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The Azerbaijan Rural Credit (ARC) Project began activities in May 2000 when ACDI/VOCA received $5,314,205 from USAID-Caucasus to develop a three-year rural credit cooperative system in the capital region and the northwestern, northeastern, and southeastern regions of Azerbaijan. Of this amount, $3,000,000 was earmarked as lending capital. By July 2000, ACDI/VOCA had established CredAgro, which was chartered as a not-for-profit lending organization and licensed as a non-bank financial institution (NBFI).
CredAgro began with two programmatic goals:
1. To create a rural credit cooperative system to provide small- and medium-sized loans to agricultural enterprises on a sustainable basis. This involved:
· Creating a loan capital fund to serve agriculture and rural business.
· Adopting sound business management practices.
· Making regular loans to clients.
· Providing credit and other financial services on a self-sustaining basis.
2. To increase the economic viability and sustainability of private agricultural enterprises. This involved:
· Increasing the adoption of improved technology and/or techniques.
· Improving the quality of products or services offered.
· Increasing resource use, efficiency, and conservation.
· Serving expanding and new markets for products/services.
· Increasing adoption of improved business management practices.
During the latter part of 2000 and in early 2001, CredAgro established its headquarters in Baku; recruited start-up professional personnel and support staff; set up banking and funds transfer capacity; and developed rudimentary but still rigorous policy, procedure, and operating guidelines. Next came research that led to establishing four regions that represent the agricultural heartlands of Azerbaijan in the northeast, northwest, south, and the single rayon encircling the capital city. Because Azeri National Bank regulations require credit providers to separately register each individual branch, CredAgro is organized on the same basis as a commercial bank with the Baku head office providing management, oversight, and funding (loan capital and operating costs) and branches, providing credit services to clients. Therefore, using its agricultural experience gained under the USAID Farmer-to-Farmer (FtF) Project, ACDI/VOCA identified the nine Rayons with the best potential and highest density of private agriculturists. Over the following 18 months, CredAgro recruited local staff and established nine branch offices in the following locations:
1. Absheron Peninsula (Baku)
2. Guba (Northeast)
3. Khacmaz (Northeast)
4. Ismailli (Northwest)
5. Tovuz (Northwest)
6. Zagatala (Northwest)
7. Gelilabad (South)
8. Lenkoran (South)
9. Masalli (South)
Lending began in May 2001. At the outset, loans were issued slowly and painstakingly due mainly to a lack of understanding on the part of small- to medium-scale farmers about credit generally; a very limited and cautious promotional thrust by CredAgro; a lack of management experience and lending know-how on the part of newly hired CredAgro personnel; and difficulty in identifying applicants who could pledge suitable collateral assets in order to secure loans.
By the beginning of March 2002, however, with all of the branches operating and staff at both CredAgro headquarters and its branches in place and oriented to their jobs, lending took-off.
As of December 31, 2002, CredAgro's financial highlights included:
· Loan asset portfolio - $2.1 million
· Loan asset portfolio yield - 18.0% (approximately)
· Interest income - $210,000
· Delinquency - less than 1% of portfolio value
· Reserve for loan losses - $12,000
· Administrative/overhead costs per month - $30,000 (fully subsidized under the ARC Project)
· Individual borrowers - 600 farmers and rural agriculturists
· Percentage of female borrowers - 1%
Because of the excellent lending performance record during CredAgro's first year of operation, USAID granted a three-year project extension that will expire on May 31, 2005, and provided $1,424,626 in additional funding for administrative costs. As part of the Request for Extension document, the following ambitious but quantifiable deliverables were listed:
· Increase the total number of loans to 800 and the total number of borrowers to 1,200.
· Issue at least 20% of loans to women.
· Have an outstanding loan portfolio of $3.5 - $3.8 million.
· Create 600 full- and/or part-time jobs in rural agriculture.
· Increase the assets of assisted agricultural enterprises by 45-50%.
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