Country
Azerbaijan

Local Project Partners
Up to six private commercial banks

German Project Partners
n.n.

Donor
Ministry of Finance of the Republic of Azerbaijan

Duration
1 August 2002 to 31 December 2020
(Overall project term)

Since the end of 19th century, the beating heart of Azerbaijan’s economy is its oil industry. In recent years, this country between the Caspian Sea and Caucasus Mountains has generated substantial income from oil production. However, falling barrel prices showcase the downsides of its dependency on this raw material. The divide between rural Azerbaijan and the capital city of Baku, for example, is vast.

Any improvements in this situation not only require support for the MSME sector, but also efforts to consolidate the banking sector and increase people’s confidence in their financial service providers. Ultimately, the political situation in this region also needs to be stabilised.

To this end, the German government – represented by the KfW Group – already extended a credit line to Azerbaijan in 1999, the so-called German-Azerbaijani Fund (GAF). GAF funds are made available at relatively favourable terms on condition local banks extend them to the designated target group, i.e. small and medium-sized enterprises (SMEs). The credit risk rests fully with the partner banks which have been helped to adapt their lending practices to Western standards.

The GAF is a rotating fund in the true sense of the word. Since its launch, it has funded over 70,000 loans totalling more than EUR 250 million. However, its influence extends further still, as other (commercial) banks have also adopted GAF-based methodology for their SME lending operations. In Azerbaijan, an SME loan is referred to as a GAF credit or loan.