Banks in Azerbaijan are expected to increase their capacity to lend to local farmers and agricultural firms thanks to a new, innovative tool to evaluate loans in the sector.
The Azerbaijan Agriculture Loan Evaluation System (AzALES) was developed by the EBRD and the Frankfurt School of Finance and Management, with support from the European Union (EU). The system covers all commercially viable crops and animal products in Azerbaijan and helps lenders to assess risk more effectively, process loan applications faster and improve small private farms’ access to finance.
Agriculture is one of the key sources of livelihood for the Azerbaijani community, with 36 per cent of the active labour force working in agriculture (most in rural areas). The agricultural sector accounts for around 6 per cent of GDP, and reaches above 10 per cent when agro-processing industries are also included. The country has strong potential in agribusiness thanks to its variety of excellent crops. However, difficulties in accessing long-term, reliable and affordable finance, especially for firms in remote areas or with no real estate collateral, are holding the sector back.
Ivana Duarte, Head of the EBRD’s office in Baku, said: “Offering banks a more efficient system for evaluating agribusiness loans will help improve services for the sector, which is often still considered to be risky, a perception that the new tool will help to address. The system is expected to leverage the positive effects of the reforms already being carried out in Azerbaijan’s financial and agricultural sector by the government.”
The EU funding was instrumental in assisting the creation of AzALES.
Simona Gatti, Minister Counsellor and Head of the EUD Delegation to Azerbaijan Cooperation Section, added: “AzALES comes at a critical point in time when the government of Azerbaijan deploys important resources to modernise the agricultural sector as part of its economic diversification strategy.
“The success of many of the initiatives inscribed in the government roadmap for agriculture and indeed EU-supported activities in this sector hinge on improved access to agricultural credit notably by smaller and medium-sized rural operators.”
AzALES will be centrally operated and maintained by Azerbaijan’s Agency for Agricultural Credit and Development under the Ministry of Agriculture and will be available to the entire financial sector in the country.
It will enable financial institutions to:
- benefit from centralised and reliable agricultural data, increasing efficiency and transparency and reducing costs
- disburse agricultural loans in a more systematic way
- lend the amounts on terms and conditions that will prevent over-indebtedness.
The EBRD supported a similar tool, TARDES, in Turkey in 2014. To date, 460,000 agricultural loan applications, worth a total of €2.6 billion, have been approved with the help of the system. It has also contributed to a significant decrease in the number of bad loans in the sector.
The EBRD maintains a strong focus on Azerbaijan’s agricultural sector. Since 2013, the Bank has provided about €50 million of financing to various agribusiness firms in the country.
The EBRD is one of the leading institutional investors in Azerbaijan, where it focuses on supporting efforts to diversify the economy and develop the private sector.
The EU is the largest grant donor to Azerbaijan and to the rural development and agriculture sector. EU actions currently focus on improving overall sector governance, notably through reform of the subsidy regime, strengthening of agricultural advisory services, introducing good agricultural practices and climate change resilience, introducing a rural business information system, as well as aligning the food safety legal and institutional framework with EU standards.
The EU also supports the development of integrated territorial development plans across the country with the objective of harnessing local and regional rural development potential thereby addressing income disparities. EU-funded grant schemes help local initiatives off and on farm to diversify sources of rural income by exploiting comparative advantages and in using EU best practices.