The Situation in Azerbaijan
Azerbaijan has worked hard to stimulate its economy and reduce poverty since the turmoil of the Soviet Union collapse in the early 1990s. Further economic reforms and structural changes need to occur for progress to continue.
Azerbaijan’s economy is primarily driven by the oil & gas industry which accounts for 60-70% of national gross domestic product (GDP); however, the development of the non-oil sector is lagging behind.
The country needs to diversify its economy away from the over-dependence on the hydrocarbons sector in order to sustain long-term growth and spur employment in non-energy sectors of the economy. The establishment of a healthy private sector is key to this development.
The limited access to finance constitutes a major impediment to private sector growth in Azerbaijan, particularly for MSMEs. Despite the recent growth and developments, lending remains limited and the weak financial sector is struggling to meet the needs of a growing private sector, especially in rural areas. Although 45% of Azerbaijan’s population now has a bank account and 78% of households use banking services in one form or another, banking is still concentrated in the capital, Baku, where most branches, 55% of ATMs, and 92% of point-of-sale terminals are located.
Approximately half of Azerbaijan’s population lives in rural areas. The rural population typically has the narrowest access to finance, meaning that the machinery and equipment required for improvement are often outdated and in short supply.
Azerbaijan has fertile agricultural land and a traditionally entrepreneurial labor force. Agriculture contributes to about 9% of GDP, but is the livelihood for approximately 40% of the population. Consequently there is a lot of room for improving productivity and added value, which is dependent on the finance of machinery and equipment.
Development Effects in a Nutshell
- SIFEM’s investment supported the diversification of Azerbaijan’s economy via the promotion of AccessBank’s MSME lending with 50% of SIFEM’s funds specifically targeted to start the Bank’s agriculture lending activities.
- By targeting the typically underserved MSMEs, AccessBank supports their sustained growth which in turn positively impacts the development of competitive sectors such as trade, services and production, as well as generates employment. The Bank’s micro, small and medium loans made up more than 85% of the total loan portfolio in 2013.
- AccessBank is improving financial services for rural clients and increasing the availability of agriculture loans. The introduction of agricultural loans by AccessBank has further contributed to the diversification of the local financial sector and is beneficial especially for rural clients, which tend to have the narrowest access to finance. AccessBank’s agricultural loan product recognizes the particular needs of agriculture clients by taking into account the specifics of the investment and harvesting cycles in the agricultural sector. Adapting micro-lending to fit this need can unleash significant potential to serve farming businesses. AccessBank has become Azerbaijan’s leading bank for lending to agricultural businesses with the agro loan portfolio reaching USD 130.5 million at year-end 2013, with an average loan amount of USD 2,400.
By year end 2013, the Bank’s agriculture loan portfolio accounted for 19% of the Bank’s total business portfolio in terms of amount. The Bank had a total of 42 branches, of which 30 are located outside of the capital city, Baku.
- AccessBank generated an additional 674 jobs within the Bank during SIFEM’s initial loan period. The first SIFEM facility was used to extend at least 2,584 loans, which contributed to the support and creation of an estimated additional 7,752 external jobs.
- AccessBank takes proactive measures in training and supporting its employees, particularly women. Women constitute 35% of AccessBank’s total workforce and 25% of the management - these are particularly high percentages for this region and sector.
- AccessBank’s leadership has led to international recognition from bodies such as the Consultative Group to Assist the Poor (CGAP) for its commitment to transparency and accountability, its good practices in client protection and avoidance of over-indebtedness. In 2012, it was given the distinction of “Member of the Year” by the Azerbaijan Micro-finance Association (AMFA) and in 2013 it won the award for “The Best Bank in Azerbaijan” by Euromoney for the fourth consecutive year.
A replicable model
When AccessBank Azerbaijan first began as the “Micro Finance Bank of Azerbaijan” in 2002, LFS (a German consultancy group), who would later become the manager of AccessHolding, helped to set in place particular base operations including staff training, lending product definitions, hiring and incentive schemes, IT systems and other internal processes. Once AccessHolding was officially formed, it was able to replicate these base operations for its subsequent projects and integrate AccessBank Azerbaijan into the AccessHolding Group. AccessBank Azerbaijan has grown immensely since 2002, having almost tripled its loan portfolio, and is AccessHolding’s most successful bank. It operates increasingly independently, providing an exceptional role model for subsequent AccessHolding projects.
AccessHolding now operates a network of 8 commercial banks in developing and transition countries: Azerbaijan, Liberia, Madagascar, Nigeria, Tajikistan, Tanzania, Rwanda and Zambia. AccessHolding leads the banks in sharing the same target focus on micro, small and medium-sized enterprises, a common brand identity, and a joint commitment to the same high standards and principles of transparency, ease of access, leadership, development and corporate responsibility.
Door Frames: Improving the Framework
Bahruz has been working making wooden frames for doors, windows and staircases for 30 years in his workshop in the south east of Azerbaijan. Bahruz is well-regarded in his local community and his small business allows him to support himself and his family, as well as provides jobs for 4 additional employees.
He heard about the possibility of obtaining finance to expand his small business and in 2012 Bahruz borrowed the equivalence of a EUR 5,000 loan from AccessBank to purchase a machine and the materials required to also produce frames made out of plastic. The addition of this machinery and equipment means that Bahruz has been able to increase his efficiency and profitability in the workshop, leading to an increase of revenue by 30%.
Construction material trading company: Constructive Services
Teymur and his family family have owned and operated a small restaurant on the transit route from Baku to Iran for the last 10 years and wanted to find a way to use their entrepreneurial skills to expand and diversify their business activities. Using a loan obtained through AccessBank in 2011, they started a construction material trading company selling products such as sand, soil, paints and hardware supplies which is growing and has become a successful and much-appreciated element for their local community. As well as increasing the services available for their rural community, the loan from AccessBank also allows the trading company to provide employment to 5 people.
Agriloan: Cultivating Entrepreneurship
Anar owns a large farm in the district of Salyan, where he lives with his sons and together they work to operate and cultivate the farm. Anar has been able to access finance via AccessBank’s agricultural loan facility, which allowed him to subsequently purchase much-needed farm equipment, machinery and land, and thus increase the profitability and efficiency of his farm. As well as growing crops and raising cattle, Anar also has a number of small lakes where he breeds fish, which he sells at a local bazaar.
The introduction of agricultural loans by AccessBank has meant that Anar is able to continue to expand and cultivate his farm in a more efficient manner. He employs 10 people full-time with an additional 10 people employed during the harvest times.
Corporate Social Responsibility
AccessBank places a high importance on responsible banking and superior ethical standards. During the investment period, the Bank formalized its commitment by joining the UN Global Compact as well as the SMART Campaign for client protection. These initiatives promote adherence to human rights principles and environmental standards, and advocate transparency, ethical staff behaviour, and privacy of client data, to name a few. AccessBank was the first bank in Azerbaijan to join these initiatives.
Data as of 2013
Obviam has made reasonable efforts to ensure the accuracy of the data presented. A case study is made possible both through Obviam’s first-hand experience and/or the information provided by Obviam’s investment partners. Data is valid as per the date recorded.