JSC Agrobank

Project Description

This summary covers a loan by Standard Chartered Bank of the United Kingdom and/or any of its affiliates or subsidiaries, (“SCB”), and other financial institutions yet to be identified (collectively the “Lenders”) to Joint-Stock Commercial Bank "Agrobank” of the Republic of Uzbekistan (“Agrobank”). SCB has applied for a MIGA guarantee of up to USD261.3 million (to be structured as two tranches) for a period of up to 10 years against the risk of Non-Honoring of Sovereign Financial Obligations of a State-Owned Enterprise (“NHFO-SOE”). The proceeds of the MIGA-covered loan will be used by Agrobank to provide direct new financing to, and refinance existing loans to, small or medium-sized enterprises (“SME”) (the “Project”). The SME loans will be defined as an asset class of loans to, specifically: (i) a sub-borrower is a SME satisfying 2 of the 3 criteria: annual sales <USD15 million; and/or total assets valued at <USD15 million; and/or <300 employees; (ii) sub-loans are less than USD1 million; and (iii) borrower is not engaged in high risk categories (“Eligible SME Loans”). The funding will support, but not limited to, SMEs in the agribusiness sector, export-oriented businesses, and SMEs engaged in climate mitigation and/or adaptation activities. The proposed Project would be MIGA’s first transaction with Agrobank. 

Environmental Categorization 

Agrobank provides retail, SME, and corporate financial products and services to clients in Uzbekistan. The MIGA guarantee will support lending to SMEs. SME transactions are typically considered low to medium-risk transactions, with environmental and social (“E&S”) risks and impacts that are limited, few in number, site-specific, reversible and can be addressed through mitigation measures. This project has thus been categorized as FI-2 in accordance with MIGA’s Policy on Environmental and Social Sustainability (2013). 

The main E&S aspects of this project relate to Agrobank’s ability to identify, assess, and manage the E&S risks and impacts associated with its SME lending activities and the management of labor matters at Agrobank. MIGA analyzed Agrobank’s portfolio for types of transactions, tenor, size, industry sectors, and exposure to MIGA’s Exclusion List. MIGA also analyzed Agrobank’s E&S risk management procedures for lending activities in line with the requirements of Performance Standard 1: Assessment and Management of Environmental and Social Risks and Impacts (“PS1”), and Agrobank’s labor practices in line with the requirements of Performance Standard 2: Labor and Working Conditions (“PS2”).

As of December 2023, Agrobank’s portfolio included the following business segments – micro-enterprise loans, 19%; SME loans, 31%; corporate loans, 32%; and individual loans (mortgages and consumer loans), 18%. The main sectors in the bank’s portfolio include manufacturing, agriculture, trade, and construction. Agrobank currently has no exposure to activities on the MIGA Exclusion List. The bank also has no exposure to coal-related projects and upstream oil and gas activities. 

For the purposes of the MIGA guarantee, Agrobank will be required to assess the Eligible SME Loans transactions against: (i) MIGA Exclusion List; and (ii) applicable E&S laws and regulations in Uzbekistan.

In relation to E&S risk management, Agrobank screens eligible sub-borrowers against the Agrobank exclusion list and requires them to comply with applicable E&S regulations, including requirements related to environmental impact assessments. To formalize the E&S screening process, Agrobank is in the process of developing an environmental and social risk management system (ESMS)for assessing the E&S risks and impacts associated with its SME lending activities; the ESMS will be incorporated into the bank’s credit approval process. Within the Project scope, the ESMS will also include screening the applications from eligible sub-borrowers against MIGA Exclusion List; identification and exclusion of SMEs engaged in the high-risk activities; assessment of E&S risks and impacts; compliance with local E&S laws; identification of E&S conditions of lending as required and monitoring. The ESMS will also include measures to address E&S risks associated with the cotton supply chain.

Agrobank has emergency response procedures which are in line with the requirements of PS1.  In line with PS2, Agrobank also has labor policies and procedures that address terms of employment, recruitment, renumeration, freedom of association, benefits, grievance management and non-discrimination. 

For the proposed guarantee, Agrobank will be required to report annually to MIGA regarding the Eligible SME Loans portfolio as well as the implementation of the E&S procedures and labor practices at Agrobank.

Development Impact 

The Project will support Agrobank, the third largest bank in Uzbekistan, in its efforts to expand servicing existing and new SMEs; contribute to job creation and close the SME financing gap in the country. The Project could have meaningful effects on SMEs operating in the agribusiness sector, export-oriented businesses, and SMEs engaged in climate mitigation and/or adaptation activities. At the same time, the Project could demonstrate a good business case on the financial viability of lending to SMEs and encourage other banks (state-owned or private) to increase credit supply to these underserved segments. 

SMEs are crucial for the growth of Uzbekistan, and investing in increasing their productivity and competitiveness is fundamental for leading a private sector led growth model. As of end 2022, in Uzbekistan SMEs represented 51.8% of GDP, 74% of employment and 30% of exports. Therefore, the Project is expected to support increased access to finance for SMEs, and possibly improve their contribution to the economy. 

The proposed Project is aligned with the World Bank Group priorities in Uzbekistan, as detailed in the Country Partnership Framework (“CPF”) FY22-26. By supporting increasing access to finance for SMEs, the Project is aligned to High Level Objective 1 “increase inclusive private sector employment”, under its objective of enabling private sector growth and investment. The Project is also aligned with MIGA’s Strategy and Business Outlook for FY24 under its objective to support inclusive growth in an IDA Blend country. The Project is also consistent with the strategic focus of ensuring inclusive growth as it is expected to support underserved groups, specifically SMEs.