Over the past year the Agricultural Development And Credit Project Az-3236 Rural Finance Component has increased its output both in project deliverables and overall allocation of sub-loans through the borrowing groups (BGs) and through the establishment of credit unions (CUs). Year 2004 project results are impressive.

Programme Purpose

To return Azerbaijan's farming areas to former levels of productivity under a new system characterized by family and group farms operating in private markets
To increase the general availability in rural areas of market based credit and deposit services for rural households, enterprises and farms
To establish 30 Credit Unions and 800 Borrowing Groups

Why Rural Finance Component?

To create/improve legal and institutional environment for credit transactions
To create/strengthen sound and competitive financial institutions
To use solidarity groups as transitional channels for donor provided funds
To make term funds available to be on-lent to final borrowers through Local Financial Intermediaries- LFIs
To improve prudential regulations for LFIs

Business Focus
Assist to establish and provide financing to credit unions and borrowing groups in order to extend loans to people who are rural entrepreneurs, including:
Farmers
Traders
Service providers
Handicraft and cottage industry producers
All operating their business as individuals.
Rural Credit Line
Total $ 11.500.000 credit line to be disbursed within 36 months (June 2002 - May 2005)
- $ 9.200.000 from World Bank
- $ 2.300.000 from G&G Company

Organisation Structure
Business Structure of IA-Baku Level
A private limited liability company established in Azerbaijan
Operates under its Statutes or Articles of Association, registered by MOJ and licensed by NBA
General Assembly represents ownership and is the ultimate governing body: develops policy and exerts control over management
100% G&G ownership
Project Director is in charge of overseeing of the day-to-day operations of IA
Business Structure-Regional Level
IA is represented by 2 regional representatives in each region
Regional Advisory Centre is providing assistance to farmers and IA by training and forming BGs and CUs
Borrower Groups
Groups of borrowers with 10 to 20 individual farmers and micro-entrepreneurs
Known as 'Village Banks'
Physical persons
No need for legal incorporation and a ANB license
Credit Unions (CU)
Minimum 11 members and USD 5.000 share capital.
Registered by Ministry of Justice
Licensed by National Bank of Azerbaijan

PEARLS system
IA has implemented a system to determine the credit union's performance in comparison with international financial standards for credit unions.
IA is using the PEARLS system, which includes a six-component structure consisting of 38 ratios that analyses the credit union's balance sheet and profit/loss statement. As the credit unions develop over time PEARLS will create a history of the individual credit union's performance. IA will be able to view the credit union's historical performance to pinpoint areas of operational and/or financial weakness. IA will then be able to assist the credit union in taking action to correct deficiencies. This system of analysis will be imperative for IA to determine whether or not further external credit should be provided to the credit unions.

Geographical Focus
Lending targeted to the following five regions, chronologically as follows:
- Autonomous Republic of Nakhchivan (95 villages)
- Ganja (62 villages)
- Sheki (81 villages)
- Beylegan (77 villages)
- Masalli (98 villages)
Total 29 districts and 413 villages.
Spectacular Results
For BG Lending Scheme (as of Feb. 20th 2005)
No. of BGs: 833
No of Contracts: 1133
No of Members: 19207 (29,7% female)
Amount Disbursed: 7.218.754 USD
Ontime Repayment rate: 95% (overall 98,5%)
Key Functions of G&G
Co-finance 20% of each loan to BGs and CUs
Design micro finance programme
Prepare systems, manuals, tools
Prepare financial model for CUs
Manage and operate Credit Implementing Agency
Deploy local and international expertise
BG and CU training and capacity building
Supervision and monitoring of disbursement
Prepare exit strategy for sustainability

Rural Finance Component Project Impact in Azerbaijan

To assess the economic impact the Project has had in Azerbaijan a regional review must be provided. IA currently works within 5 Regions of which has the following composition: 29 Districts, 413 villages, and 17,189 households.

As of 31 December 2004, the Rural Finance Component Project has infused into the Azerbaijan economy 7,241,427 USD in lending funds received by BG and CU members. The loan funds have contributed to the further economic development of the 17, 189 households of the 5 Regions covered within the project. Loan funds were used within the regions for the following:

The largest percentage of loan funds was used for Livestock Maintenance and Breeding. For crop production the largest percentage of loan funds went towards the planting and harvesting of Sugar Beets.