Azerbaijani NBCOs eye to get access to new funding source in 2019

Business Materials 30 March 2018 19:27 (UTC +04:00)

Baku, Azerbaijan, March 30

By Azad Hasanli – Trend:

Participants of the Azerbaijani microfinance market expect to gain access to the loans of the Central Bank of Azerbaijan (CBA) in 2019-2020, representatives of the Azerbaijani non-bank credit organizations (NBCO) told Trend.

The non-bank credit organizations launched negotiations to gain access to the CBA loans two years ago.

During this period, some meetings were held, but so far no concrete solution has been achieved, representatives of the Azerbaijani NBCOs said.

The lack of progress in the negotiations is related to the CBA monetary policy which envisages the targeting of the money supply. Before the February devaluation of 2015, the money supply was 10.551 billion manats. However, later the money supply began to narrow and at the end of 2015 it reached 6,901.8 million manats. Over the subsequent two years, its volumes changed, alternately increased and decreased. But, ultimately, by the end of February 2018, the money supply reached 9,180.6 million manats.

"The CBA gradually weakened the policy of narrowing the money supply,” a source in the Azerbaijan Micro-Finance Association (AMFA), which initiated these negotiations two years ago, told Trend. “Earlier, the CBA did not want to give loans to non-bank credit organizations, because additional amounts of lending could prevent sterilization of the money supply.”

“But today it is planned to move from money supply targeting to inflation targeting,” AMFA said. “The CBA intends to move from money supply targeting to inflation targeting in the medium-term period. Afterwards, there will be no emphasis on narrowing of money supply. We will get hope for successful completion of the negotiations."

At the same time, even in case of success, NBCOs will be unable to receive the CBA funds directly.

One of sources in a big NBCO told Trend that non-bank credit organizations cannot open an account at the CBA to receive loans through it. Therefore, market participants offer the CBA to allocate loans to the banks, from which non-bank credit organizations will be able to acquire these loans at a symbolic margin.

"A new source of financing would help the NBCOs expand lending, especially in the regions,” one of the market participants told Trend. “Most of our clients are rural residents. Nevertheless, the negotiations with the CBA are not the only alternative for us. The market participants and AMFA constantly hold negotiations with potential investors both inside the country and abroad."

After two devaluations, problems with search for lending funds arose in the Azerbaijani microfinance market. On the one hand, the share of bad loans increased and NBCOs could not repay the loans in the same amount to issue new loans.

On the other hand, attraction of funds from foreign investors proved to be unprofitable for NBCOs due to the changes in the exchange rate of the manat against the dollar. At the same time, the microfinance market participants could purchase limited loans from the banks because of the high interest rate on them.

As a result, market participants are actively searching for new sources of financing. Besides the negotiations with the CBA, AMFA held various negotiations with potential foreign investors. Some market participants discussed the possibility of creating new funds to expand lending. At the same time, negotiations were conducted with the European Bank for Reconstruction and Development and other international financial organizations.

(1.7 manats = $1 on March 30)