laughed at the idea of too many MFI’s. This would have been a great thing, as different organizations can reach different areas, and groups of people. They compete with each other, lowering prices and creating new products.

Tajikistan is a great example of this flood of success. It has become a magnet for microfinance funders. Most of the population, over 60%, lives below the poverty line and the fact that the civil war right after the collapse of the Soviet Union led many to become self employed, has created an environment where microfinance can flourish. Yet Tajikistan has come to the point where there are so many MFI’s, small medium and large, that AMFOT  asked for a report on mergers and consolidations, which was presented earlier this year.

The problems experienced by over-saturation are numerous and varied. Some examples are: if you have 100+ places in one country where people can get loans, and those people will sometimes get double or triple loans from different organizations, leading to a situation where the person can become massively over indebted if they experience any sort of financial problem. Not out of the realm of possibility. Also, the smaller, and more numerous institutions usually only work in a large cities, not in the rural areas, where it costs even more to do microcredit, in Tajikistan this is more true than in some other countries, where rural could mean going over mountains that are 9,000 feet or above to get to an entrepreneur on “roads” that need some upkeep. Rarely do smaller MFI’s have lower interest rates because of the cost it takes to have a small amount of loans. Thus the smaller MFI’s have problems competing for funding and retaining staff.

The report to AMFOT, in Russian, is not a discussion on IF mergers should happen, it’s a discussion on HOW they should happen.

Since finding out about this issue, I’ve spent many a fine evening hour reading about it. Most involved in microfinance are not against mergers, acquisitions, or consolidations, some are vocally for them. The question now in the community seems to be: how to do it.

As most MFI’s have stated social missions, combining them is more complicated than other business mergers. Combine that with that the normal employee issues, the fact that you do not wish to experience legal issues with the loan contracts, and government over site, and you have a complex situation in an area that never imagined it would have this problem.

Currently organizations in Tajikistan work together. They share client lists to try and minimize over indebtedness, and share a black list, of those who committed fraud. This though only covers part of the problem created by large numbers of organizations, thus mergers have begun to look better for those involved.

This will not lead to one large MFI in a country, but it could lead to only 30 or 40, who are stronger and have better reach, instead of 100-600 (like Kazakhstan) with many organizations barely holding on.

Tajikistan though is not alone, and the microfinance community has begun to take an honest looked at the problem of over-saturation in countries, and how to help mergers and consolidations across the sector, without negative effects for the entrepreneurs who use the sector to survive and grow.

By Sam Kendall KF 12 Tajikistan

Sam is a roaming Kiva Fellow, working with multiple Tajikistan microfinance organizations on a variety of projects. He would like to thank those who helped him with this post. If you are interested in learning more about Tajikistan read some past blogs or watch some Kiva Fellows movies about the country.

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