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Improving Deposit Insurance in Tajikistan

Project Development Objective (PDO)

This project aims to help improve key elements of the deposit insurance system in Tajikistan related to the core mandate on: funding mechanisms, investment policy, information exchange, pay-out process, and the role in bank resolution.

Background

The Individuals Deposit Insurance Fund (IDIF) was established in 2003 and is currently operating under a simple paybox mandate. In terms of scope, the current deposit insurance only covers the deposits of individuals while those of SMEs are not included in the coverage. Draft legal changes in combination with the new resolution framework foresee that IDIF’s mandate is to be expanded from paybox to paybox plus once they are enacted.

Activities / Output

The expected activities include the following:

Component 1: Funding, investment, and coverage of the IDIF:

Assess the target fund level, including:

o Draft amendments to Article 7.2 of the deposit insurance law
o Revision of the contribution model (depending on the assessment of the target fund level)
o Assess the priority of IDIF in the hierarchy of claims in bank liquidation
• Revise the investment policy of the fund
• Assess the current scope of deposit insurance and the coverage level and its need for adjustment (including draft amendments to Art. 22 of the deposit insurance law)

Component 2: Pay-out and pay-box plus:

• Draft a payout manual including an updated communication plan
• Draft bank data reporting templates (Single Customer View) so the IDIF can better assess the deposit base and prepare pay outs
• Draft a manual for the new pay-box plus responsibilities, including a least cost test
• Draft TOR for the purchase of IT infrastructure to manage the information flow on insured deposit between IDIF and member institutions
• Training on payout software

Component 3: Cooperation in the financial safety net:

• Draft MoU between IDIF and NBT
• Provide analysis/recommendations on government back-up funding, draft amendments to Article 18; Draft back-up funding agreement between IDIF and government

Expected Outcomes

The main expected outcomes of the project include the following:

1. IDIF covers adequately the large majority of depositors (Deposit Insurance Core Principle 8 on Membership and CP 9 on Coverage).

2. IDIF has available all funding mechanisms necessary to ensure the prompt reimbursement of depositors’ claims, including a means of obtaining supplementary back-up funding for liquidity purposes when required (IADI Core Principle 9 on Funding).

3. Enhanced capacity of IDIF staff to handle payouts, premium collection, communication, data flow on deposits, and to fulfill its expanded mandate (paybox plus) regarding bank failure resolution (IADI Core Principles 15 and 9).

4. Strengthened cooperation between IDIF and NBT to allow for effective information exchange (IADI Core Principle 5 on relationship with other safety-net participants).