MICROCAPITAL STORY: The European Bank for Reconstruction and Development (EBRD) will Extend a $30m Syndicated Loan to the Micro Finance Bank of Azerbaijan (MFBA) for On-lending to Micro Enterprises

The Board of Directors of the London-based European Bank for Reconstruction and Development (EBRD), an international bank utilizing investment tools to encourage democracy and market economies from central Asia to central Europe since 1991, will discuss an upcoming syndicated loan to the Micro Finance Bank of Azerbaijan (MFBA) on May 12th. The loan will be worth USD 30 million, as reported by the Azeri-Press Agency (APA). The EBRD will finance USD 10 million of the loan and the remaining USD 20 million will be offered to the syndication market on “B loan” terms.

A B loan refers to the middle tranche of investors in a multi-tranche loan. Financiers in the middle tranche are paid back second after bank lenders who occupy the senior tranche. Also, the middle tranche is typically more expensive than the bank’s share of the loan, according to YourDictionary.com.

The EBRD made its first loans to Azerbaijan in 1994 and has been increasingly involved in the South Caucas nation since then. The international financial institution supports Azerbaijani microfinance through the funding of non-bank microfinance institutions (MFIs) and commercial banks for subsequent on-lending to customers, as reported by the MIX Market, the microfinance information clearinghouse. Recognizing that Azerbaijan’s economy is developing rapidly, with 25 percent gross domestic product (GDP) growth in 2007 and expected 18.6 percent GDP growth in 2008 (statistics according to The National Bank of Azerbaijan and the International Monetary Fund, respectively), the EBRD launched new operational objectives for its Azerbaijan strategy through a September 2007 press release. Emphasis on “micro, small and medium-sized enterprises,” as well as financial support for non-bank MFIs, were specifically cited. EBRD’s full “Strategy for Azerbaijan” can be found here.

Two intergovernmental organizations and 61 countries hold ownership subscriptions in EBRD and the bank operates in 29 countries with 2006 total assets of EUR 30.7 billion and a loan portfolio of nearly EUR 8 billion. Azerbaijan joined the EBRD on September 25, 1992, holds a EUR 20 million subscription, and EBRD states in their 2006 Financial Report that the bank has EUR 88 million of operating assets in the country. Standard & Poor’s gave the EBRD a “triple A” rating and Moody’s Investors Service rated the bank “Aaa.” More information on EBRD’s work in Azerbaijan can be found here. The bank’s activities pertaining to “Micro, Small and Medium Enterprises” are covered here.

MicroCapital recently reported on EBRD here.

Baku-based MFBA reached 49,600 borrowers in 2007, 23 percent of whom were women, and reported total assets of USD 133.3 million as well as a loan portfolio of USD 114.5 million, according to the MIX Market. Opened in October 2002, MFBA caters to micro and small enterprises and has 13 branches across the country. The MFI’s 2007 debt to equity ratio was 714 percent and in 2006 it reported return on assets (ROA) of negative 0.93 percent.

The EBRD is one of MFBA’s largest shareholders at 20 percent. Other shareholders include the KfW Entwicklungsbank (KfW), the International Finance Corporation (IFC), the Black Sea Trade & Development Bank (BSTDB), Access Microfinance Holding AG (AccessHolding), and LFS Financial Systems GmbH (LFS).

MicroCapital recently reported on MFBA here.

By Anthony Busch, Research Assistant

Additional Resources:

Azeri-Press Agency: Home, “EBRD to Extend $30 Million Syndicated Loan to Microfinance Bank of Azerbaijan”, April 14, 2008

European Bank for Reconstruction and Development: Home, Board of Directors, About, MIX Market Profile, Countries and Topics, Financial Report 2006Ownership and Funding, Members/Shareholders, Azerbaijan, “EBRD Launches New Strategy for Azerbaijan”, by Axel Reiserer, September 28, 2007; “EBRD Makes Its First Loans to Azerbaijan and Georgia: Both Investments Benefit Power Sector”, by Axel Reiserer, December 21, 1994; “Strategy for Azerbaijan”, September 18, 2007

International Monetary Fund: Home, “World Economic Outlook: Housing and the Business Cycle”  April 2008

Micro Finance Bank of Azerbaijan: Home, MIX Market Profile, About, Branch Network, Shareholders

MicroCapital article, March 25, 2008: “Dexia Micro-Credit Fund of Luxembourg Lends $1m to Microfinance Institution CCA, $1m to Microfinance Institution Credo, $5m to BancoSol Bank, $5m to Microfinance Institution FINDESA, $5m to MFBA Bank, $3m to ProCredit Holding, $5m to ProCredit Bank, $1.5m to Microfinance Institution LOKmicro, and $500k to Microfinance Institution AMK”

MicroCapital article, April 8, 2008: “European Bank for Reconstruction and Development (EBRD) Doubles Support for Bosnian Microfinance Institution Mikrokreditna Organizacija EKI With Second $9m Loan”

MIX Market: Home

Moody’s Investors Service: Home

The National Bank of Azerbaijan: Home, Main Macroeconomic Indicators

Standard & Poor’s: Home

YourDictionary.com: Home, B Loan

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