When we asked one of the e-commerce operators we interviewed — she ran a small online store from a converted spare room in her family’s apartment in Bishkek, with a warehouse-of-sorts arranged across two rooms and a corridor — to walk us through one customer order from start to finish, the bottleneck appeared almost immediately. The customer had paid with a Visa card. The bank held the funds for two business days while it verified the transaction against its internal fraud-risk filters. The chapter we eventually wrote, in March 2019, described it as the bank «verifying» the payment. What the operator actually said, sitting at her kitchen table with a laptop open and an Instagram DM thread visible behind it, was: «They hold it because they don’t know if I’m me. They sometimes never decide.»
35% of international Visa transactions through Kyrgyz banks were rejected outright. The remainder were typically held for one to three business days; over a weekend, that could stretch to four calendar days. The reason, the chapter spelled out, was that local actors had been using lost or stolen international Visa cards to cash out at Kyrgyz ATMs, so the banks had defaulted to manual review for inbound foreign transactions on the assumption that fraud risk outweighed merchant cash-flow concerns. The merchants — small-scale Kyrgyz e-commerce operators, often women, often working from home — paid the friction tax.
That story sits at the centre of the e-commerce chapter, because it explains why this sub-sector had both the highest job-creation potential for women and youth in the entire IT report, and the slowest growth trajectory of all five sub-sectors when measured by registered company count.
What the count looked like
- Specialists working in the sub-sector: over 10,000 — the largest workforce of any IT sub-sector in the report, and the only one with five-digit employment.
- Number of organisations: more than 250 online stores and platforms for the sale of tickets and vouchers. Plus roughly 800 Instagram-store operations (estimate).
- Revenue: not determinable. Without a legal definition of «e-commerce» in Kyrgyz law, market participants were not consistently registered as such, and many transactions sat outside formal accounting.
- Gender composition: 50% women. Unique among the IT sub-sectors. The average age of the workforce was 18–25.
- Regional distribution: 100% of registered companies in Bishkek. The most concentrated of the IT sub-sectors. The implications for women in the regions are not subtle, and the chapter said so directly.
- Named players: bookit.kg, bilet.kg, lalafo.kg, svetofor.info, max.kg, enter.kg, kivano.kg, ostore.kg, besmart.kg, agro.kg, silkroadexplore, travelhub.
The 10,000+ figure deserves a moment’s attention. Most of those jobs were not technical. Of the e-commerce workforce, programmers and developers were a small share. The bulk were content managers, sales managers, call operators, courier and logistics staff, photographers, copywriters, and the people running Instagram pages from spare rooms. The pattern matched the multiplier framework from the cross-sector chapter exactly: for every developer at an e-commerce platform, ten or more non-technical roles were created downstream.
The value chain
The chapter’s most-shared visual was the e-commerce value chain — the five role-clusters and the places friction kept showing up.
Every node in that chain had friction the report flagged. The friction at the payment node was the worst, in terms of how directly it suppressed transactions. The friction at the logistics node was the worst in terms of how it cut off the regions.
The market players, by type
The chapter sorted e-commerce participants into six groups:
Online platforms / marketplaces with consumer goods, agricultural products, food, travel services, and specialist-finding services. The report counted three marketplaces and more than 200 online stores in the country. Travel services included platforms selling air tickets and tour vouchers; specialist-finding included mastera.kg and revizor.kg.
Online stores — narrower than marketplaces, typically a single category or a tightly-curated 10,000-item assortment, with the store owner functioning as a wholesale-supplier-facing retailer.
Instagram stores — about 800 of them in Kyrgyzstan, the chapter noted, working in a way that doesn’t quite have an equivalent in the developed-world ecosystem. The report called this «an Instagram-store phenomenon peculiar to Kyrgyzstan and a number of developing countries.» Some were the digital storefront of a physical retail point (boutique, kiosk, shop). Others operated entirely from home: order received via Instagram DM, item dispatched from a home warehouse on the same day. Many shop owners — cosmetologists, beauticians, dressmakers, makers of regional crafts — had no formal business registration. The Instagram Insights API was, in effect, their CRM and their analytics dashboard.
Dropshipping — 10 to 30 operators in Kyrgyzstan working on Amazon and other international platforms, average tenure two years. The seller didn’t develop their own store, didn’t run their own courier service, didn’t even hold the inventory. They hired freelancers (often from abroad, via international platforms) for content and search work. PayPal didn’t work in Kyrgyzstan for direct receipt, so Payoneer was the payment rail. Alibaba and Aliexpress used Visa and UnionPay through their own Trade Assurance system.
Classifieds — diesel.elcat.kg, lalafo.kg. C2C-focused. Monetised through ad sales, not transaction fees.
Inbound logistics services for goods ordered by KG buyers from foreign online stores — expressus.kg, shipito.kg, usa-kg.kg, ship.kg, easyexpress.kg, ebay.kg, camex.kg, ooba.kg, tao.kg, bishtao.kg, and others.
