Today I didn’t really have much choice.  

I don’t like keeping a lot of cash in the office – especially since the attempted robbery that we experienced eighteen months ago … there is something about having a knife held to your throat does that to you.  Unfortunately, however we had run the kassa down really low and I have a couple of bills that have to be paid, so I had to go and withdraw some cash to pay them.

Why do I dislike going to the bank? well, it’s like this … as I used to say whenever I was what advice I would give to people thinking of investing in Kyrgyzstan, I would sometimes flippantly say “Don’t go to the bank unless you have at an hour to spend – preferably two”.

To be fair, they are not all the same – we use four different banks and there are significant differences between them.  Two of the biggest are “International” and you might be forgiven for thinking that they are amongst the most efficient.  Unfortunately, in my experience, that’s not the case.  Although I can sometimes be “in and out” in five or ten minutes, I have found that you have to choose your time carefully or else you can find yourself in a long queue waiting for a teller.

Today, for example, when I arrived at 10:37 and took my ticket from the machine at the door, (however, the time on the ticket was – as usual – wrong – it said it had been issued at 11:04, and – as usual – I wondered what had happened to the lost half an hour), I was client number 93, but the electronic counter about the teller’s position indicated that the last client called up to one of the six tellers was number 67 – there were at least twenty five people before me in the queue.

I say at least, because there are several different queues – for different types of business.  One of the banks has separate queues for Individuals and Businesses … which I one reason I have my personal account in another bank … If I want to do both personal and company business then I would have to join two queues.  What’s more, some banks have different people acting as tellers and cashiers – so you have to join one queue for the teller who processes your transaction and then, onc e it’s been authorized, you have to join another queue for a cashier.

At one bank, I even had to go and into a third queue to show the ticket from the cashier who then entered the transaction into the account records.

Because of the queues, the machine normally stops issuing tickets some time before the bank closes for lunch or the end of the day.  Unfortunately, you can’t predict when that is going to be and three or four times I have been turned away because I am just too late.

They are not proper queues – no-one stands “in line”, as the Americans put it.  The banking hall is a big space with tellers at one end and some seats, (never enough, or so it seems to me), in the space opposite.  The bank I visited today, for example, used to be a major shoe factory and following the conversion, the banking hall on the ground floor occupied a large open space of what used to be the main workshop.

I usually take a book with me to read whilst I am waiting.  You can normally do that whether you are able to get a seat or or have to stand if all the seats are occupied.  At the moment I am reading “News from Tartary” by Peter Fleming, about his trip across China back in the 1930s.  I clearly, remember putting the book out ready to take with me, but once I had braved the security guards, the metal detector and got my ticket from the machine and had sat down, I opened my briefcase to discover that I had forgotten to pick it up.   Arrrghhh!

Twenty five people ahead of me in the queue and no book to help kill the time. Arrrghhh!

Fortunately, however, I did have some paper with me, and as I have been prepared to prepare a talk to some students next week, I took a sheet of paper and a pen and started making notes.  So the time wasn’t wasted.

My thoughts were interrupted from time to time as the electronic counted ticked over with its customary “bing bong”.  Each time I looked up to see if I was getting closer to the front of the queue or if this was for someone in one of the other queues.

I remember how, on one occasion, I was waiting in the queue and the speakers weren’t working … so there was no comforting “bing-bong” to indicate how much closer you were getting to the front of the queue … and for some reason the tellers went through an extremely speedy patch – maybe there were a spate of clients who had given up and walked off, but I looked up at the counter and there were still several people ahead of me, but the next time I looked up, the numbers had passed me by.   I went up to the reception desk and asked what I could do – did I really have to take another ticket?  No, fortunately, they agreed for me to be the next person to be called up to one particular teller.  Unfortunately, the person she was dealing with at the time had some complicated business, and I saw person after person being called up to the other tellers … and all I could do was wait.  Still, it would have been far worse if I had been told that I had to take another ticket and rejoin the queue.

As it happens, today wasn’t so bad.  At 11:13, (by my watch – not the ticket machine’s), I was called up to the teller’s desk.  She was quite efficient – well it was a straight forward transaction – and was able to speedily click through the various computer screens – making notes and clicking the OK boxes – ignoring the numerous pop-up message windows, (or so it seemed to me, because she she was so quick she couldn’t possible have read what they said).

