In September 2022, FSVC received funding from the U.S. Department of State to continue its work to increase financial stability, integrity and inclusion in Tajikistan. FSVC was well positioned to build on its previous work in Tajikistan and further strengthen operations within the National Bank of Tajikistan (NBT) and private sector institutions.
FSVC provided technical assistance to different departments at the NBT and to private financial institutions (namely, commercial banks and microfinance institutions, MFIs). All activities were interconnected, ensuring that advancements in one area of the NBT benefited other departments. Specifically, FSVC’s work focused on the following objectives:
Objective 1: Strengthen Monetary Policy and Risk Management Practices at the NBT to Promote Financial Stability: The COVID-19 pandemic, the war in Ukraine and global supply chain disruptions placed significant strain on an already weak Tajik economy, leading to a reduction in GDP and sharp increase in inflation. In this context, FSVC provided technical assistance to the NBT to enhance monetary policy, risk management, and financial inclusion and stability.
Objective 2: Improve Government and Private Sector Anti-Money Laundering and Diversify Correspondent Banking Relationships: Tajikistan faces major money laundering and terrorism financing (ML/TF) challenges. Consequently, Tajikistan has been “de-risked” by many international banks that deem the country too high risk in terms of ML/TF. To address these issues, FSVC enhanced the operations and procedures of commercial banks and MFIs in risk management and anti-money laundering and combating the financing of terrorism (AML/CFT).
Program Impact
- Support for Credit Card Introduction – FSVC conducted an in-depth assessment of the readiness of Tajik financial institutions for credit card implementation. The assessment provided actionable recommendations, including the necessary regulatory frameworks, infrastructure, and stakeholder engagement strategies. This foundational work has positioned the NBT and commercial banks to introduce credit card services in Tajikistan. This groundwork for credit card implementation is set to modernize Tajikistan’s payment systems, broaden customer access to financial services, and stimulate economic growth through diversified payment options.
- Procurement of Software to Enhance STR Monitoring – FSVC facilitated the procurement and customization of the SmartVision Plus 3.0 system, significantly enhancing the NBT’s ability to monitor suspicious transactions, prioritize risks, and streamline reporting processes. This system improves AML/CFT compliance across financial institutions, enabling more effective oversight.
- Transition to Inflation-Targeting Regime – FSVC supported the NBT in transitioning to a more modern monetary policy framework by introducing reserve requirement averaging (RRA) mechanisms and liquidity forecasting tools. This effort enhances the NBT’s ability to manage inflation effectively and aligns its practices with international central banking standards.
- Macroprudential Stress Testing and Credit Risk Modelling – FSVC significantly enhanced the NBT’s capabilities in assessing systemic risks through new macroprudential tools and credit risk models. These tools now enable the NBT to conduct robust stress testing for household and corporate sectors, better preparing the financial sector for potential adverse macroeconomic shocks.
- Implementation of Macroprudential Strategy – FSVC worked with the NBT to align its 2024-2027 macroprudential tools roadmap with international best practices. This strategy now includes robust risk indicators, liquidity management ratios, and mechanisms for systemic risk containment, fostering resilience in Tajikistan’s financial system.
- Strengthened Risk Management Frameworks – FSVC assisted the NBT in enhancing its operational and financial risk management processes. Key achievements included integrating a risk-based prioritization approach, introducing process automation with key risk indicators (KRIs), and developing a comprehensive data quality management strategy. These steps have improved the NBT’s ability to identify, manage, and mitigate risks across the banking sector.
- Stronger Skillset for Commercial Bankers and MFI Staff – FSVC strengthened the AML/CFT compliance of over 700 commercial bank and MFI staff. With enhanced suspicious transaction reporting and monitoring capabilities, financial institutions are better equipped to comply with international AML/CFT standards. These improvements also promote greater transparency and trust within the financial sector.