Debit Cards Come to Uzbekistan

by Laurence on 9/29/2004 · 4 comments

Finally, Uzbekistan is entering the electronic age, installing ATMs and introducing debit cards. Needless to say, there is opposition to this change, for example, in this Ferghana.Ru article, which calls the introduction of credit and debit cards an “unprecedented swindle put into motion by bankers facilitates further enrichment of the administrative-financial elite and impoverishment of the majority of the population.” The issue is the 1 percent fee charged to users. Of course, in the West, banks charge between 2 and 5 percent to stores for credit cards, and flat fees for ATMs belonging to other banks. 1 percent is actually a lower fee than we pay in Washington, DC. But here it is hidden, as a cost of doing business for the seller.

I’m cautiously supportive of this move. Of course, probably some entrenched interests are benefitting. But in the end, so will ordinary Uzbeks. My students at UWED couldn’t order a book from, or buy a tchotcke from eBay, because two years ago, there were no credit cards in the country. When they travelled abroad, they had to obtain vouchers from a travel agent to take to a foreign hotel (taking cash abroad was severely restricted). People would buy electronic gadgets or washing machines with bags full of cash, lots of counting and re-counting. Errors and outright skimming were widespread. I got into an argument with a checker at a downtown supermarket when she pocketed some of my cash, instead of giving change, and then lied about it. We had to call the manager, it was an awful scene, probably because the largest bill available at that time was worth about 50 cents!

Moving to electronic accounting systems makes it harder to cheat customers, tax authorities, or business partners. That’s really not such a bad thing. And if the Uzbek economy ever becomes more competitive, probably there will be competition on rates as well. Not to mention that Uzbek businesses will be able to sell to overseas customers, and accept payment by credit card, expanding markets.

Prediction: “Plastic cards” will become commonplace in Uzbekistan in the near future–as they are almost everywhere else in the world. And it will be good for Uzbekistan, as credit becomes more widely available, fueling economic growth among a population with a pent-up propensity to spend.

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Mark Hamm September 29, 2004 at 1:42 pm

I remember the bags of cash people carried (or hid under the seat of their car) too. At a carpet merchant I wanted to buy a beautiful silk rug but it was $900, which I didn’t have. BUying by tourist would go up probably 3-4 fold.

Nathan September 29, 2004 at 3:21 pm

I agree with your prediction too. I would also bet that merchants would compete on fees too if they’re allowed to.

It’s a little unclear to me, but he seems to be suggesting that everyone will have to withdraw their pay from ATMs. The 1% charge really only would be an issue because people seemed to feel the need to keep all of their money out of banks (we had to make sure to get our pay from the bank quickly, lest the bank run out of cash for the month). At the same time, I doubt that the intent of the government is to force everyone to use cards to handle accounts. It seems more that they want to encourage the use.

Alisher September 30, 2004 at 2:24 am

I guess it would be just impossible for everyone to withdraw his money from ATMs, simply because there are not so many ATMs. Secondly, it is a right decision, though it would take several years and a lot of scarce cash to equip Uzbek banks, shops, etc.. with electronic systems that would make it possible. Thirdly, I have my NBU card for 2 years, but I have never used it, and I even dont know if I can use it or not, because it was distributed at the UWED, and NBU didnt take care to explain how it works, and I didnt yet have the need to go through all the NBU beuracracy to find out about it.

From the other side, when the system will succeed, it will have an immense impact on Uzbek economy, for the reasons which were already cited. Also I think that for this system to be succesful, the banks should fundamentally improve (change) their way of operating, performance and public image. Finally, the Central Bank should lessen its control over the banking system, and allow banks to be more independant, amd not just some sort of its branches with different names. In short, I think this change is only positive, but without fundamentally reforming command economy type banking system, this measure would not have all the positive impact it has the potential to bring about.

Laurence September 30, 2004 at 7:27 am

Alisher, I certainly agree with what you said. I remember students coming into my office very upset about the NBU card. They wanted cash. But I think the general idea of moving to a Western banking system is a good one. And of course, Uzbekistan needs a deposit insurance system to protect the customers, so that banks cannot “run out of cash.” That is a real problem in Uzbekistan, and absolutely like the United States before World War II, when people were afraid to put their money in banks, because the banks might fail… While I was in Uzbekistan, I asked the economics officer at the American embassy to bring over some experts from the Federal Deposit Insurance Corporation to explain how our federal government guarantees individuals who deposit in banks that they will not lose their money–in every single bank, as a condition of operation. This is unlike Russia, which still does not have deposit insurance. Alisher is right, banks in Uzbekistan are still not really banks. They don’t compete, they don’t give customers their money back on demand, they sometimes charge customers instead of paying interest! Most people don’t use them. But a cash economy is very limited, because it is more of a hassle to buy and sell things–you need a safe, for example, to keep your money. Proper credit and debit systems will encourage more buying and selling and that will help Uzbekistan. My overall impression is that Uzbek people were very good at trade and business.

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