All the same, it still took her five minutes to deal with my transaction.  It wasn’t until 11:19 that I found myself walking round the metal detector, (they don’t worry about it on the way out), past the guard and out of the front door.  Less than an hour … but then more than an hour if you count the time walking to and between the bank and the office.

As I said, there are a number of different banks, and they all have their own system – some are better than others.  Some are quicker than others.  On the other hand, it often seems like “pot-luck”.

Today wasn’t bad … it wasn’t the quickest I have ever been – but by no means the slowest.

But I did make a mental not for myself … “Next time, be sure to take a book with you!”

As is often the case, there was a fair amount of correspondence back and forth discussing the itinerary – the dates, what he was interested to see and do, services that he required and, of course, the safety and security situation here in the country … whether it was safe for him to come, or not.  In the end, everything was agreed including the price and we sent him details about how to make payment … our bank account details and the information needed to arrange a bank transfer.

That’s when the trouble started.

As he told us, his bank said that they could not arrange a transfer to a bank in Kyrgyzstan.  This astounded me … as we have already received payments from that particular bank, (albeit a different branch), several times in the past and had given him all the details to effect a bank transfer, (correspondent Bank details, etc.).  Still, that’s what he says they told him.  I wasn’t a party to the conversation so I can’t comment on that more than I already have.

Apparently, what they proposed was to issue a Banker’s Cheque, or Banker’s Draft, which he could then post to us … and we could pay into our bank account.  And this he did.

So, as well as paying the fee for issuing the cheque, he also had to pay for the courier fee in order to send us the cheque.  I am not sure what it cost him, but I am sure that it was more than the fees for a bank transfer.

When it arrived, I strolled off to the bank and queued up to see one of the clerks.  That’s a story in itself … but, perhaps, I‘ll tell you about that another time.

It’s not the first Banker’s Draft that I have had to deal with, so I knew roughly what to expect … first I have to write an “application” … something like: “please encash this cheque and credit our account with the funds.  I agree to the Bank’s fees for the transaction being charged to our account.”   The cheque is then sent back to the original dank on which it is drawn for authorization … we, of course, had to pay the courier charges … (and to add insult to injury, it seemed to me that the bank charged me more than I would have paid the courier service to carry a document to the same city … but we’ll let that pass, for now).  Once they received authorization and the cash, I was told, the bank would credit our account with the funds.  The process could take up to six weeks.  This astounded me … I calculated that it shouldn’t take more than two … four days for a courier from Kyrgyzstan to (well, I won’t say where, exactly) the originating bank, four days for processing (which seems to me excessive … but let’s be generous and allow for, say, weekends), and four days for the courier back.  I was told that there would, of course, be a transaction fee to pay.

The clerk asked – did I agree to these terms and conditions.  Now, the bank had me in a “cleft stick” … did I want the payment or not … it was Hobson’s choice – i.e. “no choice”.    Of course I agreed.

Two weeks later, (told you so!), I got a phone call from the bank … but it wasn’t to say that the funds have arrived and been credited to the account … that would have been too simple … no, apparently there was a small problem, could I go and see them.  So, off I strolled once more and waited in the queue for the clerk, (fortunately it wasn’t as long this time.)  Apparently, the issuing bank hadn’t encashed the cheque as it wasn’t endorsed … I had to sign and stamp it on the back.  You can imagine that I wasn’t particularly happy … there were several instructions written on the cheque but nothing about the need to endorse it … and my bank hadn’t asked me to do so … all they had asked for was the written application.   So, although I muttered my dissatisfaction, (not exactly under my breath) I signed and stamped the document and asked if there was anything else.  No, apparently not.  “No extra fees?”, I mischievously asked.  “No, no” came the reply … at least they got that bit right!

Two weeks later, (told you so), I got another phone call to tell me that the funds had been received and how much the bank’s fees would be.  Our account had been credited with the balance.

