2006 Azerbaijan Microfinance Analysis and Benchmarking Report - English

Microfinance is often considered to be one of the most effective and flexible strategies in the fight against poverty, which is consistent with the intended role of microfinance services in Azerbaijan. Microfinance institutions (MFIs) of Azerbaijan have matured and grown in capacity and have become among the most active financial institutions contributing to the economic development of the country. Although Azerbaijani MFIs are still relatively young, as of September 2007 these institutions had a total outstanding portfolio exceeding 316 million USD with 223,000 active borrowers. The current report illustrates the performance changes in the microfinance sector of Azerbaijan during 2004–2006 for a group of 9 leading MFIs (comprising 90 percent of the non-bank sector) and focuses on the increased efficiency of operations and overall productivity and the expansion of outreach and scale.

MFIs in Azerbaijan have had to adjust to a rapidly changing macroeconomic environment, with high inflation and rising income levels. For many MFIs in the sector, expansion has had to move upward rather than outward—loan balances are increasing faster than outreach. External financing has partially met the demand for credit, but this has been concentrated towards a few larger MFIs. Local financing has been restricted largely to government programs, although several banks have active downscaling programs which compete with MFIs for clients. Access to finance in many rural areas is still limited. There have been noticeable efficiency gains in the sector, although these can partially be attributed to increasing loan balances, and have not led to substantial decreases in the cost of finance for microfinance clients.