Impact of Micro and Small Loans for Economy and Society in Azerbaijan Impact Study of the MSBA June 2008 Baku - Guba - Sheki - Lenkoran

MSBA – Micro and Small Business Azerbaijan Downscaling program 8 partner banks Active in all Regions of Azerbaijan (18 cities, 45 POS) Approx. 110 active LOs each average per month 17 loans for 77,000 USD Av. amount 4,500 USD Business and agricultural loans Up to 100,000 USD 70% in 2007/2008

MSBA - Impact on Financial Sector Introduced Micro Finance to key players in the banking sector 5 Banks made strategy change Opened market niche, that will make it easier for many smaller banks to survive Strengthened diversity = competition in the financial sector Set new standards in credit risk evaluation (best practice) Introduces and develops new products (agricultural loans and credit scoring) Improved access to credit Simplified internal lending procedures Regional expansion Reduced transaction costs Improve transparency Lowered entry barriers for MSE Created a new job profile, Micro Loan Officer, with high demand and more than 100 new qualified working places

MSBA - Impact on economic situation of customers (1) TurnoverProfitCompetitiveness < 20% %>50%< 20% %>50%decreased remained unchangedimproved Baku 27%41%32% 39%29%5%13%81% Ganja 69%19%12%69%31%0% 8%92% Guba 36%46%18%39%54%7%5%16%80% Sheki 30%48%22%34%29%37%4%17%80% Lenkoran 5%53%42%19%70%11%2%16%82% Loan amount < % 23% 54%6%17%77% %58%29%28%42%31%3%17%80% % 24%36%47%17%5%15%80% ,00042%40%18%37%44%19%3%17%80% > 10,00016%51%32%29%52%19%6%17%77% average 33%42%25%34%43%22%4%16%83%

MSBA - Impact on economic situation of customers (2) Development PerspectivesSources of Finance Current business Change business Terminate businessemigrate own capitalEBRD loan Baku91%8%0% 36%64% Ganja83%9%5%3%33%67% Guba93%7%0% 53%47% Sheki97%3%0% 24%76% Lenkoran92%8%0% 35%65% Loan amount < %5%0%3%30%70% %4%2%0%30%70% %6%0%1%38%62% ,00093%7%0% 34%66% > 10,00092%8%0% 35%65% average92%7%1% 33%67%

MSBA - Social Impact (1) Jobs created – Jobs secured – Standard of living stabilized av. # EmployeesFemaleMale Number of new jobs per Loan Number of loans per 1 new job Dependent persons Baku335%65%0,1954,5 Ganja337%63%0,2843,3 Guba234%66%0, Sheki318%82%0, Lenkoran329%71%0, Loan amount < %70% %66%0, %69%0, ,000328%72%0, > 10,000728%72%0, Average329%71%0,313 New jobs 35%65% av. per loan (w)4.03 ChildrenUnemployedPensionersStudentsRefugees 34%32%13%12%3%

MSBA - Social Impact (2) Jobs created – Jobs secured – Standard of living stabilized Outreach Larger loans have a higher impact per unit Smaller Loans have an higher impact as a group

Conclusion Financial Sector has an noticeably positive effect on the development of important local commercial banks has established itself as an reliable source of finance, MSE are able and willing to count on has significant impact on improving the situation for MSE in the banking and financial system of Azerbaijan MSE and Society has an noticeably positive effect on the business development of its customers encourages MSE to develop its current business i.e. improves the business perspectives for MSE inside Azerbaijan contributes countable and significantly to the creation of new and securing of existing jobs as well as stabilizing the standard of living for a large number of Azeri citizen Focusing on the MSE segment increases the absolute social impact

Thank you!