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Azerbaijan, Rep. of
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LOAN: AZE 38110-01
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Micro and Rural Finance Development Project
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Location
Azerbaijan
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Sector
Finance /Microfinance
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Initial Listing
16 July 2004
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Most Recent Update
9 November 2005
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Executing Agency(ies)
Ministry of Economic Development
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- Missions
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| TA Fact-Finding |
Loan Fact-Finding |
Pre-Appraisal |
Appraisal |
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3-21 May 2004 |
TBD |
9-20 Aug 2004 |
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Loan Approval Date
2005 (Expected Approval Year)
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Estimated Completion Date
November 2011
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- Cost and Financing Plan (in US$ million)
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| Source |
Foreign Cost |
Local Cost |
Total |
| Bank |
23.84 |
1.16 |
25.00 |
| Cofinancing |
0.00 |
0.00 |
0.00 |
| Borrower |
0.00 |
5.99 |
5.99 |
| Beneficiaries |
0.13 |
8.53 |
8.66 |
| Others |
0.00 |
0.01 |
0.01 |
| Project/Program Cost |
23.97 |
15.69 |
39.66 |
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OCR |
ADF |
Total |
| Loan Amount |
25.00 |
0.00 |
25.00 |
- Description
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A dozen micro credit organizations, mostly NGOs (microfinance institutions, or 'MFIs"), offer micro loans in urban areas. Although some of these MFIs are also active in rural areas, they have not achieved significant outreach or financial sustainability. There are an estimated 800,000 poor families in the country, and MFIs serve less than 40,000 borrowers. MFIs rely on extrernal grant funding (74% of which is provided by USAID) and are not authorized to mobilize deposits or access other local sources of funds. More than 100 credit unions (CU) were created under an EUTACIS project beginning in 1998. This project suffered a number of weaknesses, including insufficient technical assistance, weak project management, and the provision of subsidized credit to newly formed organizations that were not professionally run. The result was a series of frauds and pyramid-type schemes, which led to the collapse or closure of most of the CUs that were set up. The 29 registered CU still operating are subject to supervisory regulations similar to those of banks, yet they are prohibited from taking any deposits, including member deposits, thereby restricting their growth and development.
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- Thematic Classification
- Economic Growth / Private Sector Development
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- Target Classification
- Targeted Intervention
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- Rationale
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- Objectives and Scope
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The goal of the project is to deepen and broaden financial markets in Azerbaijan. The project objective is to increase access to bank and MFI services in the rural regions outside Baku, particularly financial services to poor households. The objective will be met through sustainable regional service expansion of participating microfinance institutions (MFIs) and private commercial banks (PCBs). The proposed project comprises three components: (i) the microfinance development facility, a line of credit to MFIs for onlending to rural households, including substantial numbers or families living below the poverty line; (ii) the rural banking development facility, a long-term debt facility for PCBs to help them to expand their branch operations and e-banking services outside Baku; and (iii) capacity building for PCBs, MFIs and the Ministry of Economic Development (MOED).
The Microfinance Development Facility will help (i) meet the financing gap until MFIs can mobilize savings and leverage other resources under new microfinance legislation expected in early 2005, or until they are financially sound enough to attract additional investment; and (ii) expand the MFI services to rural households.The Rural Banking Development Facility will extend commercial bank coverage in rural areas by providing long-term loans for PCBs to invest directly in service expansion through new technology or branching arrangements. The project will deliver focused capacity building for MFIs and PCBs,and provide project management support. Key activities include (i) executive team-building and work planning exercises, (ii) MFI rating and diagnostic exercises and related quarterly international performance reporting, and (iii) capacity building training.
- Policy Dialogue
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The expansion of micro and rural finance to regions is a very high priority for the Government, and they repeatedly expressed their interest in completing the loan this year. Timing of loan processing is dependent on Government's no-objection to the Fact-finding Aide Memoire and signing of the MOU at appriasal, which may be difficult for the Government to achieve given its long internal consultation requirements.
- Environment Category:
FI
- Environment Impact and Mitigation
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tbd
- Social Aspects and Remedies
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No anticipated social or environmental concerns.
- Benefits and Beneficiaries
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The project will enhance rural and poor households' economic opportunities by (i) providing sustainable financial services, including deposit-taking and loan products; and (ii) creating an enabling environment for financial sector
development , with an appropriate legal and regulatory framework and increased competition. With funding from the project, MFIs will be able to double the number of borrowers in 5 years. At the same time, the expansion in their loan portfolios will enable at least three MFIs to become fully financially sustainable and to attaract new investment.
- Public Consultation
- Arranged by
- Date for Consultation :
- Groups Consulted :
- Beneficiary Participation in Formulation
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Consultation on potential project concepts has been broad and thorough. The views and opinions of civil society, namely the Azerbaijan Micro Finance Association (AMFA), the Azerbaijan Credit Unions Association, and various individual NGOs providing micro credit, including FINCA, Oxfam and ACDI-VOCA, have been solicited on a number of occasions.Meetings were held with the Banking Council membership and the Microfinance Association membership to solicit their views, and intent to participate, and potential contribution to the total project cost.
- Beneficiary Participation in Implementation
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Discussions were held with the Ministry of Economic Development (MOED), MOF, the National Bank of Azerbaijan (NBA), key institutional stakeholders, and relevant development partners. The prequalification procedures andd appraisal processes for potential candidates for the microfinance development facility and rural banking development facility were discussed.
- Consulting Services
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The project will finance a total of 30 person-months of international consultants and 108 person-months of domestic consulting services. The international consultants will be recruited in accordance with ADB's Guidelines on the Use of Consultants. A financial advisor/team leader (21 person-months) and executive team-building exercise consultant (1 person-month) will be recruited under individual contracts. A team of international trainers comprising an agricultural lending training specialist ( 1 person-month) an e-banking development specialist (3 person-months), a product development specialist (2 person-months), and an MFI strategic growth specialist (2 person-months) will be recruited under a firm using the quality based selection. A bio data technical proposal will be used to select the consulting firm. Two domestic consultants for PMU operations comprising a microfinance specialist/project manager (60 person-months) and a commercial banking specialist (48 person-months) will be recruited on an individual basis.
- Procurement
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Procurement of goods and services under the capacity building component will be carried out in accordance with ADB's Guidelines for Procurement. Vehicles, equipment and materials will be procured out of ADB loan funds for these components (i) by international competitive bidding where the cost is valued at over $500,000 equivalent, (ii) by international shopping where the cost is valued from $100,000 to $500,000 equivalent, or (iii) by direct purchase where the cost is valued at less than $100,000 equivalent and several local suppliers can offer satisfactory service facilities. All equipment and vehicles will be sourced from ADB member countries.
- Contacts
- Bank
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Harriet (Betty) Wilkinson
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Project Specialist (Rural Development and Finance)
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ECAE
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Tel. No.:
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(632) 632-4630
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E-mail:
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bwilkinson@adb.org
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- Executing Agency
- Ministry of Economic Development
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Contact Person
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Rufat Mahmud, Head of Division
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Tel. No.
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+994 12 492 41 10 (1-31)
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Fax. No.
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+994 12 492 58 95
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