Baku, Azerbaijan, April 17
By Ilaha Khalilova - Trend:
German KfW Development Bank has changed the working concept of the Credit Guarantee Fund in Azerbaijan, the activity of which was suspended in early 2012.
"The new conception of CGF has been agreed on with the Ministry of Economy and Industry of Azerbaijan, and in order to obtain an approval, an application was submitted to the German Federal Ministry for Economic Cooperation and Development," the KfW Baku office told Trend.
The agreement on KfW`s financing of the CGF was signed on August 14, 2006, at the Azerbaijani-German intergovernmental negotiations in Bonn. An intergovernmental agreement on a financial cooperation for establishment the CGF in Azerbaijan was signed by the head of the state on June 5, 2007.
In August of 2008, KfW signed a contract with Azerbaijan's Ministry of Economic Development (currently Ministry of Economy and Industry of Azerbaijan) on start of work with the consultant - Savings Banks Foundation for International Cooperation - manager of CGF. The term of the contract with the SBFIC expired early in 2011, but the ministry refused to pay these expenses from the fund of research and experts.
The CGF's main condition was the usage of attracted funds from foreign banks directed to the development of small- and medium-sized enterprises on German-Azerbaijani Fund`s business scheme, or the banks had to generate the same amount of portfolio allocated to this sector.
The Fund was to function as a settlement account at the KfW headquarters. The KfW allocated 4 million Euros to Azerbaijan, for the establishment of the credit guarantee fund. Of that amount, 3.75 million was intended for the creation of fund for issuing guarantees and 0.25 million for the payment of the consulting services.
The remaining funds should have been provided into the fund from Azerbaijan's government. Guarantee of the CGF was considered in the amount of up to 90 percent of the attracted loan; the remaining 10 percent, respectively had to be at the bank's own risk.
"This guarantee mechanism, which was developed before the global financial crisis did not meet the expectations. Starting of the fund's activity coincided with the deepening of the crisis, therefore due to liquidity problems at foreign banks, as well as the restrictions imposed by the Central Bank of Azerbaijan, local banks were not able to use the CGF's guarantee for attraction of foreign borrowings," KfW Baku office said.
"And after the end of the crisis the conditions for attracting foreign loans changed, the Azerbaijani banks became bigger, respectively CGF`s funds were sufficient to guarantee only one bank. This did not reflect the objectives of the project," the bank said.
In accordance with the new concept, the guarantee will be provided to the end recipient of the loan from local banks, which means the borrowing from foreign banks are not considered. Loan guarantee is provided in the case of force majeure in agriculture.
Changes in the project`s budget are not considered.
Translated by S.I.
Edited by S.I.
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