Today, buying products on credit or through installments has become an inseparable part of everyday life for Uzbeks. People are taking loans from banks or other financial institutions for various purposes, ranging from small household appliances to cars and even real estate.

However, in many cases, this might not be the right decision.

How much debt do Uzbeks have?

According to the Central Bank, as of November 1, 2024, the total loans issued to individuals by banks amounted to 172.8 trillion UZS or about 13.7 billion USD. This is 20% more than the same figure from a year ago.

Looking at the statistics, it is clear that the debt burden of Uzbeks has been increasing in recent years. For example, on January 1, 2020, the total loan balance of individuals was 39.9 trillion UZS. This amount has now increased by 4.3 times.

During this period, the share of problematic loans in total loans also grew from 1.5% to 4.2%.

Individuals mainly took loans for the following purposes:

• mortgage loans – 65.8 trillion UZS (38.1% of total loans);
• microloans – 39.8 trillion UZS (23.1%);
• consumer loans – 41.2 trillion UZS (23.9%);
• education loans – 5.5 trillion UZS (3.3%);
• business development loans – 18.8 trillion UZS (11%);
• other loans – 1.5 trillion UZS (0.9%).

The temptation of borrowing

First and foremost, one thing must be emphasized: a loan is not a gift or charity; it is a serious financial obligation. When someone takes a loan from a bank, they must repay it within a specified time and with a certain interest rate. At first glance, it may seem like the bank is helping someone in need of money, but this may not always be the case.

With the development of online financial services and the simplification of the process, the debt burden of Uzbeks has been increasing. People are now taking loans for weddings, household appliances, cars, and even gambling.

In some cases, borrowers misuse funds, leading to situations where they take out another loan to repay an existing one. This has resulted in an increase in family disputes, conflicts, and even crimes.

Why are loan interest rates so high in Uzbekistan?

According to data from international organizations, compiled by The Global Economy, Uzbekistan ranks 7th globally and 1st in Asia for having the highest loan interest rates out of 83 countries.

Data from the Central Bank shows that, in the first nine months of 2024, the average interest rate on loans issued by commercial banks to individuals was 24.5%. This does not include preferential loans or microloans.

Notably, the interest rates on microloans—which many people rely on—are quite high. These loans in state banks average 30–35%, while digital banks that issue online loans charge up to 49%. Many loans are issued with obligations in the 40–49% interest range.

The high cost of loans is due to fundamental economic, political, and legal factors.

High Inflation – Lenders account for the potential depreciation of the currency in the future.

Expensive Resources – Due to Uzbekistan’s low international credit rating, banks can only attract foreign funds at high interest rates, which increases the cost of loans.

High Risk – Delays in loan repayments are frequent. Additionally, the lack of information about consumers’ payment capabilities leads to higher interest rates.

What is the debt burden for consumers?

As mentioned earlier, the high risk for banks leads to a higher burden for borrowers. Let’s look at this from the perspective of buying a car on credit.

One consumer interviewed by Kun.uz purchased a car for 325 million UZS. With a 20% down payment of 65 million UZS, they took out a 260 million UZS car loan at 24% interest for five years. Currently, they are making monthly payments of 7.48 million UZS, and the total loan amount will reach 450 million UZS over five years. Including the down payment, the total cost of the car will be 514 million UZS.

It is well-known that cars depreciate significantly after purchase. This rule also applies in the more limited competitive market of Uzbekistan. Specifically, the same car, in good condition and with about 10,000 km on the clock, can be purchased on online platforms or at local markets for around 250–260 million UZS.

What about microloans?

Let’s also look at the online microloans that have become widespread among the poor and middle class. For instance:

• Borrowing 20 million UZS for two years at a 47% interest rate from Bank “A” would result in an additional payment of 11.2 million UZS in interest.
• Borrowing 60 million UZS for three years at a 32% interest rate from Bank “B” would require an additional 34 million UZS in interest payments.
• Purchasing products on installment also results in a significant debt burden for the buyer. For instance, a refrigerator worth around 7.5 million UZS can be purchased for at least 12 million UZS if bought on an installment plan for 12 months through online platforms.

How do other countries compare?

According to Statista, the average interest rates for loans in 2023 were:

• Switzerland – 2.86%
• Israel – 2.96%
• USA – 3.28%

In comparison, Uzbekistan’s average rate was 22.5%, placing it among the highest borrowing costs in the world.

According to Trading Economics, Peru offers the cheapest loans in the world at just 0.8%. In Japan, the rate is 1.7%, and in Denmark, it is 3.25%. For comparison, borrowing in Peru is 30 times cheaper than in Uzbekistan.

It should be emphasized that not only the poor, but also those who earn a lot of money can fall into the trap of loans. To illustrate this, it's enough to recall the cases of famous figures like Nicolas Cage, Mike Tyson, and Johnny Depp. Despite having hundreds of millions of dollars in wealth, they nearly went bankrupt and experienced serious financial problems due to their debts.

In the context of Uzbekistan, loans taken at high interest rates are undermining people's financial discipline and putting them in difficult situations. Giving in to emotions and borrowing 15 million UZS for a phone may bring temporary happiness, but it doesn't significantly change one's life. Later, the person will have to make payments for months or even years for a device that depreciates and becomes outdated day by day.

It is especially heartbreaking that the number of young people who are taking loans to gamble online and falling into difficult situations, even resorting to suicide as a result, is increasing.

Will Islamic finance be introduced?

Three years ago, work began on establishing Islamic banking windows in more than ten banks. Surveys among entrepreneurs revealed that 38% expressed an interest in obtaining resources based on Islamic finance principles.

Experts believe that the widespread introduction of Islamic finance in Uzbekistan could generate an additional $5 billion in resources and positively impact the competitive environment in the country.

In May, the Deputy Chairman of the Central Bank, Behzod Hamroyev, announced that a draft law on Islamic finance had been developed and would be submitted to parliament by the end of the year. However, this has not happened yet.