TODAY.AZ / Business

Microfinance market keen on increase in Azerbaijan

07 May 2014 [09:14] - TODAY.AZ
By Gulgiz Dadashova, AzerNews

The total volume of the microfinance portfolio of credit organizations in Azerbaijan is about 1.12 billion manat.

Executive director of the Azerbaijan Micro-Finance Association (AMFA) Jala Hajiyeva said the customer base in this market reached 573,000 people by the end of the first quarter of 2014.

Overall, 4.7 percent of Azerbaijani people use the microfinance sector.

Hajiyeva said loans of up to 16,000 manat are now considered microloans.

"The figure was 10,000 until 2008. Its rise is linked to inflationary processes and the overall growth of the national economy in the past few years. The average loan issued to one borrower, non-bank credit organizations is $1,289.

Meanwhile, the figure is an average of $4,230 in commercial banks. The smaller the amount of the loan, the higher the associated costs of the credit institution. The maintenance costs of microcredit in the country are an average $ 239 per borrower," Hajiyeva said.

Microfinance, one of the most effective methods of developing small business, is a financial tool aimed at providing a variety of financial services to low-income individuals or those who do not have access to typical banking services.

This financial service is mostly in demand in the countries with developing economies, because it helps solve many problems of national importance.

Thus, governments issue laws that regulate the activities of these financial instruments and stimulate demand for these entrepreneurs.

Earlier, AMFA Chairman Suleyman Kalyashev said Azerbaijani investors are showing more interest in the microfinance market.

"The bulk of the capital of the non-banking credit organizations (NBCOs) and other microfinance institutions in the country account for foreign investments. This is obvious, as the largest organizations in the country, such as Finca Azerbaijan or TBC Kredit, are foreign," he said, while noting that the share of the Azerbaijani microfinance institutions in this sector will grow.

AMFA currently includes 35 structures, including commercial banks, NBCOs, credit unions, insurance companies, leasing companies, and others.

The portfolio of microfinance organizations -members of AMFA- totaled $1,105 billion in 2013. The figure is 36.42 percent higher than 2012, when its volume was $810.55 million.

The rise in the microfinancing market was also backed by a decision of the Central Bank of Azerbaijan in early 2013 on the application of effective annual interest rate, which improved the competitive environment in the banking sector. The CBA's decision to lower the cost of query in the Central Credit Register also affected the market positively.

Meanwhile, Azerbaijani banks have reduced interest rates on loans in local and foreign currencies since April 1, 2014, compared to the same time in 2013.

The average rate on bank lending to the Azerbaijani economy in national currency totaled 14.45 percent compared to 14.85 percent in April 1, 2013, the CBA reported.

The average rate on bank lending in freely convertible currency was 14.79 percent compared to 15.30 percent in early April 2013.

Most of the loans are issued to households in Azerbaijan. Households received 40.8 percent or 6.510.2 billion manat in the first three months of 2014.

The trade and services sector (14.3 percent or 2.272.8 billion manat) ranks second, and the construction and real estate sector (13.1 percent or 2.095.9 billion manat) ranks third.

The industrial and production sector received 11.5 percent of the total lending amount of the Azerbaijani real sector, which hit 1.830.6 billion manat in nominal terms. The volume of lending to the industry increased due to the fact that 2014 was announced as the Year of Industry. Only 9.8 percent of the total loan investments in the country's economy was directed at industry in 2013.

Some 3.6 percent (579.2 million manat) fall on transport and communication, 4.7 percent (741.5 million manat) on agriculture and processing, 1.8 percent (286.9 million manat) on energy, chemistry, and natural resources, and 10.2 percent or 1.626 billion manat loans on other spheres.

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