Banking on it.

The National Bank of the Kyrgyz Republic - still displaying the designation Gosbank CCCP - State Bank of the USSR

The National Bank of the Kyrgyz Republic – still displaying the designation Gosbank CCCP – State Bank of the USSR

On 24th March, 1907, a new institution opened its doors for business for the first time: the Pishpek Mutual Credit Society – Bishkek’s first local bank.  (At the time, Bishkek was called Pishkek.)

Things have changed a lot since those days …

Actually, There were other financial institutions around, which is understandable as Kyrgyzstan lay on one of history’s most famous trading routes – The Great Silk Road – and although some of the trading might well have been done by barter … not all of it would have been and the use of money can be found going back a long way.

As an aside: When I first came here in 1995, I was told that there were shepherds up in the mountains that expressed incredulity when some visitors tried to present them with some banknotes.  “What is this?”, they are supposed to have asked … It was explained to me that they had no use of money – they were almost totally self sufficient and anything they couldn’t produce for themselves they would purchase by barter  – and so the concept of money was alien to them.  At the time I took it as an example of an urban myth but later, I realized it was probably much simpler than that … it wasn’t long after the introduction of the som as the national currency and their surprise was probably because they had never seen this particular banknote before … if it had been a ruble bank note, I am sure that they would have been quite familiar with that. 

Perhaps the earliest known coin discovered in Kyrgyzstan was dredged up from the depths of Lake Issyk Kul in 2006 along with Bronze Age daggers, hatchets, arrowheads, sickles, pitchers and pieces of ceramic. It was a “stump of a gold ingot” which was made in an octagon and weighed almost 70 grams.

Several of the towns along the route of the Great Silk Road, for example, had been minting their own money since about the eighth century … such as Suyab, (at Ak Beshim, just outside Tokmok).  The Karakhanids in the tenth and eleventh centuries had several mints in the Semirechiye area, (named after the Seven Rivers that ran though it).  Further south, at about the same time, a mint in Uzgen was producing coins and about 900 have been found by archaeologists.  Another 800 coins have been dating from the eleventh and twelfth century have been found by in Kara Balta.

When the Russians arrived in the nineteenth century they brought with them many aspects of Russian society and culture – such as the Orthodox Church … and financial institutions – like Credit Societies.  The first branches of such institutions opened as early as 1867 in Tokmok, Issyk Kul and Osh.  During the period 1901 to 1908 business in Osh increased by about 20% – but in Karakol it rose by something like tenfold … local people were depositing large sums of money in the banks.

The Pishkek operation was notable because it was local institution serving the middle classes of the region, and not a branch of a Russian one.  A few years later, however, in 1910, it received a credit line from the Russian Asiatic Bank and by the time of the Revolution was handling deals worth about one and a half million rubles.

In 1911, Azov-Don Commercial Bank opened a branch in Tokmok to serve the local mining industry. In 1914, the Credit Associations based on Pishpek formed a sort of microcredit network … offering small loans, (say 10 to 50 rubles at just 6% … a rate of interest which many of today’s microcredit customers would be envious of … faced with rates approaching and even exceeding 30%).

During the First World War, the growth of the cotton industry being developed to meet demand caused by shortages needed for the war effort led to the opening of new banks and credit associations in the Osh district.

Then came the Bolshevik Revolution.  The revolutionaries immediately seized the building of the State Bank, (which had been established in 1860), in St. Petersburg, but only really took over the operations of the institution – on 14th December when they nationalized all commercial banks and credit unions … effectively establishing a state monopoly … and all were subsumed into the restructured People’s Bank.  The bank stopped lending and became an instrument of the People’s Commissariat (or Ministry) of Finance, (known as Narkomfin), providing finance for projects which transferred their profits back to the budget.  Lending money basically ceased and the principle function of the new bank was to issue paper money.

Here in Bishkek, (or Pishkek as it was then), a branch of the People’s Bank was established in July 1918.

In 1920 the People’s Bank was reformed as part of the New Economic Plan … becoming the State Bank of the USSR, (or Gosbank), which was  “to assist by credit and other banking operations the development of industry, agriculture and goods turnover and also the concentration of monetary turnovers and the implementation of other measures designed to establish proper money circulation“.  It was later was granted the exclusive right to conduct operations with foreign currency and valuables, set the official price of precious metals and the official exchange rate, (and to regulate transactions in precious metals and foreign currency transactions), it became the issuer for banknotes … and creating a new system of lending.

