Localization of financing: the tendency of the international financial institutions to engage national banks

The official strategic documents of the international financial institutions (IFIs) demonstrate a change in the approaches to capital allocation in developing countries: supranational structures are gradually shifting their focus from direct sovereign and corporate lending to using the infrastructure of local financial intermediaries [8]. This logic is embedded into the global "Billions to Trillions" agenda, adopted by the leading multilateral development banks (MDBs), according to which, national commercial and development banks should become the channels for mobilizing private and institutional capital [14]. The IFIs explain this that by transferring part of the operational functions to local financial institutions makes it possible to optimize the process of funds allocation thanks to the existing branch network and accumulated expertise of local banks in assessing the borrowers [14].

Figure 1. The scope of portfolios of ADB, EBRD, IFC and IDB in Uzbekistan
Global think tanks point out that coordination between international and national development banks is aimed at overcoming financing deficits in sectors that traditionally receive less foreign direct investment, primarily in small and medium-sized enterprises (SMEs) [8]. With this, local financial institutions undertake primary underwriting (risk assessment) and subsequent monitoring of the intended application of the funds; that helps reducing the transaction costs of the international lenders, who otherwise would have to evaluate many relatively small projects with their own efforts.
The development of this IFIs' strategy coincides with the processes of the financial systems transformation in Central Asian countries. The transition to engagement with local intermediaries is accompanied by the introduction of specific financial instruments regulating capital and risks distribution between international institutions and national banks – these instruments formed the basis for further analysis.
Three mechanisms for cooperation.
The cooperation between international financial institutions and national banking systems is based on three main mechanisms for transfer of capital and risks: credit facilities for subsequent financing, risk-sharing agreements and direct equity investment.
Targeted credit facilities. The IFI provides a long-term loan to a local intermediary bank, which shall allocate the funds received to the final sub-borrowers. The parameters of sub-loans (maximum size, target sector, requirements for the borrower) are regulated by an agreement between the IFI and the intermediary bank [10, 12].
Risk sharing programs. The IFI does not provide liquidity directly, but commits to cover a fixed share (usually up to 50%) of possible loss on the portfolio of loans that the local bank issues to local companies at its own expense [7]. Alongside the EBRD program, the ADB has its own risk-sharing tool, that is, the Trade and Supply Chain Finance Program (TSCFP) [4]. Under the TSCFP, the ADB issues a loan guarantee covering up to 100% of the issuing bank's risk within 24 hours of the request; this product is used in 75% of all transactions of the program [4]. Uzbekistan is included into the list of countries where TSCFP is effective [4].
Direct equity investment. The international institute becomes a part of the shareholding structure of a local bank by acquiring a block of shares or converting previously granted debt obligations into a share in the charter capital [11].
Specific financial instrument is selected based on the balance sheet structure of the partner bank and the current tasks of the IFI in the local market.
Structural classification of joint programs.
In practice, IFIs rarely use just one tool; rather combinations of mechanisms depending on the stage of development and operational maturity of the local bank. At the initial stages of cooperation, international institutions usually use targeted credit facilities, complemented by technical assistance programs to modernize the internal procedures of a local commercial bank [12, 13].
When the standards of corporate governance and risk assessment of a local bank become closer to the requirements of IFIs, the parties sign risk-sharing agreements [7, 16]. The highest stage of integration is provision of convertible loans or direct equity investment – at this stage, the IFI is already involved in the strategic management of the organization [9, 11]. This is the very multi-stage path that the European Bank for Reconstruction and Development (EBRD) has followed at the Uzbek market.
The EBRD and Hamkorbank JSCB. The Republic of Uzbekistan has been the largest recipient of EBRD funds in Central Asia six years running. The total scope of EBRD's annual investments in Uzbekistan exceeded USD 1 billion [6]. With this, cooperation with the financial sector became a key focus: projects implemented jointly with local partner banks generated about 39% of the total transactions of the IFI in the country. In particular, targeted transactions with Hamkorbank Joint-Stock Commercial Bank (JSCB), Ipak Yuli Bank and Universalbank totaling USD 125 million were allocated to support micro, small and medium-sized enterprises, and development of green initiatives [6].
The risk-sharing mechanism in Uzbekistan can be witnessed by the example of the EBRD's interaction with Hamkorbank JSCB: in 2025, the local company Trade Novatik received financing amounted to Euro 1.1 million, while the EBRD acted as a guarantor for loan obligations against the Uzbek bank [16]. During the same year, the EBRD concluded 31 such deals in Central Asia and Mongolia under the regional risk-sharing program, totaling Euro 28.5 million, with engagement of 26 small and medium-sized enterprises [16].
The experience in consistent increase in the scope of financing, and complicating the structure of transactions is also typical for the projects of the International Finance Corporation (IFC).
IFC and transformation of Ipoteka Bank/ Hamkorbank. Cooperation between the International Finance Corporation (IFC) and the banking sector of Uzbekistan illustrates the transition from debt financing to equity investments. In 2001, the IFC joined the shareholding structure of the Hamkorbank JSCB, and became its first international investor [13]. The total amount of corporate support for Hamkorbank has exceeded USD 125 million since 2001, including senior debt, equity, and trade finance tools [13]. In 2025, as part of this partnership, the IFC allocated additional funds for targeted lending to micro, small and medium-sized enterprises (MSMEs), and projects run by women entrepreneurs [13].
The second area of the IFC's work is to participate in transformation of state-owned financial institutions. In 2020, the IFC provided a pre-privatization loan of USD 35 million to Ipoteka Bank, Joint-Stock Commercial Mortgage Bank, with an aim to commercialize the bank's activities and prepare for denationalization [9]. The loan was structured as a convertible: its transfer to stocks depended on whether the bank would go through the agreed stages of internal transformation [15].
In June 2026, after confirming that those conditions have been fulfilled, the IFC exercised the right to convert its debt obligations in Ipoteka Bank (now part of OTP Group) into a share capital of a financial institution [11]. The corporation's activities in equity investment and granting long-term loans are complemented by operations structurally similar to other major players in the region.

