PAPER WRAP-UP: Benchmarking Azerbaijan Microfinance 2006, Nigar Pirmamedova

Authored by Nigar Pirmamedova, the Chief Accountant and Financial Manager for the Azerbaijan Micro-finance Association (AMFA), a Baku-based institution with 22 member organizations, in partnership with the Microfinance Information eXchange (MIX), released January 2008, nine pages, available at http://www.mixmbb.org/Publications/002-REG/EASTERN%20EUROPE%20AND%20CENTRAL%20ASIA%20(ECA)/04-Azerbaijan%20Benchmarking%20Reports/Azerbaijan%20Benchmarking%20Report%202006.pdf

This report aims to present the important performance changes in Azerbaijani microfinance from 2004 through 2006 and highlights the expansion in scale and outreach as well as the increase in operational efficiency and overall productivity. Conducting business in a country experiencing an economic boom—gross domestic product (GDP) growth in 2007 was 25 percent—as a result of growing oil revenues, Azerbaijani microfinance institutions (MFIs) increased active borrowers to 223,000 and reported a total loan portfolio of USD 316 million as of September 2007. However, significant portions of the population are still underserved, including women, who comprised 38.2 percent of borrowers in 2006, and rural populations.

Describing the legal and regulatory framework for microfinance in the country, Pirmamedova outlines “four features of legislation that are restrictive for microfinance institutions or credit unions.” Primarily, there is no existing legislation which specifically addresses MFIs. Secondly, above local taxes, MFIs are subject to a 22 percent taxation on profits. Thirdly, non-governmental organizations (NGOs) must register as credit organizations in order to provide legal banking services. Lastly, “MFIs are prohibited from collecting any form of savings according to their licensing regulations.”

With regards to outreach and scale, the sector performed well, but growth was concentrated in a few institutions. In 2006, the gross loan portfolio (GLP) increased by 33 percent, but 90 percent of this growth originated from three institutions. Notably the Micro Finance Bank of Azerbaijan (MFBA), an MFI with 2007 total assets of USD 133.3 million catering to micro and small enterprises, accounted for 53 percent of GLP growth. Similarily, increases in outreach (58 percent more borrowers) were focused in a small number of institutions while the Foundation for International Community Assistance Azerbaijan (FINCA Azerbaijan), founded in 1998 with 2007 total assets of USD 49.3 million, contributed 58 percent of the total growth in borrowers.

Turning to funding, an increase in average debt to equity ratio from 0.4 to 1.6 indicates increased trust in the sector by investors and donors. However, a significant difference exists between domestic and international sources with respect to the nature and amount of funding. As local commercial banks tend to charge higher interest rates, most commercial capital comes from abroad, while domestic funds are largely supplied by the government.

As Pirmamedova points out, profitability of MFIs in Azerbaijan continues to improve, and she reports the following increases: 14.7 percent in operational self-sufficiency (OSS), 152 percent in return on equity (ROE), and 50 percent in return on assets (ROA).

Pirmamedova concludes by noting that Azerbaijani microfinance has significant growth potential as a result of current macroeconomic circumstances, but remarks that the sector is still catching up to other countries in the region and that “MFIs have not invested sufficiently in data collection and impact assessments.”

Ms. Nigar Pirmamedova earned her bachelor’s degree in Financial Accounting and Audit from the Baku Business University in 2001 and has attended multiple microfinance training programs through her current position with the AMFA. Prior to joining the AMFA, she worked for Nizami ATS, the Ministry of Communications, and the Caucasus Literature Company. Ms. Pirmamedova is responsible for all financial reports, represents the organization at international conferences, and leads the preparation of quarterly and annual reports on microfinance in Azerbaijan. Ms. Pirmamedova can be reached by e-mail at nigarp@amfa.az.

Eleven MFIs participated in the study and they are as follows: Agroinvest Credit Union (Agroinvest CU), World Vision Azercredit (WV Azercredit), Azeri Star Microfinance (ASM), CredAgro, DAYAQ-Credit, Foundation for International Community Assistance Azerbaijan (FINCA Azerbaijan), Finance for Development (FinDev), Micro Finance Bank of Azerbaijan (MFBA), Mikromaliyye Credit Institution (MM), Norwegian Microcredit (Normicro), and Viator Microcredit Azerbaijan (Viator).