So, the transaction took four weeks to complete, (although, to be fair that could have been just two weeks if I had been asked to endorse the check in the first place), instead of the usual four to five days.  In fact, the tour was already underway before we finally received payment …

I still don’t understand why the bank apparently told the client that they couldn’t effect a bank transfer to Kyrgyzstan … they did send the money in the end – so obviously it was possible and, as I have said, we have received several payments from that bank, (albeit from different branches) in the past.

All in all, this particular transaction probably cost the client more than an international bank transfer, it certainly cost us a lot more – in fact, it probably cost us most of our commission on the tour, it was a far more complicated procedure and took far longer.

So, a cri de couer: No more cheques!  Please!

Also, when you do get a receipt, then it is often important to have supplementary documents to show that it really was a company expense and not something bought by an individual for themselves.  For example, if we have to buy products in a supermarket in order to provide a picnic for a tour, then a till receipt on it’s own won’t be sufficient.

One of the reasons for this might well be because a lot of people work in what is euphemistically called “the shadow economy” … there are different estimates about the size of this “unofficial economy” ranging from about 20% of that which official statistics record to a level that is equal, or even more, than this.  They don’t want to give receipts because that would mean a piece of paper existing which would be an  official record of a transaction … something the tax authorities could use.

A couple of weeks ago I received a notice about a proposed new law … an amendment to the Civil Code which would have the effect of making it compulsory to conduct all business transactions, of whatever size, through bank accounts.   By business transactions I mean those between companies, and also between companies and private entrepreneurs.  Payments between individuals could still be made by straight forward, old-fashioned, cash.  So, individuals can still buy goods and services using cash, but businesses would have to settle their accounts some other other way, (such as by bank transfer, using credit cards or internet banking).

This notice, and the proposal it contains, has caused uproar.   That is mainly down to the way in which the draft amendment to the law was drawn up.  There are rules about drafting legislation and regulations that provide for public consultation which, apparently, weren’t followed this time.  There is a special working group which is examining the question of developing the banking system especially through developing tools for non-cash payments.  The proposal came during one of the sessions of this working group and the National Bank were commissioned to draw up the necessary legislation which, they did, and then circulated it for comment.  The Business Associations were up in arms because it came as a complete surprise to them, and most business think it is unreasonable and unworkable.

When I saw the documentation, I was also concerned about the practicalities.  It immediately set off “alarm bells” and I sent copies to the business associations to which we belong, asking that we discuss the proposal and prepare suitable responses and comments.  As a result I have been invited to a number of meetings to observe the discussions.

Emotions were running high and there was an awful lot of “chaff” spoken … on both sides of the argument.

“Chaff” was the name given to anti-radar countermeasures in the second world war.  Small strips of aluminum, metallised glass fibre or plastic, were spread by planes to create clusters or swarms of multiple secondary images on radar screens and confuse radar operators.  It is still used to distract incoming missiles from their targets.

A certain amount of suspicion arises from the fact that the working group which promulgated the idea contained representatives from the Union of Banks – the business association representing all the commercial banks working in the republic.  Maybe they were simply lobbying their own interests.  This is not the first time I have seen proposals to force businesses to use bank accounts.  Some time ago, for example, there was a proposal to revert to the requirement that I am told existed in the Soviet period, that cash received into the “kassa” (cash desk) should be deposited into a bank account within three days.  For some reason, that particular proposal was not pursued, and now this new one has emerged.

In the “justification” for the proposed law, much was made about the need to develop the banking system and there is no doubt that such a move would be good for the banks … not only would it increase the amount they held on deposit, (which they could, presumably, then lend and receive interest on the credits), but there would be a large increase in the number of bank accounts being opened, (not everyone has a bank account – it could even be said that many people distrust the banks because of their chequered history), with the associated fees and also be transaction fees, (even though the banks have said that they could provide these services at minimum or perhaps even at “zero cost”).  These fees, of course, represents additional costs for businesses.

The Union of Banks, however, assure us that the idea did not originate from them and that their contribution to the discussion was simply about how it could be implemented.

Personally, I have some doubts about how well the banking system could cope with the additional work.  There would be an enormous increase in the amount of transactions.

According to official statistics, there are currently 22 banks in the republic, all with their head offices in the capital, Bishkek, and something like 239 branches throughout the country.  In addition there are almost 1300 non-bank Financial Institutions such as Credit Unions and Microfinance organizations.  Although this sounds reasonable, I wonder if there are sufficient branches in the more remote rural regions.

