Expanding Access to Housing in Uzbekistan Through Market Reforms

Uzbekistan has 21 different government housing subsidy programs, including those for the rural and urban populations, young families, teachers, military personnel, and public sector employees. However, most of these programs are uncoordinated, lack funding, and heavily subsidized, offering tax exemptions on imported construction materials, tax rebates, and discounted interest rates. Residential mortgages are largely unavailable and unaffordable to many low and middle-income families in the country.

There is no market-based financing for mortgages, refinancing, home renovations, etc. The dominance of the government’s housing finance programs undermined the development of a more commercially oriented mortgage market. Only 8.3% of banks’ total outstanding loans were mortgages.

Other challenges to developing a mortgage market include i) lack of other market institutions, such as a wholesale refinancing company, ii) reliable and timely data about the mortgage and housing construction markets, and iii) weak legal and regulatory frameworks to issue mortgage-related financial products.

If the government continued with its housing finance programs, it would cost the taxpayers about $2 billion over the next 5 years, according to ADB.

The government acknowledged that it lacked a comprehensive housing policy and subsidies framework. It was willing to institute reforms, remove market distortions, streamline subsidies, and mobilize the private sector.

Based on ADB’s advice and preparatory work, the government established a strategic road map for the development of the mortgage market, including reforms to the existing housing policy and subsidies framework over a 3-year period. It plans to gradually reduce its direct role in providing long-term funding for residential mortgage finance, remove interest rate subsidies and other distortions in the finance sector, reform the regressive subsidy framework, and establish efficient administrative mechanisms.

Over time, the government plans to enable the operation of new institutions and to replace the inefficient and costly subsidy programs with transparent and efficient subsidies to make residential mortgages more affordable to low and middle-income households.

Through the Mortgage Market Sector Development Program, ADB is providing a $50-million policy-based loan to support mortgage market reforms that will economize the government’s housing subsidy and policy framework and create a conducive environment and infrastructure for market-based mortgage lending. It is also providing a $300-million financial intermediation loan to finance the country’s new mortgage refinancing company that enables domestic commercial banks to provide residential mortgage and housing improvement loans. A technical assistance grant of $800,000 supports the implementation of the program.

Strengthening the policy, regulatory, and legal framework. Findings from a review of the policy, regulatory, and legal framework for the mortgage finance sector and housing market assessment formed the basis for the design of the program. The study recommended that subsidy arrangements be revised to ensure that higher subsidies are provided to lower income households and regressive subsidies are changed.

Improving the housing strategy and subsidy framework. ADB provided the Ministry of Economy and Finance recommendations on revising the housing finance and subsidy approach as a result of which the government adopted series of changes to enable gradual transformation of state housing programs toward a market-based principles and improving the subsidy targeting.

Establishing and operationalizing a wholesale mortgage refinance company. The government established the Uzbekistan Mortgage Refinancing Company with ADB support and equity investment from government and commercial banks. It provides banks with access to local currency long-term funding. The company prefinances and refinances eligible mortgage loans and housing improvement loans issued by participating banks at an interest rate close to market rates.

To support operationalization of the company, the project tapped the Frankfurt School of Finance & Management and its consulting team of experts, most of them active and retired CEOs and board chairpersons of international and national mortgage refinance corporations including from Armenia, France, Malaysia, and Pakistan. The team prepared the company’s business plan, human resources plan, legal framework, institutional arrangement, internal policies and procedures, list of products and services, and risk management plan. The government believed that the first CEO of the mortgage refinancing company was of utmost importance to building everyone’s confidence in this new institution and was directly involved in vetting and hiring the CEO.

Expanding and improving data collection. The project supported work on improving housing statistics, introducing a housing price index in Uzbekistan, and developing a mortgage market database and website. International experts provided in-person and on-line training to ministries, banks, and other stakeholders. A new system was introduced to collect housing sector data (i.e., mortgage loans by type, terms, program and other categories) through updates to the annual statistical reporting forms for commercial banks. The collected data is also shared with the Ministry of Finance.

The mortgage refinancing company was set up in 2020, but initial lending was hampered by the COVID-19 pandemic. Despite the pandemic and lockdowns, approval of the institution’s regulation by the central bank, formation of initial capital, registration with the regulator, development of internal policies and regulations, setting up accounting and other information systems, and selection of participating financial institutions proceeded.

As of 1 January 2025, the company has lent more than $280 million and supported more than 20,000 mortgages. To promote energy efficiency and support climate mitigation efforts, ADB supported the company to develop a green renovation mortgage system by supporting the methodology and online tool for checking eligibility criteria. This is the first green renovation mortgage product offered in Uzbekistan’s market.

More people are approaching banks and requesting for information on mortgages that can be used for housing repairs and renovations under ADB’s program.

Consult with world-class experts for designing projects in emerging areas and new markets. Tapping the expertise of a global expert helped the government and ADB identify solutions and approaches to address Uzbekistan’s worsening housing problem. Project officers should consider the stakes involved in solving major macro-level social and economic problems when the solutions have a large-scale impact.

Government should initiate and ensure implementation of the reform actions. It is important to conduct detailed research on binding constraints and continuously engage with all stakeholders. Uzbekistan’s willingness to open up and move to a market economy was a critical factor during the project preparation.

Pay careful attention to financing structures and mechanisms. When designing projects with complex and multi-layered issues, pay careful attention to the internal government financing systems and structures.

Consider expanding internal expertise. By providing continuous capacity building support to the Ministry of Finance and Economy, the Central Bank, and other relevant partners, combined with establishing the Uzbekistan Mortgage Refinance Company, the program enhanced internal expertise through the transfer of international experience and know-how. 

Asian Development Bank. 2023. Uniquely Urban: Case Studies in Innovative Urban Development. ADB.

ADB. 2022. ADB Supports Housing Finance in Uzbekistan. News Release. 08 November.

ADB. 2019. ADB Loans to Improve Access to Housing Finance in Uzbekistan. News Release. 28 November.

ADB. Uzbekistan: Mortgage Market Development Program.

ADB. Uzbekistan: Mortgage Market Sector Development Program.