Azerbaijan Benchmarking Study
May 2006
Jhale Hajiyeva, Executive Director,Azerbaijan Micro-finance Association
Donor Support
BP and partners in BP-operated projects in Azerbaijan Eurasia Foundation UNDP
What is Benchmarking?
Benefits of Benchmarking
Increases Transparency Attracts Government Attention and Support Enables Access to Capital Attracts New Investors to Market Increases Scaling and Outreach of MFI Operations Facilitates Economic Growth Aids in Poverty Reduction Provides Comparative Information for Improving
Financial and Social Performance Extends Reach to Global Networks
Overview
Training of finance managers of MFIs Financial statement data collected, compiled,
verified, and analyzed 9 member institutions Adjusted to make data comparative
Inflation cost-of-funds subsidy in-kind subsidy standardized loan loss provisioning
Peer groups
Dissects and compares Azerbaijan MFI performance measures and drivers in the global and regional context
Azerbaijan Peer GroupsCategory Characteristics Peer Group Members
All Azerbaijan Azerbaijan Broad+ Azerbaijan Small Business
FINCA Azerbaijan, Azeri Star Microfinance, WW AzerCredit, Normicro, Finance for Develoment, Viator Microcredit, Micro Finance Bank of Azerbaijan, CredAgro, AgrarCredit
Azerbaijan Broad Average loan balance per borrower
< 2,500 USD
FINCA Azerbaijan, Azeri
Star Microfinance, WW
AzerCredit, Normicro,
Finance for Develoment,
Viator Microcredit
Azerbaijan Small Business
Average loan balance per borrower
> 2,500 USD
Micro Finance Bank of
Azerbaijan, CredAgro,
AgrarCredit
Report StructureCountry Overview Geography Economic Environment Macroeconomic
Indicators Microfinance in
Azerbaijan
Comparative Measurements Institutional Size Outreach Financial Structure &
Performance Efficiency Productivity Risk and Liquidity
Conclusions
Key Findings
Although first ever benchmarking study, Azerbaijan found to be in relatively competitive position with strong development potential
Country Overview Macroeconomic stability Strong relative GDP growth Increasing FDI National poverty reduction program Non-Bank Credit Organization law
to be ratified Transparency initiatives MFIs active participants in
economic development High demand for financial services,
particularly in rural areas
Key FindingsINSTITUTIONAL INDICATORS(Median, USD)
All Azerbaijan
AzerbaijanBroad
Azerbaijan Small Business
MBB ECAFSS
MBB All ECA
MBBCaucasus
Number of MFIs Sample Size of Group 9 6 3 45 60 15
Age Years Functioning as an MFI 5 6 2 6 6 6
Gross Loan Portfolio
Gross Loan Portfolio, adjusted for standardized write-offs 1,930,914 1,333,136 6,903,740 3,137,182 2,780,486 1,280,770
Offices Number, including head office 6 5 15 8 7 6
Personnel Total number of employees 50 40 86 47 42 41
Overall age is approximately similar to peers Azerbaijan Small Business relatively young Azerbaijan Small Business has relatively large portfolio Reasonable scale despite relatively small operations
Key Findings
Outreach diverse across MFIs Relatively low overall outreach to women borrowers Azerbaijan Small Business relatively higher loan balance per borrower
OUTREACH INDICATORS (Median, USD) Azerbaijan MFIs
Azerbaijan Broad
Azerbaijan Small
BusinessMBB ECA FSS
MBB All ECA
MBB Caucasus
Number of Active Borrowers
Number of borrower with loans outstanding, adjusted for standardized write-offs 3,755 4,137 1,132 4,127 2,884 4,127
Percent of Women Borrowers
Number of active women borrowers/Adjusted Number of Active Borrowers 37.20% 41.60% 14.10% 60.80% 60.80% 51.00%
Average Loan Balance per Borrower
Adjusted Gross Loan Portfolio/Adjusted Number of Active Borrowers 343 265 3,585 1,022 1,023 345
Average Loan Balance per Borrower/GNP per Capita
Adjusted Average Loan Balance per Borrower/
50.00% 53.40% 34.00%GNP per Capita 48.40% 37.30% 504,9%
Key Findings
Expenses managed well with relatively low expense levels Profit margins similar to All ECA and Caucasus, but lower than ECA
FSS
OVERALL FINANCIAL PERFORMANCE (Median, USD)
Azerbaijan MFIs
Azerbaijan Broad Azerbaijan
