Banks in Azerbaijan in general have cumbersome lending process. Lengthy application forms often require information that is not crucial or needed for granting small or medium-sized loans. Collateral requirements are also onerous requiring additional forms and information. Banks grant loans based on collateral, applicant’s and co-signer’s income rather than taking lending risk. For agricultural lending this means that the time may not be worth the hassle to even apply for a loan. USAID worked with DemirBank to change their lending practices and improve farmers’ access to loans.

DemirBank is one of the leading banks in Azerbaijan with 23 years of operation. The bank has been one of the most active beneficiaries of the USAID assistance. Through its Azerbaijan Competitiveness and Trade (ACT) project, USAID has trained 212 loan officers and managers throughout the bank’s network on a variety of topics including risk-based agricultural lending, sales techniques, early fraud alert systems, etc. The trainings also built the skills and knowledge of the bank’s in-house trainers so that they can provide training from time to time.

An international expert trains the bank officers on new loan approval templates. Photo credit: Vasif Badalov, USAID ACT project

In addition to the intensive training, USAID experts also worked with the bank’s management to improve the bank’s agricultural lending approach by revising and simplifying the credit application forms, lending policies and procedures. The revised consolidated loan application forms have several advantages. They a) link a client’s credit history with the loan value, for which the customer is eligible to borrow; b) include credit scores, a memorandum and committee decision; c) save time by offering “check the right answer” options; d) provide color coding that flag risks; and e) facilitate decisions based on scores. This shortens the time it takes to approve a loan and provides a better evaluation of the borrower in terms of risk.

DemirBank’s management deemed the pilot testing of the consolidated application form in Guba and Gusar branches to be very successful. These branches issued 141 micro-loans between May and November of 2012 using the new forms.

“We are very satisfied with the new approach and its contribution to simplifying the loan application process and improving client outreach,” said Mr. Seymour Imanov, Manager of the Gusar Branch.

Following the success of the pilot test, DemirBank introduced new procedures at all their branches and consolidated all lending operations below 3,000 AZN (3,825 USD) under one system, that will use simplified loan procedures developed with USAID support. To ensure that all branches adopt the new forms in their lending operations, USAID is assisting the bank to train all credit managers in implementing the new procedures.

As part of this effort to streamline the credit application process, DemirBank intends to buy new software, so that it can track all loan approval procedures and processes as well as expand its outreach, facilitate collection of information in the field, accelerate disbursements, and increase productivity.