Sacrifices and Microfinance

21 November 2010 at 07:00 2 comments

Salam aleych! (the cool way of greeting somebody in Azerbaijan)

On November 8th AqroInvest received new capital from an existing partner, PlaNIS, and an entirely new partnership with Microenterprise. AqroInvest is one of Kiva’s two Field Partners in Azerbaijan. It is important to note that microfinance institutions, such as AqroInvest, depend on new partners and capital for growth. That Monday also happened to be my first day at AqroInvest. At the end of the day the entire staff and I celebrated with champagne and cake, making toasts to AqroInvest’s bright future, and my anticipated contribution to it. It was a very joyous occasion. I left work comparing my experience in the corporate world in New York, where celebration of any caliber were pushed until the end of the week (and Mondays consisted of extinguishing fires that began on the weekend with little time for anything else but breathing), to AqroInvest’s celebratory timeliness. Little did I know that an organization that commemorates its successes very seriously also takes its work that way.

AqroInvest's office in Imisli (250 km South-West of Baku)

The ensuing week was not at all about champagne or cake. AqroInvest’s staff doggedly worked the hours of an investment banker’s analyst. Their goal was to disburse the newly acquired capital to the pre-approved borrowers as quickly as possible, so as to minimize the amount of interest it would accumulate. Unlike Kiva’s interest-free capital this money carries an interest rate, which started accruing when AqroInvest received it. Like other microfinance institutions AqroInvest is able to exist thanks to the interest rate split between its average cost of capital and the interest rate it charges on microloans. That is why microfinance institutions like AqroInvest love working with Kiva. It decreases their average cost of capital so they become more competitive. In return that enables them to offer loans to borrowers at more competitive interest rates.

However, one week of working 14 hour days was not enough time to disburse the capital. The staff incessantly worked through the weekend and national holidays. In Azerbaijan Monday, Tuesday and Wednesday of the week of November 14th are all days off due to Eid al-Adha. Also called the Festival of Sacrifice, it is a religious holiday celebrated by Muslims worldwide. During it a ram is sacrificed and equally divided among the family, relatives/friends/neighbors and the poor. This holiday honors Abraham’s obedience to God in his readiness to sacrifice his son Ishmael. God intervened in time to provide Abraham with a ram to sacrifice instead. Although Azerbaijan is very secular 93% of the population identifies as practicing Islam. Therefore, it is understandable that banks were closed during those first three weekdays.

AqroInvest has developed a very efficient system of disbursing loans and collecting repayments. A borrower simply comes into one of the branch offices, and picks up a check along with repayment slips. This check can be cashed and the repayments submitted at their nearest bank. Picking up a check takes only a few minutes. After that the borrower has no need to visit the branch office, where they applied for a loan, and which might be far away from them. This saves time and money for both AqroInvest and the borrower.

Azerbaijani manat. Excange rate: 1 manat = $1.25

That is exactly how things went until the banks closed for Eid al-Adha. The branch offices could stay open and distribute checks to pre-approved borrowers, but those wouldn’t be cashed until Thursday. This meant that the remaining balance of AqroInvest’s recently acquired capital would keep accumulating interest. On the other hand the pre-approved borrowers would wait even longer to receive their loans. To avoid this situation AqroInvest cashed the remaining capital on Friday. Its objective was to hand-deliver the cash to the branches, which in turn would distribute it to the borrowers.

AqroInvest's CEO signing loan contracts

Early on Sunday morning I set out for the branch offices with the CEO, Accountant and the Operational Manager. We drove through AqroInvest’s three branch offices in the South: Sabirabad, Saatli and Imisli. By the end of the day majority of the capital was in the hands of the borrowers. On Monday the staff finished disbursing it and finally, after 8 grueling days, relaxed. After sacrificing themselves, their sleep, and showing an unmatched work ethic it was time to together celebrate the Festival of Sacrifice.

It was an amazing experience to meet the humble borrowers, who came into the branch offices to pick up their loans. It made microfinance so much more real for me. It was also interesting to reconcile the theory of microfinance with AqroInvest’s work on the ground. I was delighted to have taken part in the Festival of Sacrifice, a community-building event that has few parallels in the world.  However, I consider witnessing AqroInvest’s staff at work the highlight of this entire experience. Philanthropy and interests of the borrowers were surely not their primary motivation to work the long hours. It was their personal ambitions and interests of AqroInvest. There is nothing wrong with that. After all AqroInvest is a for-profit organization. Yet, it was very encouraging to see how microfinance was mutually beneficial to the borrower and the lender in this most haphazard of the situations.

Sağolun (thank you and good bye)!

Ivan Ledyashov is a Kiva Fellow working with AqroInvest Credit Union and Komak Credit Union in Baku, Azerbaijan. Please help fund entrepreneurs in Azerbaijan!

Entry filed under: AqroInvest, Azerbaijan, blogsherpa, Eastern Europe & Central Asia (EECA), KF13 (Kiva Fellows 13th Class), Komak Credit Union. Tags: , .

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  • 1. howard zugman  |  21 November 2010 at 07:47

    Good post Ivan. Thanx. I do have one question, though. Could you expand a little on the part where you say “That is why microfinance institutions like AqroInvest love working with Kiva. It decreases their average cost of capital so they become more competitive. In return that enables them to offer loans to borrowers at more competitive interest rates”? Does that mean that the individual AqroInvestborrowers who get “Kiva loans” have lower interest rates than those AqroInvest borrowers who get “non-Kiva loans”?

    • 2. iledyashov  |  21 November 2010 at 14:01

      Dear Howard,

      AqroInvest doesn’t offer lower interest rates to borrowers who get “Kiva loans”. I apologize that statement was misleading. However, Kiva has Field Partners that offer lower interest rates on “Kiva loans”.

      I tried to unsuccessfully convey that in an efficient market, where there is a profusion of microfinance institutions (MFIs), and therefore a high demand for their services, a decrease in MFIs’ cost of capital would enable them to lower interest rates as they compete for clients. I have no evidence to support that this actually takes place in Azerbaijan. The statement shouldn’t read as MFIs currently “offer loans to borrowers at more competitive interest rates”, but as it only “enables them to offer loans to borrowers at more competitive interest rates”.

      I will try to write clearer in the future.

      Thank you for reading and commenting! I will be happy to answer any other questions.


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