MICROCAPITAL STORY: The European Bank for Reconstruction and Development (EBRD) Approves a $13m Credit Line for Azerdemiryolbank of Azerbaijan for Micro and Small Businesses under Its Microfinance Program

The European Bank for Reconstruction and Development (EBRD), a multilateral development institution that fosters private sector investment in 30 countries in Central Europe and Central Asia, will allocate a USD 13 million credit line to Azerbaijan’s Azerdemiryolbank, a private banking institution established in 1989. Azerdemiryolbank lends to other banks and small businesses. As stated in the bank’s press release, its assets totaled AZN 208.48 million (estimated USD 259.3 million) as of June 2009. In 2005, the EBRD gained a 25%+1 share of Azerdemiryolbank via an equity investment through an acquisition of newly issued shares of Azerdemiryolbank. The Board of Directors for the EBRD covered and approved the credit line for Azerdemiryolbank to facilitate credits to the country’s micro, small, and medium-sized business sectors. It stated that of the total, USD 3 million will be provided for SME lending and USD 10 million for lending to the micro sector. The credit agreement signing is still pending. Further details on how the credit plan will be implemented have yet to be disclosed.

The credit line will be provided under the Azerbaijan Financial Sector Framework Programme, a microfinance program in the country. The Programme is a multi-client, multi-product framework of USD 100 million. Under this Programme, the EBRD wants to increase both the amount and variety of medium-term funding available to a range of financial intermediaries including banks and non-bank financial institutions in the country, like micro-finance, mortgage, leasing or insurance companies. Moreover, the product range will include all types of senior debt, including SME, MSE, mortgage, syndicated, consumer, leasing, guarantees, subordinated debt, quasi-equity and equity investments. The EBRD stated that this credit line would support the development of the private companies and the banking sector in Azerbaijan by increasing medium-term financing through domestic banks. As of 2008, 262,570 sub-loans worth USD 693.1 million have been extended. It also acknowledged that the credit line would allow Azerdemiryolbank to further grow its lending and expand into remoter areas of the country by increasing its branch networks. According to its MIX profile, the bank has a gross loan portfolio of USD 184.2 million as of June 2008 and 32 branches.

As of May 2008, the EBRD has loaned over USD 80 million in support of micro and small businesses in Azerbaijan. Read this previous MicroCapital story for further information on past EBRD financing projects in Azerbaijan. Azerdemiryolbank also received in January 2009 a 12-month loan worth USD 3 million from the ING Bank of the Netherlands, as reported by MicroCapital. This loan would support microfinance businesses in the country. Refer to this MicroCapital story for details on a loan worth USD 2.5 million, provided by Swiss-based responsAbility Social Investment Services Ltd.

The EBRD, founded in 1991 and headquartered in London, promotes microfinance through its Micro, Small and Medium Business Program, which extends access to formal finance for small businesses. Since it was established, the EBRD has provided more than EUR 14.8 billion (estimated USD 20.6 billion) through its small business lending programs to support micro, small and medium-sized enterprises. It has over 3.1 million in MSME loans and MSE lending programs in 19 countries. The EBRD has dedicated USD 1 billion to microfinance in the past two years through debt, equity facilities, and technical assistance. See MicroCapital’s overview of EBRD´s investments over the past two years.

Azerdemiryolbank, an open joint-stock company, is a private banking institution in the Republic of Azerbaijan with a majority owned by private individuals. It provides support to micro-enterprises and start-ups by offering financial services, which include current accounts, fund transfers, loans, and advisory services. According to the MIX Market, the microfinance information clearinghouse, as of June 2008, Azerdemiryolbank had a total equity of USD 40.4 million, and USD 246.8 million in total assets. It has 32, 819 active borrowers and 27, 786 savers. By December 2007, its return on assets was 4.49 percent and return on equity was 26.78 percent.