Study of Small and Medium Enterprises in Azerbaijan - IFC

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The survey also shows that access to finance is troublesome for all sectors of the Azerbaijani economy. Chart 8.7 Companies from every sector of the economy experience problems with access to finance Problematic character of the access to the financing for activity’s areas Trade Transport Other social and personal Hotels/restaurants Agriculture Real estate Repair of motor and personal goods Other 0% 10% 20% 30% 40% 50% 60% 70% The loan application process and lending availability are the main sources of problems related to the increase in access to finance. As a rule, access to credit is based on the bank’s terms for SME lending: • Interest rates; • Securitization of the credit; • Period of borrowing. a) Reason #1 – Interest Rates According to the survey data, more than half of the entrepreneurs who required external financing did not go to the bank for credit because they believe that interest rates are too high. Chart 8.8 The main reason for avoiding bank credits – high interest rates (more than one answer was possible) Reasons for not applying for the credits Unprofitable interest rates The procedures on the applying for the credit are too complicated Inaccessible requirement for the credit security Insufficient amount and payment period Didn`t think, that the application would be approved 0% 20% 40% 60% 80% 100% If the data on SME profitability is compared with the interest rates for credits serviced by the entrepreneurs, one can see that the borrowing terms are simply not affordable. 130 St u d y o f Sma l l a n d Me d i u m Ent e r p r i s es in Az e r b a i j a n
Chart 8.9 The loan interest rates on the credits greatly exceed profit levels of SME’s Average indicators of the profitability and interest rate for the credits 30% 20% 16% 24% 10% 1 0% Profit level Interest rate View from an entrepreneur: “While the loan is being serviced, one should not only forget making a profit, but probably also be prepared to add extra money out of one’s own pocket.” b) Reason #2 – Securitization On Credits The second reason for refusal/denial of commercial lending is the demanding guarantee requirements. The survey results show for three out of five enterprises that were refused lending, the reason given was that the security for the credit was not acceptable for the banks. According to the research data, practically all borrowers must provide guarantees to receive a credit. Observations and in-depth analysis shows that the banks prefer real estate as collateral (pledge) to secure crediting. In-depth interviews with the entrepreneurs, as well as the fact that 60 percent of the entrepreneurs conduct their business on a leased premises, demonstrates that entrepreneurs can only use their living accommodations as collateral. In the entrepreneurs’ experience, the balance between the collateral cost and the requested credit amount is usually about a ratio of 2:1. Moreover, survey respondents claim that even if the collateral exceeds the amount of the requested credit by twofold, it is still impossible to obtain credit based on this security, unless the real estate is located in Baku, Ganja, or Sumgayit. View from an entrepreneur: “The banks are not interested in the premises or plots of land in the regions. They explain it by the fact that it is afterward practically impossible to sell these premises.” Some lending agencies provide microcredits, where small items such as jewelry are requested as a means of security. The credit amount in such agencies typically equals $150-$10,000. To receive credit from the microcrediting agencies, one needs to provide collateral corresponding to 20 and 600 grams of gold for these amounts 53 . 53 Interview with senior credit officer of World Vision, held on September 15, 2008. 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 131
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Study of Small and Medium Enterpris
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Study of Small and Medium Enterpris
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5. Business Permits................
