MICROCAPITAL STORY: FINCA Azerbaijan to Increase Microlending to Farmers

FINCA Azerbaijan has announced plans to increase microlending to farmers in an effort to support food security in the face of an emerging world food shortage. Currently, 30 percent of the nonprofit’s loan portfolio represent agricultural microenterprises, about USD 17 million. In his statement announcing the plan, FINCA Azerbaijan Director Jeff Flowers indicated that the increase in farm crediting is intended to ensure food security, but he did not offer any projections on the size of the increase.

FINCA’s plan to increase farm crediting reflects an acknowledgement from some members of the microfinance community that microfinance institutions, where possible, should play a role in combating the growing world food shortage by increasing the number of loans to farmers. MicroCapital recently reported that the head of Nigerian research institute Nigerian Institute for Animal Science has urged Nigerian nonprofit and commercial microlenders to increase farm crediting to help combat the country’s food shortage.

Profitable microlending to farmers remains one of microfinance’s greatest challenges. A CGAP report explains that a large impediment to profitability is the seasonality of crops (p.1) produced by agricultural microenterprises. Having to wait an entire season to reap profits, borrowers often find it difficult to make timely repayments on microloans that are generally structured with shorter terms and frequent repayment rates.

Based in Washington D.C, FINCA (Foundation for International Community Assistance) is a network of affiliated nonprofit organizations operating in 21 countries. Founded in 1984, FINCA pioneered the “village banking” concept that extends microcredit loans to poor entrepreneurs. According to its financial statements, FINCA held total assets of USD 251.6 million (p. 18) at December 2006. MicroCapital recently interviewed and published a profile on FINCA founder John Hatch.

Headquartered in Baku, FINCA Azerbaijan completed ten years of work in the country on June 28, 2008. In May 2008 the organization’s client base reached 80,000, constituting a gross loan portfolio of USD 55 million. It has the largest client base out of all MFIs operating in Azerbaijan. According to microfinance information provider MIX Market, as of December 2007 FINCA Azerbaijan reported return on assets (ROA) of 5.31 percent, a debt-equity ratio of 432 percent, and total assets of USD 49.4 million. FINCA has not been rated by microfinance rating agencies.

FINCA Azerbaijan has been the target of recent lending by private investment funds. MicroCapital reported that in May 2008, FINCA Azerbaijan received USD 750,000 in loans from responsAbility Global Microfinance Fund (rAGMF), and USD 750,000 in loans from responsAbility Microfinance Leaders Fund. In April 2007, Microfinance Loan Obligations loaned USD 3 million to FINCA Azerbaijan. Other MicroCapital stories covering FINCA Azerbaijan can be found here.

By Ryan Benson, Research Assistant

Additional Resources:

MICROCAPITAL STORY: responsAbility Microfinance Leaders Fund (rAMLF) of Luxembourg Lends $500k to Thaneakea Phum (Cambodia) (TPC), $303k to Catalyst Microfinance Investors (CMI), $929k to ASP Financiera (ASP), and $750k to the Foundation for International Community Assistance Azerbaijan (FINCA Azerbaijan), by Anthony Busch, May 20, 2008.

MICROCAPITAL STORY: responsAbility Global Microfinance Fund (rAGMF) of Luxembourg Lends a Total of $3.25m to the Foundation for International Community Assistance (FINCA) in Azerbaijan, Kyrgyzstan, and Georgia, by Anthony Busch, May 26, 2008.

MICROCAPITAL INTERVIEW: Village Banking Innovator Dr. John Hatch of FINCA (Foundation for International Community Assistance), May 12, 2008.

MICROCAPITAL PROFILE: WHO’S WHO IN MICROFINANCE: John Hatch, Foundation for International Community Assistance (FINCA), by Melissa Duscha, March 6, 2008.

MICROCAPITAL STORY: “Switzerland-based Symbiotics Intermediates a USD 3 mn Loan from Microfinance Loan Obligations to Foundation for International Community Assistance (FINCA) Azerbaijan”, by Lisa Kalajian, April 23, 2007.

MICROCAPITAL STORY: Nonprofit Nigerian Institute of Animal Science Urges Microfinance Institutions to Ensure Food Security, by Ryan Benson, June 25, 2008.

ABC.AZ: FINCA is going to strengthen farm crediting in Azerbaijan, June 28, 2008.

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