Study of Small and Medium Enterprises in Azerbaijan - IFC

of each formality. Special attention should be paid to ensuring general security, safety,
heath and environmental protection. Other legislative improvements include fast,
simple and transparent issuance rules, duration of permits, etc.
5. Reform of business inspections needs an additional
boost
The Presidential Order No. 69 on the Inspection registration book improved planning
and co-ordination of inspections, reducing the total inspection burden (time
spent on-site, number of inspectors involved, related costs), while the Presidential
Order No. 790 on the Presence of Ministry of Economic Development representative
during inspections introduced certain quality standards of the on-site inspections
and prescribed their conduct and reporting. The survey analysis shows that the most
frequent administrative procedures entrepreneurs face remain business controls and
inspections (annually, 80 percent of survey respondents underwent some form of
on-site inspections at an average of one inspection a month). Inspectors are required
to record each inspection in the specialized registration books, and that the Ministry
of Economic Development (MED) officials are present during inspections. Yet, these
requirements are sometimes informally ignored, which often suits entrepreneurs
themselves, thus avoiding complex inspection procedures.
Recommendations include systems to streamline and simplify the inspections,
particularly following a review of the licensing and permits regime, and to make
their rules and procedures more transparent and accountable. In addition, assigning
inspections based on periodic risk assessment would make them more efficient. As a
result, authorities can provide timely notice of an upcoming inspection, and conduct
them in accordance with legally established procedures. Entrepreneurs can have access
to transparent checklists and sanctions mechanisms to ensure compliance. Finally,
inspections may also consider shifting towards advising businesses and serving them
as an education facility.
6. Innovative financing options to SMEs should be
explored
Access to finance is one of the major challenges that Azerbaijani entrepreneurs face, in
that three out of four entrepreneurs experience difficulties while seeking operational
financing. Nevertheless, further development of National Entrepreneurship Fund
(NEF) demonstrates government’s vision and adherence to a structured approach
to the development of entrepreneurship. The Fund continues to provide significant
means for the businesses, thus improving their overall access to finance. Accessibility
of the banks and their services as improved, while the cost of borrowing and the
time required to process requests has been reduced. There are now 142 operating
credit organizations in Azerbaijan, 46 of these commercial banks. However, over 90
percent of business start-ups and working capital are largely financed privately by the
entrepreneurs themselves or through private borrowing as a result of complex lending
requirements. Limited availability of the credit funding and restrictive conditions,
such as short or non-existent grace period and high interest rates, as well as expensive
processing payments, make loans less attractive for entrepreneurs. An improved communication
with clients would increase demand for financing and, consequently, lead
to increased supply.
Aze r b a i j a n Bu s i n e s s En a b l i n g En v i r o n m e n t Pr o j e c t 9