The European Bank for Reconstruction and Development (EBRD) has signed a US$1.5mn loan agreement with Mbank aimed at providing much-needed credit to small and medium sized enterprises (SMEs) in Azerbaijan.
Mbank will also become a participant in the EBRD’s trade facilitation programme, which assists local companies wishing to trade with companies abroad.
The loan facility will expand Mbank’s medium-term lending capacity to SMEs. Thomas Moser, head of the EBRD’s Baku office, says small businesses in Azerbaijan need finance if they are to succeed, which is why the promotion of small businesses is a key element of the EBRD’s strategy for Azerbaijan. He describes the SME sector as an essential engine for diversified and therefore sustainable economic growth.
The new loan facility is part of an overall US$20mn facility through which the EBRD is providing credit for SME lending to banks in Azerbaijan. As a participant in the framework, Mbank will benefit from credit training and assistance provided by a consultant engaged by the EBRD and funded by the European Union’s Tacis programme.
Under the EBRD Trade Facilitation Programme, the EBRD will guarantee letters of credit and certain other trade-promoting instruments issued by Mbank to support Azerbaijani enterprises in international trade. The EBRD’s initial limit under the programme will be US$1mn.
The Trade Facilitation Programme promotes foreign trade with central and eastern Europe and the CIS (see GTR, Nov/Dec, p51). Through the programme, the EBRD provides guarantees to international and regional confirming banks. In so doing, it takes the political and commercial payment risk of transactions undertaken by issuing banks in the countries where the EBRD operates. The programme can guarantee any genuine trade transaction associated with exports to, imports from, and between the EBRD’s countries of operations. More than 68 issuing banks in the bank’s region of operations participate in the programme, including two existing banks in Azerbaijan, together with about 177 confirming banks throughout the world.
The above deals come at an important time for Mbank, which has recently merged with Promtekhbank in what is seen as a welcome step toward the consolidation and strengthening of Azerbaijan’s banking sector, Moser says.
The EBRD has a portfolio in Azerbaijan worth €330mn in sectors as diverse as banking, property, power, water, transport, SMEs and natural resources.