WB: Azerbaijan needs new model for state funding of business

Business Materials 28 July 2015 15:55 (UTC +04:00)

Baku, Azerbaijan, July 28

By Azad Hasanli - Trend:

Azerbaijan needs to switch to a new model of state financing of entrepreneurial activity and population, said Angela Prigozhina, the World Bank (WB) coordinator for private and financial sector in the Southern Caucasus.

"As of today, Azerbaijan has quite large program for encouragement and development of small and medium-sized enterprises (SMEs) through state funds," Prigozhina told Trend.

However, as she noted, Azerbaijan's National Fund for Entrepreneurship Support (NFES), and similar structures largely depend on state resources, therefore it is needed to switch to a new modern funding model, that is, "to diversify the resource base with help of other sources."

Prigozhina said in the future it is necessary to improve the mechanism of allocation of resources for SMEs as part of state programs.

At the same time, she believes that the funds allocated from the state budget could be used more effectively to improve the cash flow efficiency.

"Given the current situation in the global economy, Azerbaijan, in order to replace the fiscal costs with private capital, needs to take additional measures to attract both domestic and foreign investments," said Prigozhina. "It is very important to develop the stock market to allow companies to attract funds through the issuance of securities."

WB coordinator said that in total, Azerbaijan Mortgage Fund, the National Fund for Entrepreneurship Support and State Service for Management of Agricultural Projects and Credits get large volumes of financing from the state budget, but very small number of enterprises and individuals can really use them.

One of the tasks of the country's government is to support the further economic development by providing a large number of enterprises with access to long-term and inexpensive resources and by stimulating mortgage lending that will allow to resolve the housing problem of many people, she added.

Prigozhina said that it is also important to stimulate attracting the population's deposits to banks and allow to return these resources back to economy.

Another issue is related to the way of reducing the interest rates on loans, she said.

"Currently, the high interest rate is largely formed as a result of high risks: there is no registration of objects of pledge, not all companies prepare financial statements, there is no a loan office, accordingly, banks can not always reveal that borrowers have a large amount of debt," she said.

WB representative believes that creating a private loan office and movable property registry is one of the priorities for Azerbaijan.

She added that this will create preconditions for increasing lending to the population and small and medium-sized enterprises. "These two reforms haven't been carried out in Azerbaijan and accordingly, they are very relevant and should be carried out as soon as possible."

A package of amendments to the laws on personal data, banks, non-bank credit organizations and the Code of Administrative Offences is currently discussed as part of the establishment of a credit bureau.

After making changes, regulating the activity of private credit bureaus, a technical partner of the first bureau will be chosen.

Some 11 banks and two non-bank credit organizations are the potential founders of the country's first private credit bureau.

Among them are Access Bank, AGBank, Azerbaijan Senaye Banki, Bank Respublika, Demir Bank, Muganbank, PASHA Bank, Turan Bank, Yapı Kredit Bank Azerbaijan, UniBank, Kapital Bank, Finka Azerbaijan and AzerKredit.

As for the personal property register, it will be governed by the bill on secured transactions. IFC helps Azerbaijan in the establishment of the registry and the credit bureau. This document is still finalized by the CBA.

The creation of the personal property register in the country will affect the number of the delivered loans, in particular, to the small and medium-sized businesses. Today, the entrepreneurs without real estate are facing difficulties in drawing the credit resources.

The register will allow registering the right of claim to the personal property, when it is as collateral for the loan.

Azerbaijan joined the World Bank in 1992.