Azerbaijan faces major hurdles in the continuing transition from a command to a market economy. Successful conversion is largely dependent on the oil industry, which has seen steady growth and modernization in the last several years. Unfortunately, this progress has not been mirrored in the agricultural sector, which accounts for 40 percent of total employment. When compared to the oil industry, which employs a mere 3 percent of the workforce, it is clear that despite oil’s value as a commodity, improvement of everyday life in Azerbaijan will require financial support to and restructuring of agriculture. For years, a lack of financial institutions willing to lend to smallholder farmers has stifled progress. Without sufficient funding, small- and medium-scale farmers and agribusinesses have encountered difficulties expanding operations and updating agricultural techniques.
In response to the lack of capital available to small- and medium-scale farmers in rural Azerbaijan, ACDI/VOCA established CredAgro in July 2000 under a grant from USAID. CredAgro served the people of the former Soviet republic as a nonbank credit institution, with nine branches throughout northwestern, northeastern and southeastern Azerbaijan. CredAgro performed two main tasks. First, it provided loans to small and medium-sized agricultural ventures on a sustainable basis, which allows farmers to invest in their businesses, precipitating growth and expansion. Second, it strengthened the economic viability and sustainability of independent agricultural enterprises by offering significant and stable financial support.
CredAgro distributed microfinance loans to deserving farmers and agriculturally related rural enterprises that traditional lenders turn down and offers to the borrowers loans with maturity from 6 to 18 months repaid through installments agreed upon before disbursal. The interest rate for production loans was 22 percent and for business and trade loans 25 percent. Azerbaijan’s microfinance market in agriculture grew steadily as the country developed its domestic economy and began to create export opportunities. ACDI/VOCA estimated that CredAgro serviced less than 2 percent of the available market, meaning that with sufficient support, CredAgro could build its client base and play a greater role in Azerbaijan’s burgeoning agricultural economy.
By the end of the 5.5-year program, CredAgro achieved a number of financial and social milestones. The program disbursed over $30 million in loans to more than 5,000 clients. The large base of clients involved in the project generated a combined $1.6 million in gross interest receipts since the program’s inception. The institution maintained an impressive portfolio at risk level of below 1 percent.
Money from CredAgro loans created over 18,000 full- and part-time jobs, of which women filled 22 percent. Since its inception, CredAgro has been unwavering in its support of small-scale farmers who have been turned away by other creditors. Where traditional financial institutions see an unacceptable risk, CredAgro sees a potentially viable enterprise in need of a helping hand. By offering loans to these individuals, the company upholds a dual mission of providing affordable capital to agriculturalists while furthering economic development in Azerbaijan.
Since 2003 CredAgro has been operationally and financially sustainable. It has a fully functioning supervisory board comprised of mainly Azeri nationals. Recently it received its first BBB rating from Microfinanza, an international rating agency, which indicates “adequate capacity to meet its financial obligations, good operations, quite stable even if it could be affected by significant internal or external events.” In 2006 CredAgro signed a $1 million, 3-year loan agreement with the European Bank for Reconstruction and Development (EBRD). This is the first loan extended by EBRD to a non-bank financial institution in Azerbaijan. Until this groundbreaking agreement, EBRD had been only financing banks in Azerbaijan.
Renamed in 2010 as OJSC KredAgro, it operates with 13 branches and 9 sub-offices in Baku, Shaki, Zagatala, Balakan, Gakh, Tovuz, Aghstafa, Gazakh, Guba, Khachmaz, Goychay, Ismailli, Lenkoran, Masalli, Jalilabad, Bilasuvar, and Sumgait. KredAgro has over 13,700 active borrowers and gross loan portfolio of $50.4 million.