World Bank Recognizes Azerbaijan as Leading Reformer

In Azerbaijan ACDI/VOCA introduced reforms to improve credit reporting that in 2008 greatly expanded credit opportunities for small and medium-sized enterprises (SMEs), allowed banks to make better credit decisions and gained favorable notice from the World Bank.

As of 2007, the National Bank of Azerbaijan had a central credit registry that was operational, but not user friendly. It was cumbersome and paper-based and fell far short of international best practice. Because of its deficiencies, many banks did not submit their information to the registry, and many would-be borrowers could not obtain credit.

To address these shortcomings, ACDI/VOCA engaged a specialist to work with the National Bank credit registry staff and management to introduce needed reforms. As a result, critical improvements to the structure, operations and legal framework of the registry have led to a significant expansion of the database. The number of loans reported to the registry by banks rose from 181,000 (or 38 percent of loans in the banking system) in May 2007 to 592,000 (or 85 percent) in July 2008. When the database expansion is completed, an anticipated 800,000 loans will be registered in the system.

A key reform was to eliminate the reporting threshold for banks to report loans. Before the change, 40 percent of active loans in the banking sector were excluded from the central credit registry because they were deemed too small. Removal of the threshold was one of the changes that led the World Bank to recognize Azerbaijan as the leading reformer in the world in its 2009 “Doing Business” report and to raise the country’s ranking under the “Getting Credit” category. The report stated, “Azerbaijan led the world as the top reformer in 2007/08, with improvements on 7 out of 10 indicators of regulatory reform. Azerbaijan also eliminated the minimum loan cutoff of $1,100, more than doubling the number of borrowers covered at the credit registry.”

The reforms have expanded opportunities for banks and SMEs in Azerbaijan and made the country a model for reform in the region.