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Foreword and Acknowledgements IFC,
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critically examines all areas of op
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of each formality. Special attentio
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Policy Recommendations Business Reg
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Problems Sources of Problem Recomme
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Business Taxation Problems Sources
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Capital: Baku Country’s populatio
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The state, ultimately responsible f
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1. Methodology 1.1 Background The s
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the share of economically active co
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Scope of activity Official statisti
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2. SMEs in Azerbaijan The aim of th
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Meanwhile, the number of small and
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Table 2.2 Statistical information o
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The “typical” small enterprise
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According to the IFC survey, more t
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2.5.3 Legal disputes Most entrepren
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3. Business Registration In January
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According to the law previously in
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3.4 Economic impact estimate Accord
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tion duplicate is addressed to the
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the local tax inspectorate for regi
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3.10.3 Introduce the electronic reg
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3.10.7 Simplify the liquidation pro
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Business registration before ‘one
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Process map of one-stop-shop busine
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Registration for individual entrepr
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4.1 Licensing: the legal framework
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Chart 4.1 Number of activities requ
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While the Rules specify limits for
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Chart 4.6 Economic impact of licens
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Annex 4.1 Checklist of issues for d
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Based on the IFC survey estimates,
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5.2 Permits coverage The Azerbaijan
Page 81 and 82: Box 5.4 An example of overlapping p
Page 83 and 84: 5.4 Permit expenses Azerbaijani leg
Page 85 and 86: Chart 5.9 40% Average percentage of
Page 87 and 88: 2.4. Specifying in the law a unifor
Page 89 and 90: Annex 5.1 Procedure for obtaining c
Page 91 and 92: Annex 5.2 Checklist of issues for d
Page 93 and 94: The most significant legal act in i
Page 95 and 96: 6.1.2 There is no effective mechani
Page 97 and 98: 6.1.4 Entrepreneurs are not aware o
Page 99 and 100: IFC’s analysis showed that only h
Page 101 and 102: 6.2.2.1 The inspections process and
Page 103 and 104: View from an entrepreneur: “The s
Page 105 and 106: Chart 6.11 Average registration in
Page 107 and 108: going in the opposite direction. In
Page 109 and 110: clearly defined circumstances, or a
Page 111 and 112: Annex 6.2 Presidential Decree No. 7
Page 113 and 114: The bulk of individual entrepreneur
Page 115 and 116: Items 1-9 are collected at the firs
Page 117 and 118: The IFC survey reveals that one in
Page 119 and 120: Table 7.5 Main tax obligations of a
Page 121 and 122: Chart 7.3 IFC Survey: Complexity of
Page 123 and 124: 7.3.2 Tax inspections negatively af
Page 125 and 126: 7.3.5 The cumbersome VAT administra
Page 127 and 128: • Introducing clearer and more el
Page 129 and 130: Chart 8.1 Development of Credit Ins
Page 131: More than 90 percent of entrepreneu
Page 135 and 136: Case study of a Baku-based glass an
Page 137 and 138: View from a bank employee: “One p
Page 139 and 140: Box 8.2 Examples of a successful cr
Page 141 and 142: Box 8.3 Examples of alternative mec
Page 143 and 144: 9. Foreign Trade The volume of fore
Page 145 and 146: Box 9.1 Customs regimes under the C
Page 147 and 148: As Chart 9.1 illustrates, 98 percen
Page 149 and 150: Table 9.1 A comparison of the proce
Page 151 and 152: The comprehensive system of mandato
Page 153 and 154: Table 9.2 Average costs for imports
Page 155 and 156: Box 9.5 Customs payments The Custom
Page 157 and 158: Box 9.8 An excessive number of docu
Page 159 and 160: Moreover, due to the underdeveloped
Page 161 and 162: Expected impact More comprehensible
Page 163 and 164: 9.5.6 Accelerate WTO accession of A
Page 165 and 166: Chart 9.5 Goods importable upon app
Page 167 and 168: Azerbaijan has been long pending a
Page 169 and 170: List of Laws 1. The Tax Code of the
Page 171 and 172: Statistical Annexes Aze r b a i j a
Page 173 and 174: Chart A1.3 Individual Entrepreneurs
Page 175 and 176: Chart A1.7 Individual Entrepreneurs
Page 177 and 178: Chart A1.14 Three Major Types of Ob
Page 179 and 180: Registration Chart A2.1 Entrepreneu
Page 181 and 182: Chart A2.8 Three Major Problems Occ
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Chart A3.3 Existence of Licenses by
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Chart A3.9 Three Major Obstacles to
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Chart A4.4 Obtaining of Any Permits
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Chart A4.10 Time Required to Obtain
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Chart A5.4 Application for Credit o
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Chart A5.12 Average Interest Rate (
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Chart A6.3 Entrepreneurs That Under
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Chart A6.8 Authorities That Made In
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Chart A6.13 Breakdown of Number of
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Chart A6.19 Average Duration of One
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Chart A6.25 Small and Medium Enterp
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Chart A7.3 Small and Medium Enterpr
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Chart A7.8 Reported Share of Busine
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Chart A8.3 Usage of Optional (not c
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Azerbaijan Business Enabling Enviro
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Study of Small and Medium Enterprises in Azerbaijan - IFC

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