FSVC began working in Tajikistan in 2019 amidst a domestic banking crisis.  With funding from the U.S. Department of State, FSVC has been supporting efforts to increase financial stability, integrity and inclusion in Tajikistan.  Specifically, the program focuses on the following objectives: 1) strengthen monetary policy and risk management practices at the National Bank of Tajikistan (NBT) to promote financial stability; and 2) improve government and private sector anti-money laundering (AML) compliance and diversify correspondent banking relationships.

The overall goal of the program is to increase financial stability, integrity and inclusion in Tajikistan.  To do so, FSVC is providing technical assistance to different departments at the NBT and to private financial institutions (namely, banks and microfinance institutions).  The program currently focuses on the following objectives:

Objective 1: Strengthen Monetary Policy and Risk Management Practices at NBT to Promote Financial Stability 

The Tajik economy is highly vulnerable to external shocks.  The COVID-19 pandemic, the war in Ukraine and global supply chain disruptions have placed added stress on an already weak economy, reducing the GDP and increasing inflation significantly.  The Tajik banking sector is also closely connected to Russian financial institutions, and is experiencing the severe consequences of international financial sanctions imposed on Russian banks in 2022.  In addition to external risks, the NBT faces multiple internal risk management issues that threaten its core operations. FSVC is therefore helping the NBT enhance risk management across departments and adopt a monetary policy that adapts to the macroeconomic context to become more resilient to external shocks.

Objective 2: Improve Government and Private Sector AML and Diversify Correspondent Banking Relationships 

Tajikistan faces major money laundering/terrorism financing (ML/TF) challenges, largely driven by its geographic position, and formal and informal ties with countries including Afghanistan, Iran, Russia and China.  Furthermore, the Tajik financial sector has been historically mismanaged and prone to crises, resulting in a low level of trust and Tajiks underusing financial institutions.  As a result of its ML/TF risks and small financial sector, the country faces challenges in maintaining correspondent banking relationships (CBRs) with international banks.  FSVC is increasing the capacity of the NBT and reporting entities to enhance AML/CFT compliance and alignment with FATF standards.

Program Impact

In the first phase of the program (2019-2020), FSVC achieved the following results:

  • Development of Operational Manual for Financial Intelligence Unit (FIU) – The development of the operational manual and supporting templates has led to improvements in the FIU’s operational process.  The FIU is now able to obtain more feedback and statistics from reporting entities and use financial intelligence in a more effective and documented manner.
  • Development of Suspicious Transactions Reporting (STR) Guidance – FSVC’s trainings on STR guidance resulted in the development of a framework for the FIU to fine tune the set of rules utilized by most banks in order to reduce the filing of STRs that have little or no value to law enforcement.  Additionally, FSVC updated the STR form used by the FIU to include a field-by-field description of what and how reporting entities should report suspicious transactions.  This updated form will help ensure that consistent and uniform information is provided by reporting entities.  As a result, it will increase the quality of information received in STRs thereby streamlining the analysis process conducted by the FIU.
  • Increased Capacity in Audit and International Reserves Management Departments – As a result of FSVC’s trainings and consultations, the NBT’s Audit Department has gained the tools necessary to restructure their internal audit processes to mirror those practiced at other central banks.  Similarly, the International Reserves Management Department is better positioned to incorporate their newly created Middle Office and ensure that the department can maximize their foreign exchange operations.  This is especially important to Tajikistan’s financial stability, as the country’s economy is overwhelmingly reliant on remittances from Russia and the exchange of Russian Rubles to Tajik Somoni.

In the second phase of the program (2020-2022), FSVC’s program resulted in the following 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 NBT.  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 KYC/CDD procedures and understanding of when and how to file effective STRs, FSVC has strengthened AML/CFT procedures.
  • Stronger Inter-Agency Collaboration – FSVC conducted a workshop for law enforcement and the FIU 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 AML/CFT and anti-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 at the FIU. This will allow the FIU to be more effective in identifying serious cases of ML/TF.