Figure 2. Chronology of the IFC's cooperation with Ipoteka Bank and Hamkorbank

ADB and IDB. The investment portfolio of the Asian Development Bank demonstrates consistent pattern aimed at strengthening the private sector of Uzbekistan. The current scale and priorities of the ADB's activities in Uzbekistan are reflected by the indicators as follows: as of December 31, 2025, the bank had 277 current commitments (loans, grants, guarantees, technical assistance) totaling USD 14.7 billion, while the current portfolio includes 28 loans, 1 grant and 2 government guarantees worth USD 4.23 billion. [5].
Of the certain transactions, two can be distinguished. In June 2025, the ADB approved a non-sovereign loan for Davr Bank, it is a continuation of the agreement signed by the parties back in 2019; the funds were used to finance micro, small and medium-sized enterprises with a focus on regional development [2]. Separately, TBC Bank Uzbekistan JSC (digital bank) received USD 30 million to expand access to financial services in remote regions of the country [3].
In addition to selective loans, the bank implements the previously mentioned TSCFP risk-sharing program. Globally, in 2025, the TSCFP supported 24,722 transactions totaling USD 5.7 billion, of which 61% (USD 3.5 billion) were co-financed by the private sector and development partners [4]. Since its launch in 2009, the total scope of supported trade under this program has exceeded USD 57 billion, in 45,510 transactions, 65% of which are related to small and medium-sized enterprises [4].
The IDB applies mechanisms complying with the principles of Islamic finance. In particular, the IDB allocated USD 40 million to finance small and medium-sized enterprises in Uzbekistan through the Musharakah tool (a joint venture with distribution of profits and loss in proportion to the shares of the parties). Under this structure, national partner banks act as managing partners that directly select projects in the field.

Figure 3. The ADB and IDB Investment Portfolio
In some cases, the IFIs join their efforts by forming syndicated funding pools around one local bank.
The SQB case: three MFIs through one bank. In November 2023, a multilateral deal was structured with participation of the ADB and Uzpromstroybank JSCB (SQB). The ADB and the SQB signed a loan agreement for the amount of USD 50 million [1]. A special feature of this transaction structure was that the IFC and the EBRD worked simultaneously as parallel lenders that provided similar amounts of financing (Figure 4).

