Study of Small and Medium Enterprises in Azerbaijan - IFC

Correspondingly, actual performance results are not reflected in the financial and accounting
reporting and the formal figures are always worse than the actual data. Therefore,
banks cannot evaluate the genuine volumes and results of company operations. This
in turn limits the banks’ ability to assess creditworthiness and possible loan issuance. In
addition, the banks must rely on “double bookkeeping” and informal accounting records,
when assessing clients, as they underwrite on such “black” financial records.
Although there is an embryonic state-run credit bureau functioning in Azerbaijan as
of 2005, the absence of a fully-fledged credit bureau prevents the commercial banks
from effectively accumulating and exchanging information on borrowers’ records
(see Box 8.1).
Box 8.1 Credit bureau functions in Azerbaijan are partially realized by the credit registry
The Central Credit Registry began functioning in the NBA on January 1, 2005. The registry was created as a result of a World Bank advisory
services project. According to the NBA’s internal documents, commercial banks operating in the country must send information on all
credit portfolios to the registry for individual loans exceeding $1,000 issued to legal entities and for all loans exceeding $5,000 issued to
an individual. The information is sent in an electronic form to the registry and stored in a database for three years (then the information is
stored in an archive).
Banks sending data to the registry also have access to the database and can receive credit histories for potential clients, which may also be
applying for credits with other banks. Requests for credit reports are sent online. The cost of these services is $1 for the borrowers and $2
for the banks.
The credit registry system, nevertheless, is at an early stage of its development. This is especially true in the case of the credit information
available on individuals. Therefore, the effectiveness of the credit registry’s database to help assess the creditworthiness of an individual
credit borrower is limited.
All this introduces additional uncertainty for the SME crediting banks and bears additional
risks. In trying to minimize these risks, the lenders reduce the credit maturity
periods and put forward higher demands for their own security. Grace periods are too
short or nonexistent, which makes it difficult for any non-trade business to invest in
medium to long-term operations.
View from an entrepreneur:
“If the agricultural enterprise is located in the countryside, I have no opportunity to get
a loan. The bank requires collateral in the city center. Nobody wants my house, garage,
country cottage, or even a lot of land in the regions.”
8.2.4 Banks prefer to focus on lending for consumer goods,
which in their view is less risky
The credit market for consumer goods is rapidly developing in Azerbaijan. Maturities
and interest rates in the consumer market are significantly more attractive for the banks,
compared to SME crediting. In cases of default, the banks always have the opportunity to
repossess the goods that have been bought using the credit. Very often, these are goods,
such as cars, which are in demand and can easily be sold on the secondary market.
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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