Interview of Osman Khaliyev, Chairman of the Board of the Entrepreneurship Development Fund (EDF) under the Ministry of Economy, to "APA-Economics":

Mr. Osman, last year, about 194 million manat concessional loans were given to entrepreneurs through EDF. What volume of lending is planned for this year and what are the priority areas for loans to be granted?

- The minimum goal for this year is to repeat last year's results. In the broad aspect, this year, it is aimed to provide concessional loans of around 200 million manats to entrepreneurs. Discounted loans are given according to the priority directions of socio-economic development. In 2024, these directions include supporting projects on the development of industrial production and processing in the non-oil sector, including agro-processing, agricultural and warehouse complexes, logistics service, aquaculture, green and innovation-oriented, as well as mass media. In the regions, education and tourism are among the priority areas, and in Nakhchivan MR and in the liberated territories, service sectors are also among the priority areas.

- Is the use of the loans allocated by the fund monitored? If so, in what form is this control carried out?

- There is a double control mechanism here. Authorized organizations conduct monitoring twice a year and inform the Fund about the results. The state gave guarantees and subsidies to business subjects of the areas affected by the pandemic for the loans they received from authorized credit organizations. This product is monitored and reported to the Fund once a year. Another control mechanism is the regular independent monitoring organized by the Fund in accordance with its annual plan. Extra-ordinary monitoring can also be conducted based on the request of the authorized organization or the entrepreneur.

- During the monitorings, were cases of non-use of funds determined? In recent years, how many and to what extent have there been such cases and what steps have been taken regarding these cases?

- Of course, we come across cases of departure from the destination. There are cases of complete and partial deviating from the purpose or not using it according to the purpose. At this time, we look at the initial information of the business entity submitted to the Fund by the bank. We determine what specific works are planned to be done at the expense of the allocated loans in those data. If the intended works are not fully or partially executed, we have the right to demand back the part of the funds not used for their intended purpose from the entrusted organization. In the last three years, there were 432 cases of complete and partial deviation from the purpose of the loans, and 45.4 million manats were returned in these cases. We conduct regular educational activities regarding the use of funds as intended. Because deviations from the destination lead to incorrect formation of statistical data in the future, as well as potential reductions in our portfolio. There may be objective reasons for deviations from the appointment. For example, there is a flood in some area, as a result of which it is impossible to operate for a while, and then the entrepreneur decides not to operate. In some cases, we give additional time for the execution of the work. At this time, we discuss the matter again in detail with the entrepreneur. If the entrepreneur asks for a reprieve and it is possible to give it, we give it. If the entrepreneur changes his mind or delays the execution of the work, we demand the return of the funds.

- In cases of deviating from the appointment, which party is most often to blame, the client's organization or the entrepreneur?

- Monitoring is carried out with the participation of both the authorized organization, the Fund and the representative of the business entity. In these cases, we see that most entrepreneurs do not perform the intended work. The bank delivers the funds to the entrepreneur and thereby completes the main part of the work. It is possible that the bank is partially negligent and does not conduct monitoring on time. But generally speaking, if the funds are with the entrepreneur, he must execute the work.

- In what cases are preferential loans to entrepreneurs refused?

- The main reason for refusals is incompleteness of submitted documents, incorrect preparation of financial statistical and forecast indicators, or even if they are prepared, they seem unprofitable. If there is a big difference between the presented data and the real picture observed by the Fund employee during the initial on-site inspection of the project, the data is found to be misrepresented. In such cases, we refuse. In case of technical errors or lack of documents during the application, the Fund will immediately establish communication with the authorized organization and inform it of the deficiency.

- What statistics are observed regarding refusals in recent times?

- 17% of the applications received by the Fund in 2020, 15% in 2021, 10% in 2022, and 2.8% in 2023 were rejected. In those years, we positively viewed 908, 1902, 2726 and 3276 projects, respectively. The role of both the Foundation and the authorized organizations in the improvement of these statistics is undeniable.

- What kind of work do you do to encourage entrepreneurial activity in the regions with preferential financial mechanisms?

- Lending in the regions is one of our main priorities. This is important for providing employment and supporting economic activity in the regions. The fund organizes regular meetings with business entities in the regions. Not only us, but also relevant state institutions and associations participate in these meetings. Through the meetings, the activities and comprehensiveness of the Fund are brought to the attention of entrepreneurs. It is no coincidence that 71% of concessional loans granted in Azerbaijan during the 4 months of this year fell to the regions (except Baku, Sumgait and Absheron).

- What steps are being taken to support entrepreneurs in the liberated territories with preferential financial mechanisms?

- From 2022, more than 14 million manat concessional loans were allocated to 7 business entities in the territories freed from occupation. We continue our support in this direction. If there are appeals, they will be considered. At the same time, a new mechanism covering those areas has been launched since February 1, 2024. It is a loan-guarantee and subsidy mechanism. According to the mechanism, entrepreneurs can take a loan of up to 5 million manats for a period of 7 years from authorized credit organizations. The maximum loan interest rate is 15%. 10% of it is subsidized by the Fund instead of the entrepreneur. Within the framework of the mechanism, a subject in the city of Shusha was provided with a guarantee of up to 90% against the 800,000 manat loan he took from a commercial bank. The Fund has already started subsidizing 10% of interest on that loan.

- Are there cases of delays by entrepreneurs in connection with the loans allocated by the Fund? What steps are taken in such cases?

- Yes, such cases also happen. We regularly obtain this information from authorized credit institutions and use it in internal analyses. But in any case, commercial banks pay those funds to us on behalf of business entities without delay.

- What measures does the fund take to attract financial resources? Are there any negotiations or proposals for attracting loans from the financial markets?

- The funds of the fund are mainly formed due to receipts from the state budget and are directed to lending. At the same time, we have been holding meetings with international financial institutions and conducting research in recent years. We are working on joint programs to attract potential financial resources. We are currently cooperating with an international financial institution. Work is underway on the mechanism, provided that they make additional investments in the economy of Azerbaijan and that we also work together in that project. We have not yet started concrete activities in this direction, and a specific amount has not been determined. However, if there are no problems, we can start the successful implementation of this mechanism in the next few days.

- Is it expected to change the minimum requirements for the preparation of investment projects and the assessment criteria of investment projects for obtaining concessional loans at the expense of the Fund? Is it necessary?

- In this direction, we conducted extensive internal analyzes in 2021. At the same time, a survey was organized with entrepreneurs and independent entrepreneurs in the base of the Fund through an external professional company. Based on the results of that survey and our internal analysis, we made changes to the minimum requirements of the Fund, the list of necessary documents and the rules for conducting the examination. We raised the requirement of funds for the business plan from 50,000 manats to 200,000 manats. We reduced the list of required documents from 11 to 6. Previously, documents were required to be notarized. We removed that request. We ensured the analysis of projects for loans up to 200,000 manats using an automated system. These changes are among the factors that bring about statistical improvements by ensuring efficiency, transparency, and objectivity.

- With the decree signed by the head of the country in 2021, the "Azerbaijan Business Development Fund" public legal entity was established under the Ministry of Economy through reorganization of the Fund "Azerbaijan Investment Company" OJSC in the form of a merger. After the registration of the new company is completed, the activity of the Fund will be canceled and transferred to the institution. I want to know what is being done in this direction. At what stage are the overall processes and reorganization process currently underway?

- After the signing of the said decree, a package of regulations, rules for using funds and other legal documents was prepared, agreed with the institutions, submitted to the relevant higher authority and is currently under consideration there. We hope that these processes will be completed in the near future.