Figure 4. The SQB case
According to the terms of the agreement, the funds raised by the SQB were used to expand lending to micro, small and medium-sized enterprises, including financing projects in green construction and enterprises headed by women [1]. Three IFIs allocated the funds at the time when the government Strategy for reforming the banking system of the Republic of Uzbekistan for 2020-2025 was implemented, which stipulated the phased privatization of state-owned large financial institutions.
Comparison of the activities of key IFIs in the banking market of Uzbekistan makes it possible to identify pronounced differences in their priority tools and the scale of their footprint.
Specific financial mechanisms.
The cases described in the article demonstrate that each of the four institutions has developed its own dominant structure of cooperation with the local banking sector:
The EBRD focuses on risk-sharing tools (the risk-sharing mechanism), by dividing the credit exposure of commercial banks among specific transactions. Under this structure, the IFI assumes coverage of a fixed share (up to 50%) of possible loss on the loan portfolio.
The IFC focuses on the long-term preparation of financial institutions for privatization, followed by the transition from debt financing to equity investment. This approach is phased in nature, which can be confirmed by the case of Ipoteka Bank: cooperation began in 2020 with provision of a pre-privatization loan in the amount of USD 35 million and ended in June 2026 with conversion of these debt obligations into a share capital of a financial institution after the bank fulfills the conditions of transformation.
The ADB primarily utilizes non-sovereign loans and guarantee mechanisms to support the liquidity of private banks. The guarantee coverage is implemented through the TSCFP program, under which ADB grants loan guarantees covering up to 100% of the issuing bank's risk. This tool is predominant in the operational activities of the program and is used in 75% of all TSCFP transactions.
The IDB uses Islamic financial instruments with profit and loss distribution, as exemplified by the allocation of USD 40 million to finance SMEs in Uzbekistan. The specifics of the Musharakah tool is that the national partner bank acts as a managing partner and independently selects projects in the field with distribution of financial results. This is a different approach from a classic credit facility, where an intermediary distributes the funds according to parameters pre-defined by the IFI without separating the commercial risks of joint activities.
The scale and comparability of individual transactions. The scope of individual agreements between the IFIs and large and medium-sized banks in Uzbekistan is in a comparable range - from USD 30 million to USD 50 million:
The IFC: loan in the amount of USD 35 million for Ipoteka Bank.
The ADB: credit facilities for USD 50 million for SQB and USD 30 million for TBC Bank.
The IDB: financing under the Musharakah structure in the amount of USD 40 million for the national partner.
If we compare these amounts with the overall scale of the IFI's footprint in Uzbekistan, we can see how much of the operations are performed by local intermediaries. The ADB loan to the SQB of USD 50 million is only a small part of the bank's total portfolio in Uzbekistan (USD 14.7 billion, including government loans and grants) and the current portfolio of USD 4.23 billion. The EBRD has a higher proportion: the annual volume of financing through partner banks (USD 125 million), which accounts for about 12.5% of the total annual investments of the institute in Uzbekistan, despite the fact that this amount exceeds USD 1 billion.
The timeframe of the partnership. The periods of the IFIs' activities in Uzbekistan through local banking structures vary, reflecting the historical depth of institutions' integration into the country's financial sector:
The IFC has the longest track of institutional partnership in the country, covering a 25-year period (active cooperation with Hamkorbank JSCB has started in 2001).
The ADB's integration into the commercial banking segment through private structures is more medium-term (for example, cooperation with the Davr Bank has been developing since 2019).
For the EBRD and the IDB, the exact historical dates of the start of their work with current commercial partner banks under risk-sharing and Islamic finance programs are not presented in open official sources in the form of a continuous time track, however, their current operational activity indicates a focus on medium-term agreements of recent years.
Conclusions. The reviewed examples of the operational activities of the EBRD, IFC, ADB and IDB in the Uzbek market show that each institution has its own regulated mechanisms for operation through national financial structures. International practice includes both isolated application of targeted credit facilities or risk-sharing programs, and complex multilateral transactions. An example of resource consolidation was the parallel transaction of three MFIs with one intermediary bank within the framework of the SQB case.
Statistical data confirm the steady trend in the financing localization. By the end of 2025, a third of the total amount of the EBRD financing allocated to the entire region of Central Asia and Mongolia was distributed through the system of partner banks, the same indicator is reflected in the share of partner banks in the EBRD operations directly in Uzbekistan (39%), which shows the sustainability of this proportion at different levels [6]. Currently, all four key IFIs engaged in investment activities in Uzbekistan have operating programs implemented through national commercial banks. The expansion of those programs and diversification of the tools applied (on-lending, risk-sharing, equity conversion) coincide with completion of the first stage of the reform of the banking sector in Uzbekistan (2020-2025).
References:
1. ADB. ADB, SQB Sign $50 Million Loan to Support Privatization. 2023. URL: https://www.adb.org/news/adb-sqb-sign-50-million-loan-support-privatization-and-expand-lending-msmes-uzbekistan
2. ADB. FAST Report – Davr Bank Nonsovereign Loan. 2025. URL: https://www.adb.org/sites/default/files/project-documents/58423/58423-001-fast-en.pdf
3. ADB. TBC Uzbekistan Digital Banking Project. 2025. URL: https://www.adb.org/projects/58491-001/main
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