Legal Analysis of Mfi Azerbaijan

If we look at microfinance in Azerbaijan, we can see mature sector. From the statistics it can be said that number of borrowers (323,453) and total assets ($1.1 billion) are big numbers from the perspective of Azerbaijan. 26 microfinance institutions and commercial banks those give microfinance services generate this sector. MFIs are registered as limited liability companies and granted all benefits accorded to humanitarian institutions: exempt from 22% payroll tax, customs duties and foreign staff can use humanitarian visa. Addition to these NBCOs (Non-Bank Credit Organizations) funded with US funds were also exempt from profit tax, VAT (for the duration of agreement). All these facts affect this sector positively.

From data we can see that there is a big potential of MFIs in Azerbaijan. That's why it has to be regulated by the government. Otherwise it can be damaged. Regulation and supervision are done by National Bank of Azerbaijan (NBA).NBCIs can establish unions or associations to coordinate activities until they behave like monopoly. I think this helps them to develop faster. And this situation supervised by NBA.

License given by NBA do not permit financial services other than lending, such as savings (Article 15.4). When we consider financial conditions of MFIs we can say that they are healthy enough in order to take deposits (from legal entities and individuals). There are advantages and disadvantages of prudential norms set by NBA if we look from different perspectives. One of advantages are free interest rates, I am in interest rate on loans is defined with the contract signed between NBCI and borrower. Second advantage is NBCI can take collateral from borrower that helps to decrease bad risk. Another good point I meet in case is common data base for customers, information about client is registered to the system in Central Bank. And this helps MFI positively.

However there are also disadvantages of these norms:

- NBCI operating in the territory of foreign countries can establish branches without right to accept collateral deposit. This article limits the number of MFIs that sould work in Azerbaijan.

- Minimum amount of chartered capital of NBCI and minimum requirements for initial property are defined by Central Bank (NBA). In this case supply may exceed demand and too excessive money will not be used (in other places this money can be used by MFI).

- Capital has to be formed in the national currency (AZN) of the Republic of Azerbaijan. As it is known MFIs use international currencies in case of economic instability of the republic where they operate. This article is also one of the disadvantages for MFI in Azerbaijan.

- Funds given away by international organization or governments of foreign states and revenues gained from them should not be taken away by NBCI (Article16.2). This obstacle is something like not giving permission to give financial