Chief Director of Mortgage and Credit Guarantee Fund (MCGF) Emil Mammadov’s interview to Report:

- It’s known that one of the directions of the Fund’s activities is to issue guarantees on business loans and interest subsidies. How is the mechanism to give guarantee on the projects of the businessmen? Which criterions are basis ühile making a decision?

- The guarantee, in accordance with the abovementioned mechanism, is issued on the liabilities of an entrepreneur who operates in the non-oil sector and made a loan application to an authorized bank in order the entrepreneurial activity to be financed. The guarantee on the loans of the businessmen is issued as follows: With the loan application which requires a guarantee, the borrower applies to the authorized bank, the authorized bank checks the conformity of the borrower’s application to the rules, conducts financial and credit analysis on the application, and on the basis of these, the official of the authorized bank makes relevant decision. In case the decision of the authorized bank is positive, the bank applies to the Fund. The Fund makes a decision on issue of a guarantee within ten working days. The guarantee and interest subsidy are issued in several stages: The documents and data pass three stages. At the first stage, the documents’ conformity to the law and Fund’s rules are checked. The next stage includes assessment of the project’s financial sustainability and analysis of economic justification and the last stage monitoring for data specification. After this, a relevant decision is made. All these processes take 10 days.

Main factors for issue of guarantee on business loans are:

Amount of a loan will not be less than AZN 30,000 (thirty thousand);

Amount of total loans with the guarantee by all authorized banks will not exceed AZN 5 million for a borrower, AZN 10 million for a group of borrowers;

Period of a loan will not be more than 7 (seven) years;

Period of a credit line will not be more than 12 (twelve) months;

Interest subsidy is issued for loans with the annual interest rate less than 20%;

Interest subsidy is issued when a borrower pays at least 6 percentage point of the interest rate of a loan.

- How many authorized credit organizations does the Fund have? What is their structure? How were they chosen? Is it possible to involve new financial organizations in cooperation in the future?

- The Fund is currently cooperating with 13 authorized banks and new banks are expected to be included in this list in the future. In order to cooperate with the Fund, banks must meet the criteria set by the rules. They must meet prudential requirements on minimum regulatory capital, capital adequacy and liquidity rates set by the Financial Markets Supervisory Authority (FIMSA). Share of non-performing loans (taking into account the rest of loans written off from the balance) in the loan portfolio given for entrepreneurship (excluding loans which were given before January 1, 2016 and then restructured) will not exceed 10%. The banks will also have credit rating system, rules and procedures on crediting of entrepreneurs and works with overdue credits and pay membership fee.

- How many projects have been guaranteed and which sectors do they cover? How is the share of regions? Generally, how much loan has been issued to entrepreneurs with the Fund’s guarantee and how much interest subsidy was calculated for these loans?

- Issue of guarantee and interest subsidies on business loans by Fund has started since late 2018. We’d like to note that the Fund took some steps in the preparation stage in order to establish a credit guarantee mechanism meeting international standards. In connection with this, international guarantee and subsidy mechanisms have been studied and recommendations of states, which successfully applied this mechanism, were taken into consideration. We established relations with Korea Credit Guarantee Fund (KODIT), which has one of the most successful experiences in application of issue of guarantee and subsidies.

At the same time, normative legal acts on the Fund’s activity were amended accordingly to the international practice, documents were prepared to regulate the relations among the Fund, entrepreneurs and creditors. Meetings with banks’ employees and entrepreneurs and discussions on the mechanism were held.

As a result of the works done, the interest to this mechanism is increasing. As of today, the Fund has issued guarantee on loans allocated for more than 30 business projects. With the guarantee of the Fund, the authorized banks granted AZN 30 million in loan to the entrepreneurs and amount of the interest subsidies on these loans is AZN 4.2 million. The loans with the guarantee have been allocated to mainly food production, agriculture, trade services, machine and equipment manufacture, as well as other industrial production.

As of the share of regions, major part of the guarantees issued on loans falls to share of Baku – 53%.  It is followed by Absheron (18%), Aran (14%), Lankaran (7%) and Mountainous Shirvan and Ganja-Gazakh region (4%).

- What are the main problems and difficulties in the credit guarantee process? Is there any misunderstanding with an entrepreneur?

- According to the existing rules, getting some documents needs certain time. After launch of ‘E-mortgage adn credit guarantee’ soon, many documents will be got via e-government portal. This will reduce the time to minimum.

At the same time, as the mechanism is new, it’s working rule causes questions in both banks’ employees and entrepreneurs. In connection with this, the Fund continuously conducts enlightenment works, holds trainings and seminars, the questions are answered operatively.

Currently, there is a section in www.mcgf.az website. This section includes conditions and procedures for issue of guarantee, data about current statistics on guarantee and interest subsidy.

- is there any innovation about application of the mechanism?

- The Fund regularly meets with banks and entrepreneurs and assesses the proposals. Basing on the proposals, amendments were made in procedures on issue of guarantee and interest subsidies. The main amendment is coordination of the guarantee/loan ratio with the borrower’s credit rating. As you know, there is a credit rating model in the Fund. The model allows to assess the paying capacity of the entrepreneur and determine the categories of risks. According to the amendment, no guarantee is required from an entrepreneur with low risk category. Requirements for guarantee of entrepreneurs with medium risks have been softened, documents required during appeal have been simplified.

- It was reported that the Fund will provide financial assistance to entrepreneur pay customs duties for import and export operations? Is there any news?

- The Fund has held several meetings with the State Customs Committee and currently is conducting the analysis. The works are expected to be completed soon and the new mechanism will allow optimizing the financial burden of the entrepreneurs on the import and export operations.

- How can the credit guarantee mechanism help the entrepreneurs' access to alternative financial sources?

- The Fund is also applying guarantee mechanism in corporate bonds and factoring operations. We also see guaranteed bonds in the financial market practice. These bonds are accompanied with issuer company’s pledging any of its assets which guarantees investors’ getting their debts back. The Fund can achieve bonds’ liquidity, increase of interest to bonds and creation of opportunities for entrepreneurs to have access to extra and more useful financing sources by issuing guarantee on issuer company’s bond default.

Factoring operations are a new service in the financial service market. This service leads to increase of turnover in relations among the entrepreneurs. As a result of the application of the guarantee mechanism, we want this service to be used by entrepreneurs more widely and operating costs of the entrepreneurs to be reduced.