Here in Bishkek, the Branch of the People’s Bank became the Pishkek Central Asian branch office of the State Bank., becoming the center for both short term loans and special banks were created from its field offices to provide long term credits to different sectors of the economy – such as Stroibank which was created to serve the construction industry.

A special school was established in order to train staff for the banking system in 1931.

The small number of branches grew slowly, each reporting to the Republican bank in Frunze, (as Pishkek had been renamed), which in turn reported directly to the Board of the State Bank in Moscow. In 1987, the Banking System of the Soviet Union underwent a restructuring.  The Frunze branch of the State Bank became the Kyrgyz Republican Bank and a number of other specialist banks were established to serve specific markets, (Zhilsotsbank – which concentrated on financing the construction of housing, Agroprombank, which provided finance for agriculture, Sberbank, a saving bank, Vneshekonombank, for financing foreign trade activities … and so on).  

The first commercial banks were also established … the first being the State Intraindustrial Bank, later renamed Kurulush Bank, (Kurulush is Kyrgyz for Construction), followed by Avtobank created by the Ministry of Roads, and Ak-Niet by the Ministry of Trade.  Then came the first ‘foreign” bank – the Kazakh bank Kramds established Kyrgyz Kramds Bank in May 1991 – although Kazakhstan Kyrgyzstan were still both constituent republics of the USSR.

Immediately following independence there was a spate of opening of new banks and transforming existing banks into joint stock commercial enterprises.


The  State Bank was transformed into the National Bank of the Kyrgyz Republic and special laws were passed, (On the National Bank of the Republic of Kyrgyzstan and On Banking and Banking Activity), on 12th December, 1992.   One law defined the status of the National Bank as “the central component of the Republic’s banking system and the agency that is called upon to play an underlying role in formulating and conducting monetary and credit policy within the Republic.

That law was repealed in 1997 when a new law replaced it which is still in force and states that the functions of the institution are:

    1. definition and implementation of the monetary policy of the Kyrgyz Republic;
    2. development and implementation of a uniform foreign exchange policy;
    3. possession of an exclusive right to issue currency;
    4. acting as a creditor of last instance to banks in accordance with the present Law;
    5. establishment of rules for conduct of banking operations including those based on the principles of Islamic banking and finance, accounting and reporting for the banking system;
    6. licensing of banking operations, attraction of funds by legal entities from the population on terms of time, collectability and solvency in accordance with the legislation of the republic and registering licenses issued;
    7. regulation and supervision of the banks’ and financial credit institutions’ activities licensed by the Bank of Kyrgyzstan;
    8. facilitation of effective functioning of the payment system and execution inter-bank payments;
    9. exercise of the foreign exchange regulation, including issue of regulations on foreign exchange operations, as well as operations of purchase, sale and exchange of foreign currencies in accordance with the legislation of the Republic;
    10. ownership and management of the official foreign exchange reserves in accordance with this Law;
    11. preparation, in cooperation with the National Statistic Committee of the payment balance of the Kyrgyz Republic;
    12. representation of the interests and acting in the name of the Kyrgyz Republic at international meetings, conferences and organizations relating to monetary and banking policy;
    13. fulfillment of other functions, powers and rights according to the legislation of the Republic.

The banking system at the time of independence faced a number of fundamental problems:

  • the banks were basically just institutions for conducting transactions, but …
  • the system of payments was poorly developed,
  • there was a lack of credit control,
  • galloping inflation

In order to try and bring about some sort of order out of chaos, the decision was taken to introduce a new national currency – the Som – in 1993.

A number of agreements were also signed with international financial institutions, (the World Bank, the International Monetary Fund, The European Bank for Reconstruction and Development, The Asian Development Bank … and so on),  that promised to provide technological support for the development of the country’s financial systems … with the National Bank producing guidelines and regulations governing different types of banking activities: levels of deposits and capital reserves; the adoption of internationally accepted accounting standards;  provision for losses; the introduction of new technologies, credit/debit cards, internet banking … and so on.

It wasn’t all smooth sailing … some 13 banks failed and at least 3 had their licences revoked in the years 1997 to 2001 … but, to be  fair, new banks also entered the market, some with foreign capital.

The banking system faced another crisis in the autumn of 1998, arising from external pressures.  The National Bank introduced a variety of measures to try to stabilize the situation … and integrate the banking system with the global economy.


Microcredit Financial Institutions were created, principals for the operation of banking on Islamic principles were developed … but those are other stories – perhaps for a later postcard.



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