The customer side — and where the country wasn’t ready
The DataReportal Digital 2019 Kyrgyzstan numbers, which the chapter cited, gave the customer-side picture:
- 40% of the population had bank accounts.
- 3.6% had credit cards.
- 3.1% used mobile wallets.
- 5% of the population made online purchases or paid for utility bills online.
- 20% of internet users shopped online.
Set that against an internet-user base of over 2 million people in Kyrgyzstan, and the addressable market shrinks fast: roughly 100,000 to 400,000 active online buyers, depending on how you draw the lines.
The chapter spent a paragraph on the gap between what online buyers were buying and where the money was going. Aliexpress alone, in 2017, accounted for about $1 million USD in volume — 70,000+ parcels with an average ticket of $9. Total foreign-store parcels delivered through Kyrgyzpost rose from 110,000 in 2016 to 170,000 in 2017. Wildberries (the Russian platform) had opened pickup points in Bishkek and Karakol. Each of these flows represented Kyrgyz buyers spending on goods sold by foreign retailers. The local e-commerce sector was, at the time of the research, capturing a thin slice of a market in which the country’s residents were already participating heavily as buyers — just not as sellers.
The opposite side — Kyrgyz residents using foreign e-commerce platforms to sell — was at 778 properties on Booking.com from Kyrgyz hosts and over 300 listings on Airbnb. The tourism sub-sector inside e-commerce was the part that had figured out how to be a seller, not just a buyer.
The payment problem, in detail
The chapter’s most carefully documented section was the payment problem, because every other constraint in the sub-sector was downstream of it.
Online payment culture was undeveloped. Cards were uncommon; the ones in circulation weren’t being used online. Of the one-million Elcard payment-card users at the time of the research, 95% cashed out their salaries on the day of transfer. The card was a payroll instrument, not a payment instrument.
The banking system was internally divided. Each commercial bank ran its own mobile wallet, its own payment system, its own application. The single QR-code standard that would let any customer pay any seller across any bank’s app was launched on 21 February 2019 — almost the last week of the fieldwork. By the end of 2020, that standard was the basis of Kyrgyzstan’s national payment interoperability. Most bank mobile wallets had Russian and Kyrgyz interfaces only — making them effectively unusable for foreign customers buying from Kyrgyz sellers. One respondent’s quote: «Foreigners do not know what Elsom is and everything in it is in Russian.»
The 35% rejection rate on international Visa transactions was the friction tax merchants paid because the banks couldn’t tell good transactions from fraud. The 1–3 day verification delay (4 days over a weekend) was the cash-flow cost. Several respondents told us they had stopped accepting international Visa altogether and pointed foreign customers at PayPal — which, of course, didn’t work for direct receipt either.
Accepting foreign customer payments was structurally difficult. National payment systems couldn’t interact with international payment methods. The Kyrgyz region was on several international banks’ high-risk lists. Payment errors were frequent.
Local commission rates were high relative to merchant margin. The standard bank commission for online card payments was 3% per transaction. The international average is 1.4–2.4%. PayPal and Stripe, where they worked at all, took 3.5%, equal to or above merchant margins on most goods. One respondent: «There was a problem with Stripe, with check out even when the transfer is for the legal entity.»
Cross-border outflow of foreign-account funds to Kyrgyz commercial bank accounts was especially critical for tourism companies dealing with Booking.com, Expedia, Airbnb. Those firms, the chapter noted, were running their customer-receivables on a 30- to 90-day lag because of the friction in repatriating funds.
The logistics problem
Inbound logistics worked. The 11 named foreign-store delivery services were busy, profitable, and growing. Outbound logistics did not work. The report listed five separate inbound providers but the named outbound providers — DPD, Pony Express, SDEK, FedEx, DHL, UPS, EMS, Kyrgyzpost — handled almost no small-scale outbound e-commerce traffic. No fulfilment/warehousing services existed for small merchants who wanted to export. Logistics operators didn’t offer online tracking; couldn’t calculate shipping costs through an API. Buyers in the regions couldn’t easily sell to buyers in other regions, much less across borders.
One sentence from the chapter summarised the asymmetry: «Regional and local logistics companies in Kyrgyzstan cannot provide quality services for e-commerce companies.» The 100%-of-firms-in-Bishkek concentration was, in large part, a logistics consequence. A merchant in Jalal-Abad or Karakol simply could not reliably ship a parcel within two days at a price the buyer was willing to pay.
The legal vacuum
There was no legal definition of e-commerce in Kyrgyzstan at the time of the research. The draft law on Electronic Commerce had been submitted but not passed. The Civil Code, the Law on Consumer Protection, the Tax Code, and the Regulations on Non-Cash Payments collectively covered some of what e-commerce needed, but none of them named it.
The 0% sales tax (VAT) exemption for non-cash payments — introduced 21 January 2017 — was the one place the legal framework had moved in e-commerce’s favour. But respondents pointed out the calculation: a 3% bank commission on the non-cash payment exceeded the 1–2% sales tax avoided by going non-cash. Offline sales remained more profitable in the math. The 0% rule had been adopted, but the merchants weren’t being moved by it.