Small Business
MBB ECA FSS
MBB All ECA
MBB
Caucasus
Return on AssetsAdjusted Net Operating Income, net of taxes/ Adjusted Average Total Assets 0.10% 2.40% 0.10% 3.80% 0.90% 0.50%
Return on EquityAdjusted Net Operating Income, net of taxes/ Adjusted Average Total Equity 0.10% 2.60% 0.10% 6.60% 3.20% 0.70%
REVENUES
Financial Revenue Ratio
Adjusted Financial Revenue/ Adjusted Average Total Assets 23.8% 31.6% 18.90% 33.20% 31.20% 36.90%
Yield on Gross Portfolio (real)
(Adjusted Yield on Gross Portfolio (nominal) – Inflation Rate)/ (1 + Inflation
Rate) 29.2% 37.90% 21.10% 30.30% 28.40% 37.10%
EXPENSES
Total Expense Ratio
Adjusted (Financial Expense + Net Loan Loss Provision Expense + Operating
Expense) / Adjusted Average Total Assets 23.7% 27.00% 9.70% 28.60% 30.50% 38.50%
Operating Expense Ratio
Adjusted Operating Expense/ Adjusted Average Total Assets 19.90% 23.5% 9.30% 16.80% 18.50% 31.80%
Key FindingsEFFICIENCY (median, USD)
Azerbaijan MFIs
Azerbaijan Broad
Azerbaijan Small
Business
MBB ECA
FSS
MBB All ECA
MBB Caucasus
Operating Expense/ Loan Portfolio
Adjusted Operating Expense/ Adjusted Average Gross Loan Portfolio 26.00% 28.50% 10.40% 20.10% 23.50% 33.80%
Personnel Expense/ Loan Portfolio
Adjusted Personnel Expense/ Adjusted Average Gross Loan Portfolio 16.70% 18.40% 6.70% 12.80% 13.90% 18.60%
Average Salary/ GNP per Capita
Adjusted Average Personnel Expense/ GNP per capita 737.20% 751.20% 659.90% 472.10% 492.50% 546.70%
Cost per Borrower
Adjusted Operating Expense/ Adjusted Average Number of Active Borrowers 95 78 412 180 197 130
Diverse efficiency levels Overall, Azerbaijan MFIs reach more clients at low cost Azerbaijan Small Business significantly higher cost per borrower
Key Findings
PRODUCTIVITY (median, USD)Azerbaijan
MFIsAzerbaijan
BroadAzerbaijan
Small Business
MBB ECA FSS
MBB All ECA
MBB Caucasus
Borrowers per Staff Member
Adjusted Number of Active Borrowers/ Number of Personnel 99 113 21 86 76 86
Borrowers per Loan Officer
Adjusted Number of Active Borrowers/ Number of Loan Officers 174 250 28 169 147 159
Personnel Allocation Ratio
Number of Loan Officers/ Number of Personnel 61.70% 60% 75.60% 54.50% 53.00% 47.80%
Relatively high number of loan officers relative to personnel Overall, borrowers per loan officer is slightly higher than peer group,
but substantially lower for Azerbaijan Small Business
Key Findings
Overall, Azerbaijan maintains relatively strong portfolio quality Write-offs for Azerbaijan Small Business are significantly higher Azerbaijan MFIs are relatively more conservative in loan loss provisioning
RISK AND LIQUIDITY (median in USD)
Azerbaijan MFIs
Azerbaijan Broad Azerbaijan
Small Business
MBB ECA FSS
MBB All ECA
MBB
Caucasus
Portfolio at Risk> 30 Days
Outstanding balance, loans overdue> 30 Days/ Adjusted Gross Loan Portfolio 0.50% 0.80% 0.30% 1.00% 1.10% 1.60%
Portfolio at Risk> 90 Days
Outstanding balance, loans overdue> 90 Days/ Adjusted Gross Loan Portfolio 0.40% 0.60% 0.20% 0.30% 0.30% 0.80%
Write-off RatioAdjusted Value of loans written-off/ Adjusted Average Gross Loan Portfolio 0.90% 0.70% 2.30% 0.80% 0.80% 1.10%
Loan Loss RateAdjusted Write-offs, net of recoveries/ Adjusted Average Gross Loan Portfolio 0.90% 0.70% 2.30% 0.60% 0.60% 0.90%
Risk CoverageAdjusted Loan Loss Reserve/ PAR > 30 Days 435.5% 636.90% 288.50% 166.20% 133.80% 133.80%
Non-earning Liquid Assets as a % of Total Assets
Adjusted Cash and banks/ Adjusted Total Assets 6.30% 6.60% 6.30% 4.00% 4.10% 6.00%
Current Ratio Short Term Assets/ Short Term Liabilities 652.6% 1620.80% 652.60% 658.40% 695.90% 1196.5%
Summary
Since 1999, investment toward development of microfinance sector in excess of 270 million USD
Active credit portfolio more than 80 million USD Recent portfolio growth has provided enabling environment
for MFIs to: Leverage financial structure Exploit economies of scale Maintain positive financial and operational sustainability levels
Microfinance in AZ
MFIs within Azerbaijan are an emerging asset class and should be considered for portfolio diversification