These banks offer a range of services … although they are mostly used for holding deposits of cash and making transfers.  The services on offer do include Credit and Debit cards and networks of ATM machines.  There are something like 170,000 cards issued – which represents a relatively small level of market penetration when  compared with a population of over 5,000,000.  Although the banks claim that these are becoming more popular, there is a certain amount of of resistance to them, for example when it comes to having salaries paid by bank transfer into personal accounts and using ATM’s to withdraw the money.  (As everywhere in the world, ATM’s here do seem to have a habit of being out of order or rejecting a card).

Some banks do offer internet banking services, and this would certainly offer one way of making non-cash payments, however, not all do.

There is no real system of processing cheques – no clearing house system, and banks only accept cheques which are drawn on their own accounts.

Also, there is no system of “telephone banking”.

This means that the main method available for “non-cash” transactions is the time honoured system of making  “bank transfers”.  One of the practical problems with making bank transfers is that all the documentation has to be presented to the user’s bank before eleven o’clock, in order for the payments clearing system to work.  If you are late by just a few moments, or there is a simple problem with the payment order, then the transaction will have to wait for the following day.  (Although, to be fair, this is more of an annoyance, or inconvenience, rather than a major problem.)

I am also worried about the size of such payments.  At the moment, for example, if we run out of paper in the office then I can simply go to a shop and buy a ream of paper … but under these proposals, I would not be able to pay for it by cash.  I would either have to use a company credit or debit card, have an account with the shop, or they would have to be willing to provide the paper on credit whilst waiting for a bank transfer.

(Perhaps the use of a company credit card would be the most convenient method, but that in turn would require a vast increase in the number of places willing and able to accept them.  At the moment there is a growing number of outlets accepting payment by credit card, but there are many times more that do not.)

At the moment I am not sure how it would work for us in terms of providing tour services.  Every time we wanted to buy some goods or services, a meal in a cafe, bottles of mineral water for tourists en route, an hour’s horse riding, entrance fees to a museum or a National Park … and so on … we would have to have in place measures for making “non-cash” payments.

It seems to me that it would be sensible to have some sort of limit for cash payments, say, for example, 1000 som, but the justification for the amendment argues explicitly against this, saying that firms would “fix” or split their transactions to fall under this limit and I have to admit that would be a risk.

The biggest problem, however, it seems to me, (and it represents a big difference between the situation in the West and that which is prevalent in contemporary Kyrgyzstan), is the lack of trust in the banking system amongst  the local population.

In the West we have long talked about the “cashless society” and moved towards methods of “non-cash” payments.  As an individual, I paid my utility bills by Standing Order or Direct Debit and was happy to do so.  It was convenient and I trusted the banks to operate the system fairly and accurately.  It might seem strange to say this nowadays in view of recent history, but there were very few cases of banks getting into difficulty and going out of business.  Here, unfortunately, that is not the case.

It seems to me that it would be far better for such a move towards the use of non-cash payments to be initiated by customer demand, reflecting the convenience and efficacy of using such a system rather than “coercion” by introducing such measures which don’t seem to be very common elsewhere in the world.

One way of trying to produce the confidence in the system is the recent introduction of networks of terminals which have appeared, especially here in Bishkek, that allow people to pay their household bills.  The user selects the service provider they want to pay, and the systems offer a fairly comprehensive list of utilities that can be paid this way, type in their account number and then deposit their payment, and finally obtaining a written receipt.  The service is not free, of course, but the ease, flexibility and convenience it offers is probably worth the five som (about USD0.12) per transaction and as a result, it seems to be growing in popularity and people are becoming more and more familiar with the use of technology for making transactions.

Let’s be clear about one thing: No-one disputes that there are indeed real problems that need to be addressed: the operation of the “shadow economy” and the development of the banking system in the country.  In the meetings I have attended on the proposed amendments, however, people were asking if this was the right way to tackle the problems.

At least operating such a system would help to solve one problem for us, that of getting receipts … simply because every transaction would be recorded.  But … is Kyrgyzstan ready for this?, is the banking system ready?, would it really help to eliminate the “shadow economy”, or drive more people further into the “shade”?