About the company: FINCA Azerbaijan provides financial services to more than 116,000 active clients with its 60 branches across the country. Total credit portfolio of the organization is more than 117 million USD. FINCA’s total disbursement amount in its 18 years operation in Azerbaijan is about 1 billion USD. According to these indicators, FINCA Azerbaijan is not only the largest microfinance organization but also ranks among the largest banks in the country.
Caspian Energy (CE): What role do you see for FINCA in the ongoing changes in the Azerbaijan market? What new projects will the organisation implement?
Timothy Tarrant, FINCA Azerbaijan CEO: For the last 17 years, FINCA Azerbaijan has provided access to financial services to rural households and small entrepreneurs and small-business owners throughout the country. That being said, it is true that 80% of our clients and operations are located outside of Absheron peninsula, and this regional focus will continue even with the changes impacting the Azerbaijani market at present. We consider these regional clients to be our core business in Azerbaijan, so the challenge given today’s new conditions is to be able to continue serving these clients with a high level of customer service and client care even under these current conditions. For FINCA at present, we have a number of projects underway to increase overall efficiency and also to reduce the ‘client burden’ on our customers. Our goal is to be able to achieve an even higher level of customer experience for each of our clients, and we have understood in recent years that old technologies that inconvenience the client need to be replaced with more client-friendly approaches. Loyal clients should be treated in a different fashion than others, and client segmentation, back-office automation, and process centralization also all have a part to play in creating greater efficiency so as to improve the client experience by reducing the burden of our own procedures on the client.
CE: Do you consider the measures for the development of small and medium businesses in the country to be enough? What do you think about the privatization program?
Timothy Tarrant: I believe good steps have been taken, but I also think that none of us can ‘rest on our laurels’ given the economic challenges Azerbaijan is facing at present. As we can see from the data, the oil and construction industries comprise the vast majority of GDP in Azerbaijan. I would argue that it is the ability of small business owners and rural households involved in agricultural activity to adapt and even thrive under these new conditions that will decide the success of the efforts to further diversify the economy away from the oil and gas industries. Of course those resource extraction industries will be the backbone of the economy for many years to come, but as for job creation and individual family livelihoods, this more comes from regional small-scale economic activity at present. In our own work, we have found that access to finance in the regions is one of the critical measures that can create jobs and improve incomes. Over the years we have tracked hundreds of thousands of jobs created and supported by our efforts to improve financial access to our rural client base. Increasing access to finance for the rural population is a critical goal.
CE: To what extent has the oil crisis affected the financial sector of Azerbaijan? What ways out of the crisis would you suggest?
Timothy Tarrant: At least for financial institutions involved in retail lending, it is not the oil crisis per se, but the connected currency devaluations which have had the largest and most severe impact on the sector from my vantage point. Of course, many clients with debts in foreign currencies have had and will continue to have difficulties to adjust to a weaker national currency, especially if their incomes are also in the national currency. All of the financial institutions have seen increases in non-performing loans as a result of the two devaluations. This is in fact the greatest challenge I see at present for the financial sector – managing these non-performing loans and avoiding large-scale losses from non-payments. The approach of FINCA is one of flexibility when approaching client concerns, and we have learned through currency devaluations in a number of countries that this is the time to work closely with clients to ensure that each client’s debts are restructured so that they have loan repayments that they can afford. I cannot stress the importance of this enough in addressing the current challenges and economic shocks.
CE: What do you think about prospects of the Azerbaijan’s banking market development this year? What indicators did you enjoy in 2015?
Timothy Tarrant: Given the non-performing loan challenges I mentioned previously, I believe this will be a difficult year for the banking sector. Most institutions are struggling to reduce cost and replace lost income streams and I expect this to intensify as the year proceeds. I would expect further consolidation and further branch closures by many if not most institutions. That being said though, for those institutions that can maneuver through these stormy seas, there is tremendous upside once the economy adjusts to the challenges. As with many things, the oil price and the economy are cyclical and growth will come back at some point, perhaps even sooner than we realize, so we do want to take the hard medicine now so that we are well-positioned to be able to take advantage of loan demand growth when it returns.
CE: What lending conditions do you offer today? How did the crisis affect this process?
Timothy Tarrant: Our focus at present is on ensuring we meet the needs of our loyal current clients and we are not currently focused on working with new clients during 2016. I do expect though that we will begin again to offer financial services to new clients in the coming weeks as the situation stabilizes further.
Interview made by Sabina Mammadova