In September 2020, FSVC received funding from the U.S. Department of State to implement a second phase of work to further increase financial integrity and strengthen financial stability and inclusion in Tajikistan. FSVC’s program supported the broader goal of the National Bank of Tajikistan (NBT) to reestablish correspondent banking relationships with U.S. and European banks, and to diversify the financial sector toward Western markets.
FSVC implemented a series of practical trainings and consultations to expand and deepen the technical skills of public servants and commercial bankers to improve the processes at individual institutions, align practices with international standards and create banking products that reflect the needs of citizens. Specific program objectives included:
Objective 1: Strengthen Financial Stability to Rebuild Trust in Tajikistan’s Financial Sector through Improved Financial Inclusion: The immediate effects of the Tajik banking crisis included virtually no financial market liquidity, high interest rates and a largely cash-based economy. Against this backdrop, FSVC provided technical assistance to a number of NBT departments and to private financial institutions.
Objective 2: Strengthen Capacity of Regulators and Private Sector to Detect and Report Suspicious Transactions to Law Enforcement and Strengthen Financial Stability: Tajikistan has been “de-risked” by many international banks that deem the country too high risk in terms of money laundering and terrorist financing. FSVC helped improve operations and procedures in anti-money laundering and combating the financing of terrorism (AML/CFT) at both the NBT and Tajik financial institutions to strengthen the detection, reporting and investigation of suspicious financial activity.
Program Impact
- IFRS 9 Methodology and Implementation – FSVC assisted the NBT in applying IFRS 9 accounting instruments and developing an IFRS 9 methodology for the bank, something which was mandated by the NBT Board of Directors in 2018. The correct application of IFRS 9 is critical as it directly impacts the financial position of the NBT, which is assessed monthly by the International Monetary Fund (IMF) and the World Bank. With a tailored methodology in place, the NBT is better positioned to receive fiscal financing needs.
- Internal Audit Capabilities – FSVC conducted the NBT’s first ever External Quality Assessment. This created a benchmark against which to track future successes and laid the groundwork for ensuring that future operations meet international standards.
- Public Awareness – FSVC’s four public events for university-aged students raised financial awareness about the benefits of financial products and the institutions that make up the financial sector in Tajikistan, with the hope of sparking greater participation in the future.
- Reserve Requirements Averaging (RRA) Methodology – FSVC’s consultations with both the NBT and commercial banks on the introduction of an interbank liquidity mechanism have laid the foundation for the calculations for a new monetary policy tool that can increase the flexibility and responsiveness of the money supply in the economy to influence (lower) interest rates.
- Risk Frameworks – FSVC prepared investment guidelines and a trader mandate framework for the NBT. FSVC also provided recommendations for credit analysis and counterparty risk management, and developed a strategic asset allocation for the Department. As a result of these actions, FSVC helped the NBT define its risk appetite more effectively and apply internal controls and authority limits for its security trading, in line with international standards.
- Stronger Skillset for Commercial Bankers and Microfinance Institution (MFIs) Staff – FSVC built the capacity of commercial bank and MFI staff along the whole chain of financial product conception, launch and management. Specifically, FSVC strengthened commercial bankers’ and MFI staff’s capacity to research target markets effectively and understand the needs of potential customer segments. Based on more informed findings, FSVC trained financial institution staff in developing innovative, accessible products that can increase access to credit in Tajikistan. Following product launch, FSVC trained financial institutions in identifying risks and tracking their evolution over time. Finally, FSVC taught financial institution staff how to manage risks by developing appropriate risk models. In addition, by enhancing financial institutions know your customer and customer due diligence (KYC/CDD) procedures and understanding of when and how to file effective suspicious transactions reports (STRs), FSVC has strengthened AML/CFT procedures.
- Stronger Inter-Agency Collaboration – FSVC conducted a workshop for law enforcement and the NBT on the roles and responsibilities of each stakeholder and their coordination during financial investigations. This workshop resulted in a deeper understanding of the importance of both domestic and international cooperation in combatting money laundering and corruption.
- Updated STR Guidance – FSVC’s assistance in both refining STR guidance and helping the NBT to explain updated guidance to commercial banks has already resulted in the improvement of the quality of STRs received by the NBT, according to staff. This will allow the NBT to be more effective in identifying serious cases of money laundering and/or terrorist financing.