ACDI/VOCA Helps to Attract Investments to Azerbaijan’s Microfinance Sector

Small and medium-sized enterprises (SMEs) represent one of the most viable opportunities to grow and diversify the economy in Azerbaijan. However, SME growth potential is severely limited by a lack of access to finance and an underdeveloped and undercapitalized banking sector. In addition, the limited financial sector does not yet play the roles of intermediation and risk management that would provide SMEs with greater opportunity to obtain credit. Non-bank financial institutions (NBFIs) are few in number, and are usually small and underdeveloped.

Encouraging lending to SMEs, especially through NBFIs, is a central aim of ACDI/VOCA’s $6.4 million, USAID-funded SME Support through Financial Sector Development Project. One way to encourage SME lending is by supporting local institutions that can provide extension services. ACDI/VOCA has funded many Azerbaijan Microfinance Association (AMFA) activities through its SME support project, including sponsoring AMFA’s participation at the June 2006 “Microfinance with a Mission: Learning Together” conference in Budapest organized by the Microfinance Centre and European Microfinance Network. In addition to learning about strategic planning, sustainability for networks, and promotion and governance issues, AMFA made presentations on its activities, investigated potential opportunities for AMFA members and conducted negotiations with possible investors including the Calvert Social Investment Foundation, Deutsche Bank, MicroVest, OikoCredit, Omidyar Network, Rabobank, Triodos, USAID and others.

ACDI/VOCA’s support of AMFA’s efforts to attract investors to Azerbaijan has paid off. Based on AMFA’s work as a liaison between investors and members, AMFA member Norwegian Microcredit (Normicro) established a partnership with Deutsche Bank. In October 2006, while attending the SEEP Network annual meeting and Global Microfinance Summit, which was also sponsored by ACDI/VOCA, Normicro negotiated a loan agreement which was signed in December 2006.

In addition, in November 2006, Microcredit Enterprises provided Normicro with a $500,000 loan to improve livelihoods of low-income families, primarily internally displaced persons and refugees in 12 regions of Azerbaijan. The loan capital will provide much-needed funding to current and new clients of Normicro and enable them to develop self-sustaining, small-scale businesses. Also through ACDI/VOCA’s work, in February 2007 an additional AMFA member institution received loan capital from MicroCredit Enterprises Fund.

AMFA is actively collaborating with Developing World Markets (DWM), which has expressed interested in the Azerbaijan microfinance market. In January 2007, AMFA organized meetings of DWM representatives with 10 of the largest AMFA members, and held a seminar to provide information on accessing international private capital. In the coming months, AMFA plans to bring another investor company to Azerbaijan to supply MFIs with further loan capital.