Azerbaijan refuses third KfW soft loan for business

Business Materials 12 January 2013 15:56 (UTC +04:00)

Azerbaijan, Baku, Jan. 11 / Trend I.Khalilova /

The Azerbaijani government has lost the right to use the third soft loan of the German Development Bank KfW in the amount of five million euros, intended for small and medium enterprises (SMEs) in the country, the bank's Baku office told Trend.

"The deadline for signing the loan agreement was late December 2012, but the Azerbaijani side refused to sign it. Thus, the bank's budget is closed and Azerbaijan will not be able to receive these loans," the bank said.

The project of loan agreement was submitted to Azerbaijani government by KfW, but it was not included in the list of agreements that were signed with the bank in Baku on December 20. In total, five agreements were signed on allocation of 105.5 million euros to Azerbaijani government, of which 102.5 million euros were issued as a loan, and three million euros- as a grant. Of these funds, 102 million euros will be spent on projects to improve water supply and sewerage services, 3.5 million euros will be contributed to the State Committee for Property Issues for projects in cadastre field.

As it was told Trend in the government, attracting new foreign loan to support business was considered as inadvisable, because today the country has sufficient financing sources for small and medium businesses.

"At present, funds are allocated for business financing both from the state budget through the National Fund for Entrepreneurship Support, State Agency for Agricultural Lending, and from the German-Azerbaijan Fund (GAF), non-bank credit organizations and banks. Given the existence of a number of funding sources, the government considered unreasonable to increase the country's external debt, "a source in the government said.

Same as the previous two loans, KfW was ready to give the third loan on favorable terms - for a period 40 years with a grace period of ten years at an annual rate of 0.75 percent for the financing of SMEs through the GAF. The difference was that the funds of the third loan were intended to finance small and medium enterprises in rural areas, including in the field of agriculture.

The bank also intended to provide the third loan in national currency of Azerbaijan and undertake the risk of changes in exchange rate.

Since 1999, the German bank provided two tranches to German-Azerbaijani fund worth 8.7 million euros. The development of tranches have been completed, and currently the banks are financed from the revolving fund account and the profit earned since the beginning of the fund's activity.

GAF's partners are Bank of Baku and UniBank -since March 2001, Parabank and Bank Respublika- January 2003, DemirBank (formerly Azerdemiryolbank) and AGbank -September 2004, Rabitabank and Mugan Bank - December 2006 and Bank Nikoil - February 2007.