The problems e-commerce operators named
The eight cross-sector problems applied here in a sub-sector-specific configuration. The ones that hit hardest:
No automated data exchange. Most sellers and suppliers didn’t have the information systems they needed to exchange order data with marketplaces automatically. «We need an electronic document flow, an electronic invoice, which automatically punches the payment without using a cash register.»
No legislative framework. No definition, no classification of participants, no distinction between platform types.
Lack of trained specialists. Internet marketers, content managers, the specific roles e-commerce needed. Most respondents were self-taught.
Undeveloped banking and payment systems. As above. The single biggest constraint.
Undeveloped logistics. As above. The biggest constraint on rural participation.
The pattern, across all the named problems, was that the e-commerce sub-sector was not held back by a shortage of buyers, sellers, products, or technical capability. It was held back by infrastructure — payment infrastructure, logistics infrastructure, legal infrastructure — that sat outside the sub-sector itself but determined what was possible inside it.
What the chapter recommended
The recommendations the chapter put forward to USAID came in three clusters:
Legislative and regulatory. Adopt the draft Law on Electronic Commerce. Make it formally possible for Kyrgyz companies to sell on Amazon, Alibaba, Ebay and recognise that income under Kyrgyz tax law.
Payment systems. Work out the international technical and legal standards required for Kyrgyz domestic payment systems to interoperate with PayPal, 2Checkout, Google Wallet, WePay, AliPay, and other foreign payment methods — enabling sellers to receive foreign payments directly to KG bank accounts. Critical for the tourism sub-sector (Expedia, Booking.com, Airbnb). At the domestic level, the state could open a payment gateway and provide the ability to buy and pay for state-portal services by article and by party — accelerating confidence in non-cash payments by giving every citizen a working example to follow. The example given in the chapter: enabling payment for national-airline flights, Kyrgyz Railways tickets, and inter-city buses via the state portal.
Commercial banks could incentivise sellers to adopt non-cash payment systems (POS terminals, internet acquiring), e.g. by offering trade-financing loans based on non-cash transaction history. Banks should additionally adopt Visa, Mastercard, and third-party fraud-prevention services to fix the 35% rejection rate.
Logistics. Incentive tariffs for the export of small-scale orders to neighbouring countries. Attract more international logistics operators. Create order-processing centres (fulfilments). Automate postal-service information systems.
Training programmes at the SME level on how to use both domestic and international electronic trading platforms — so that small businesses could increase sales, create new jobs, and create new businesses without needing to be technical at the start.
What had changed by late 2020
E-commerce is the sub-sector the pandemic moved most. By April 2020, the sectors most exposed — restaurants, retail clothing, anything with a physical storefront — were partially or entirely shut. The merchants who had built any kind of online distribution presence were the ones still earning. The merchants who hadn’t, scrambled to.
The 5% online-purchasing share of the population from the 2019 DataReportal data is, almost certainly, twice that by now. The 800 Instagram stores from the early-2019 count is probably four or five times that. The QR-code standard that launched in February 2019 is now the basis of the daily payment flow for thousands of merchants who didn’t have a Visa-acquiring relationship with any bank before. Several of the recommendations in this chapter — particularly around payment-system interoperability — moved faster between March and June 2020 than they had moved in the previous two years.
Two things have not moved.
The logistics constraint remains the binding one for any seller outside Bishkek. The merchants in Naryn, Jalal-Abad, Talas, and Issyk-Kul who tried to scale online during the pandemic ran into the same outbound-shipping wall the report had identified in 2019. The fulfilment/warehousing services for small-scale sellers, recommended in the chapter, do not exist as of the end of 2020.
The Law on Electronic Commerce — submitted, redrafted, reviewed, sent to multiple ministries — has not been adopted. Most of the e-commerce activity in the country, in late 2020, is still taking place in a legal vacuum. The Instagram-store phenomenon, in particular, sits entirely outside formal commerce law: no contract enforcement, no consumer protection that easily applies, no formal tax exposure beyond what the operator declares voluntarily.
The next post in the series is animation, which was the late-addition surprise of the report — and the sub-sector least disrupted by anything that has happened since.
Source: USAID Enterprise Competitiveness Project (2019). Analysis of the Information Technology Sector in the Kyrgyz Republic. Implemented by KG Labs Public Foundation; commissioned by USAID ECP / Nathan Associates / ACDI-VOCA, June 2019. E-commerce sub-sector covered in primary research January–March 2019: in-depth interviews with online-store operators, Instagram-store operators, dropshippers on Amazon, tourism-platform operators working with Booking.com / Expedia / Airbnb, and a representative from the E-commerce Association. Customer-side data from DataReportal Digital 2019 Kyrgyzstan; payment-system data from National Bank of the Kyrgyz Republic public-policy filings.