German bank changes agro financing mechanism in Azerbaijan
Baku, Azerbaijan, July 24
By Ilaha Mammadli - Trend:
German Development Bank KfW has decided to send the second loan intended for agro financing to the Azerbaijani window of the European Fund for Southeast Europe (EFSE) through which it is planned to continue lending to rural areas by local banks, the KfW Baku office told Trend.
This decision was made after consultation with the Central Bank of Azerbaijan (CBA), particularly with the Risk Management Department. The KfW has not approved the former funding mechanism of the agricultural sector in the country.
In accordance with the previous strategy of the project, KfW funds are allocated in the form of subordinated loan for financing of projects in rural areas, including small business development in the regions, except Baku, Sumgayit and Ganja. And some 1.5 million euros have been allocated to Bank Respublika and two million euros - to NBCO "CredAgro" in the first phase of the project.
"The KfW plans to send another 3.5 million euros within the second phase of the project, the recipient of which could be only one bank. Furthermore, these funds with a period of four years are sent to the second level capital of the banks [in the form of a subordinated loan]. In this regard, the KfW and the CBA considered it reasonable to send credit resources to EFSE, which will cover a larger number of banks, "the German bank's office noted.
Delays in the implementation of the second phase previously were associated with the KfW`s expectation of results of the process of capitalization in the banking sector of the country.
The process of choosing banks was delayed due to expected changes in the Azerbaijan`s banking sector. The CBA initially set the requirement to increase the minimum amount of total capital up to 50 million AZN by January 1, 2014, then those dates were delayed for a year. The CBA recommended to the banks experiencing difficulties with the implementation of this requirement to be merged. Otherwise, their activity on the banking market may be limited," the bank noted earlier. Now the German bank decided to completely change the mechanism of agro financing in the country.
Azerbaijan's cooperation with KfW began in 1994. The strategic directions of the bank's activity include restoration of energy, water and other infrastructures, supporting the development of the financial and banking sectors, the private sector, healthcare systems, environment, etc. Throughout a period starting from the onset of Azerbaijan's cooperation with KfW until January 1, 2014, the country and the bank have signed 13 loan agreements worth 230.3 million euros.
The European Fund for Southeast Europe (EFSE) was initiated by KfW Development Bank (KfW) with the financial support of the German Federal Ministry for Economic Cooperation and Development (BMZ) and the European Commission. It aims to foster economic development and prosperity in the countries of Southeast Europe and the South Caucasus region. As access to finance is a key success factor in developing the micro, small and medium enterprise segments, the EFSE focuses on assisting local financial sectors in strengthening their ability to ensure adequate and sustainable financing. Supporting the EFSE's investment activities is the EFSE Development Facility, which provides partner lending institutions with technical assistance, consulting and training services to build operational capacities and professional management.
The investors of the fund are such financial institutions as the European Commission, German Federal Ministry of Economic Cooperation and Development , the governments of Austria, Switzerland, Denmark and Albania, KfW, IFC, FMO, the European Bank for Reconstruction and Development (EBRD), the European Investment Fund (EIB) and Oesterreichische Entwicklungsbank (OeEB), and Oppenheim and Deutsche Bank permenantly contribute to the stock base.
EFSE fund activity seeks to promote economic growth and prosperity in Southeast Europe, including countries such as Albania, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Macedonia, Georgia, Kosovo, Moldova, Montenegro, Romania, Serbia and Ukraine.
The fund offers long-term funding instruments to local financial institutions for lending small businesses, especially micro and small enterprises, including loans for private households.
The first EFSE loan was allocated to Bank Respublika in Azerbaijan in the amount of $5million in 2010. The loan issued for "AccessBank" JSC in the amount of $15 million in 2014 by this fund was the largest one.
Edited by CN