Baku, Azerbaijan, May 13
By Azad Hasanli - Trend:
A number of legal, regulatory, and institutional reforms can be taken by Azerbaijan's government and its Central Bank to help lift the financing constraints that small and medium enterprises (MSMEs) face and ultimately enable them to contribute to Azerbaijan's economic diversification and growth, said the MSME Access to Finance Demand Survey held within the framework of evaluation of the financial sector of Azerbaijan published May 13 on the website of WB.
"Reforms aimed at creating an efficient secured transactions framework for movable assets collateral and advancing credit reporting systems, with the introduction of a private credit bureau and development of clients' credit histories, will help expand financing to smaller and younger MSMEs," the report said.
Limited access to finance is a major obstacle for the development of small and medium-sized enterprises (SMEs) in Azerbaijan, according to the survey.
"Azerbaijan has traveled a long way since independence twenty years ago," said the message. "In the past decade alone the economy has grown five times, thanks in great part to a wealth of oil-based revenue. With steady growth, more and more people have gained employment and overall living standards have risen, especially in the capital city of Baku."
"However, Azerbaijan now faces some new challenges as the income generated from oil exports is decreasing and the fallout from Russia's economic downturn damages Azerbaijan's immediate growth prospects," according to the report.
To help mitigate these risks, the government of Azerbaijan is looking at economic diversification to reduce the country's dependency on the oil sector, boost private sector growth and competitiveness, and foster new and better paid jobs in the economy, the authors of the report said.
"To achieve this, however, the financial sector needs to grow and increase its intermediation capacity to serve the needs of the economy," said the report. "Access to finance is key to the growth of small and medium-sized enterprises (SMEs) and jobs creation, but it remains constrained - with private credit to GDP at a modest 31 percent (2014) in Azerbaijan, compared with countries of similar economic size."
The financial sector remains relatively small and bank-centric, with the state playing a dominant role in ownership and financing, the authors of the report said. Gaining access to finance, therefore, has often proved challenging for micro, small and medium enterprises (MSMEs), especially entrepreneurs and young businesses; thus the SME sector remains small (10 percent of GDP).
Complex credit application procedures, lack of collateral, high lending costs, and short maturities in the backdrop of low financial capability prevent MSMEs from accessing finance. "While roughly two thirds of MSMEs currently own a bank account, only 13.5 percent have an outstanding loan or a line of credit. Around three quarters of MSMEs have never applied for either," the research said.
According to the report, some 91.9 percent of micro-enterprises, 81.9 percent of small enterprises and 72.7 percent of medium-sized enterprises never applied for a loan, according to the survey. Some 7.9 percent of micro-enterprises, 14.8 percent of small enterprises and 20 percent of medium-sized enterprises have one loan each. Only 3.3 percent of small enterprises and 7.3 percent of medium-sized enterprises applied for two or more loans.
Most of the respondents (51 percent) believe that access to finance is the main obstacle in the development of SMEs, 13.8 percent of people thinks that it is high tax rates and 5.8 percent - transport costs.
Although two thirds of MSMEs are familiar with supplier credit and more than half actually received such credit in 2013, awareness or access to other products remains limited. While 32 percent of MSMEs are familiar with leasing, only 5.8 percent sought this form of financing, and just 4.1 percent received it, in 2013.
Less than half of MSMEs prepare financial statements, while only a quarter prepare written business plans, and more than one third of MSMEs do not keep ongoing financial records at all.
Access to Finance Demand Survey Azerbaijan 2014 was held among 516 companies in the country, representing the spheres of agriculture, industry, trade, tourism, services and others. The survey was made up with the participation of the Central Bank and the government representatives.
Azerbaijan joined the World Bank in 1992. Currently, the World Bank portfolio in the country includes 18 projects. During the period of cooperation, the Bank has allocated over $3 billion to Azerbaijan for implementation of 55 projects.
Edited by CN
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