Better Banking Practices Boost Business, Create Jobs in Azerbaijan’s Diversifying Economy

Project Result / Case Study | 2 May 2015

ADB’s partnership with an Azerbaijan bank has promoted better banking practices and helped entrepreneurs flourish in a country that has rocketed to upper middle-income status.

Elham Musayev’s father, a vegetable grower, had taught his son well. By the time the Azerbaijani farmer started his own business on a quarter-hectare plot in 2008, Elham knew everything there was to know about growing cabbages.

Since then the 40-year-old has enjoyed great success, cultivating cabbages on 4 hectares, growing maize on another 2.5, and raising beetroot on an additional two. His enterprise has had knock-on benefits for the town of Ismayilli where he and his wife live with their three children.

Elham pays rent in the form of a ton of wheat per hectare each year to the five villagers who own the land he farms and also sells his produce to wholesalers and the village market. “People know my vegetables are 100% natural,” he says.

He has also created jobs. In 2014, Elham employed about 40 people for 4 months to help harvest his crops. He now aims to expand production and increase the variety of vegetables he produces.

Promoting private sector development

A key to Elham’s success - and to that of thousands of other start-ups and micro and small and medium enterprises (MSMEs) in the country in recent years - was lending support from Azerbaijan’s AccessBank. In Elham’s case, the credit financed the purchase of a mini tractor, which he needed for efficient weeding.

The government sees the stimulation of rural employment as a crucial ingredient in its effort to diversify the economy away from over-reliance on the volatile oil and gas industry. ADB’s partnership strategy for Azerbaijan has emphasized support for more broad-based growth in the private sector.

Much of the lending has been supported by a 2006 ADB loan aimed at helping private banks and leasing companies support MSMEs and thereby making economic growth in the country more inclusive.

Public confidence in the country’s banking system had been undermined by the economic crises that followed Azerbaijan’s independence from the former Soviet Union in 1991. In addition, financial services are still concentrated in the capital, Baku, leaving the rural regions - and entrepreneurs like Elham - largely out in the cold.

Aside from the need to reduce the country’s urban-rural disparities, the government sees the stimulation of rural employment as a crucial ingredient in its effort to diversify the economy away from overreliance on the volatile oil and gas industry. ADB’s partnership strategy for Azerbaijan has therefore emphasized support for more broad-based growth in the private sector.

ADB selected three banks for what was to be its first venture in the country’s private sector. These were Azerigazbank, Bank Respublika, and AccessBank - then called the Micro Finance Bank of Azerbaijan. In August 2006, ADB and AccessBank signed an agreement for a $4 million loan with a term of 4.5 years to support MSMEs. The loan was repaid in 2011.

Supporting socially committed businesses

ADB has been helping MSMEs develop by promoting better banking practices, and has taken special care to ensure AccessBank financed projects and businesses that were environmentally and socially sound. This process involved knowledge sharing with AccessBank, which as a result has been able to expand its loan portfolio, increase deposits, and improve its banking standards, consistently recording net profits since 2007.

The number of AccessBank microloan borrowers rose to 88,492 in 2010 from 12,152 in 2006, and its staff almost tripled in size to 1,243 from 451. Bank credit to the private sector grew to 12.2% in 2011 from 9.5% of gross domestic product in 2005.

Along with these changes, growing oil and gas revenue, increased public spending, and policy shifts aimed at developing a market-based economy have helped rocket Azerbaijan to upper middle-income status. According to World Bank figures, per capita average income in the country rose to $7,350 in 2013 from $660 in 2001. The poverty rate declined to just 5% from 49% over the same period.

Feizulla Jamalov is typical of the new breed of socially committed Azerbaijan entrepreneurs who have benefited from the transformation and been supported through the greater MSME lending that resulted from ADB’s partnership with AccessBank.

In 2014, Feizulla took a loan from AccessBank for his beekeeping business. By using the money to renew old hives and buy new ones, he has been able to establish bee families in 49 hives. Once he pays off his current loan, he will apply for another to double his current honey production of 140 kilograms a year.

Feizulla also teaches, trains, and helps people who want to become beekeepers for a year and then gives them a free hive. “Back in 1999, a colleague gave me my first beehive for free,” he says with a smile. He considers it a privilege now to be able to give back to his community.

This article was originally published in Together We Deliver, a publication highlighting successful ADB projects across Asia and the Pacific that demonstrated development impacts, best practice, and innovation.