BAKU, Azerbaijan, June 16
Trend:
Azerbaijani Entrepreneurship Development Fund provided 1,573 entrepreneurs with loans worth 175 million manat ($102 million) in 2019, Trend reports on June 16 referring to the Azerbaijani Economy Ministry.
Soft loans were mainly issued to finance the projects in the field of agricultural and industrial production, as well as to manufacture products for domestic consumption and export, to support development of entrepreneurship, especially small and medium-sized entrepreneurship.
The loans are issued through the authorized credit organizations and the maximum annual rate on them is five percent.
The loans are divided into three categories depending on the amount:
- small loans: 5,000 - 50,000 manat ($2,941-29,411), which are issued for up to three years;
- medium loans: 50,001-1 million manat ($29,412-588,235), which are issued for up to five years;
- big loans: 1 million-10 million manat ($588,235-5.9 million), which are issued for up to 10 years.
The first half of the period for which the loans are issued are preferential, when entrepreneurs pay only interest on loans, while the process of returning the fixed assets on loans begins from the second period.
Over the past period of 2020, the Fund issued the loans worth 50.4 million manat ($29.6 million) and 335 entrepreneurs received these loans.
The rules of issuing soft loans and the charter of the Entrepreneurship Development Fund were changed upon the Azerbaijani president’s decree. The main goal of the changes is primarily the development of entrepreneurship, especially the support of small and medium-sized enterprises in the country.
The changes are associated with increase in loan terms, the use of new mechanisms during the issuance of the soft loans, as well as subsidizing and issuing the state guarantees for obtaining new loans.
As is known, when obtaining the loans, one of the banks’ requirements is to give collateral, which in some cases is several times more than the amount of the required loan. The entrepreneurs could not give the required collateral very often and as a result, they could not take advantage of soft loans.
In accordance with the new rules, if an entrepreneur wants to get a loan and use it to purchase new production equipment, then a collateral is not required to obtain this loan. An entrepreneur pays 20 percent of the cost of the equipment and the entrepreneur may use the preferential funds of the Entrepreneurship Development Fund to pay the remaining part.
In this case, the equipment itself, which the entrepreneur intends to purchase, is the collateral for this loan. This lending mechanism will enable entrepreneurs to take advantage of soft loans without giving the additional collateral in a short period of time. Moreover, the new financing mechanism will also be of interest to the banking organizations as the bank's income on these loans will be more and reach seven percent per annum.
Another change is related to increase in terms of certain types of loans. Some spheres of entrepreneurship require a longer grace period of financing. In particular, these types of loans are necessary for the development of agriculture, for example, tea growing, preparation of new grape and fruit orchards, etc. The investments in these spheres and their return require a longer period of time.
The entrepreneurs whose activity is related to these sectors of agriculture, because of the short period of time for which small loans of up to 50,000 manat ($29,411) and medium loans of up to 1 million manat ($588,235) were issued, were often unable to take full advantage of the provided benefits.
As a result, they were forced to return the loans taken for these purposes at their own expense as they did not manage to return the investments which they made within three and five years for which these funds were allocated.
In accordance with the new rules, these types of activity will be financed for a longer period of time, respectively for five and seven years.
This will give an additional incentive to the entrepreneurs to develop such sectors of the economy, meet the domestic needs and increase the country's export opportunities. At the same time, the authorized organizations, in turn, will also be interested in financing such loans as a longer financing period will greatly reduce their risks.
The changes made in the charter related to the empowerment of the Fund for the issuance of state guarantees and subsidies give the additional opportunities to support entrepreneurs during the issuance of loans.
Azerbaijani Cabinet of Ministers has adopted a state program to support the sectors of the economy affected as a result of COVID-19 and the funds worth 500 million manat ($294 million) have been allocated for these purposes.
In accordance with this program, entrepreneurs whose activity suffered from the pandemic, may receive commercial loans of up to three million manat ($1.8 million), which will be provided with a state guarantee of up to 60 percent of this amount. At the same time, the interest rate on such loans that do not exceed 15 percent on an annualized basis by half (7.5 percent) will be subsidized by the Fund through the state funds.
The Ministry of Economy is creating an electronic platform through which entrepreneurs in a short period of time and without additional cost will be able to use the services for obtaining loans with a state guarantee and the possibility of subsidizing the loans. The platform is currently in testing mode. A similar platform is used in the US and in some developed European countries.
That is, entrepreneurs will submit the applications through an online platform that may ensure convenience, create equal terms for them, as well as expand access to the preferential funds and increase transparency.
After submitting an application by the entrepreneur through the online platform, a permit to issue a loan will be simultaneously considered by both Fund and an authorized credit organization.
This will also reduce the time for consideration of applications up to 10 days. This will also enable the entrepreneur to track the entire process through his/her personal account during the entire period of the application consideration, including the results of the consideration by the Entrepreneurship Development Fund and an authorized credit organization.
This will ensure both efficiency and transparency of the whole process, as well as solve the problem of long processing of applications, which will allow entrepreneurs to receive bank loans and state guarantees faster.
Both mechanisms, namely, subsidizing of interest and issuing of loans upon the state guarantees are intended for entrepreneurs affected by the COVID-19 pandemic. In this regard, the scope of activity of the applicant must correspond to the type of economic activity affected by the pandemic.
A transparent, convenient and quick access to soft loans will further give an opportunity to increase the economic activity in the country, to quickly restore the affected sectors of the economy and further develop entrepreneurship.