New opportunities for small and medium-sized enterprises in Azerbaijan Preferential financing and reforms

In recent years, Azerbaijan has been implementing a series of reforms designed to enhance the investment climate and strengthen public-private partnerships, with a particular focus on supporting small and medium-sized enterprises (SMEs) in the non-oil sector. These initiatives have included simplifying business registration processes, optimizing the tax burden, subsidizing exports and bank loans, and offering preferential financing through the Entrepreneurship Development Fund (SIF).

As the primary state-backed financial institution, SIF, which operates mainly in the regions, has significantly expanded its reach. Last year, it increased its coverage of entrepreneurs receiving preferential loans by an impressive 74.7%.

One of the key objectives of "Azerbaijan's Socio-Economic Development Strategy for 2022–2026" is to increase the share of production by SMEs to 35% of the country's GDP, as well as to raise the employment rate in the non-oil SME segment to 60%. To achieve these goals, further optimization of the business climate is planned, with the creation of an ecosystem featuring effective tax and other incentives for the private sector. Importantly, new preferential financial instruments for the SME sector will also be developed.

In terms of budget financing and the range of fiscal incentives and financial preferences available to businesses, Azerbaijan stands out as a leader in the Caspian region. A key driver in achieving these goals is the Entrepreneurship Development Fund (SIF), operating under the Ministry of Economy. As the country’s primary donor organization, SIF provides entrepreneurs with low-interest, long-term loans.

Notably, SIF’s efforts were crucial during the COVID-19 pandemic and the subsequent economic recovery. Under the government-guaranteed loan subsidy mechanism, entrepreneurs affected by the pandemic received subsidies totalling 42.5 million manats ($25 million) from June 2020 to February 1, 2023. This mechanism offers state-backed guarantees of up to 60% on business loans, within a portfolio of 500 million manats ($294 million), while the government funds 50% of the annual interest rate on these loans. The loans are available for terms of up to three years, with an annual interest rate capped at 15%.

The success of these business support programs was ensured through their implementation via transparent digital platforms, which eliminated the possibility of abuse. Specifically, SIF developed an online digital credit platform for submitting loan applications, streamlining the process for entrepreneurs.

Since its establishment, the SIF has firmly positioned itself as the leading structure in the field of government financing. According to statistics, from 1992 to 2023, SIF provided nearly 43,000 SMEs with approximately 2.8 billion manats ($1.6 billion) in low-interest loans, which accounts for more than a third of all preferential financing provided by the government. The total value (including the business's own investments) of the projects financed by SIF is estimated at 6.7 billion manats ($4 billion).

Notably, last year the Fund further increased its efficiency in financing, significantly expanding its coverage of entrepreneurs. "In 2024, compared to the previous year, the number of business entities granted concessional loans by the Entrepreneurship Development Fund increased by 74.7%, reaching 5,722," said Azerbaijan's Minister of Economy Mikayil Jabbarov on his social media account. "The majority of financed projects (94.7%) are located in regional areas. Entrepreneurs in the liberated territories also benefit from the guarantee-subsidy mechanism, which has spurred the implementation of various projects in the fields of industry, services, tourism, and agriculture in Karabakh and Eastern Zangazur. State support for entrepreneurship is accelerating the development of SMBs, increasing employment nationwide, and driving economic growth in the liberated territories." 

Overall, the amount of concessional loans issued last year through SIF amounted to 248.1 million manats ($146 million), reflecting a 28% increase. Of the total loan volume, 53.3% was allocated to agricultural production, 38.1% to the production and processing of industrial products (including agro-processing), 6.1% to the services sector, 2.1% to tourism, and 0.4% to fishing and aquaculture. This data demonstrates that in traditional sectors—agricultural production and processing—loans from the Entrepreneurship Development Fund continue to play a primary role. Specifically, SIF has provided concessional loans totalling 142.4 million manats ($83 million) for the establishment of 16 agro-parks in Azerbaijan. Significant funds have also been directed towards agricultural logistics and processing projects, as well as the construction of cold storage complexes, elevators, and other related infrastructure.

A key priority of the  Fund SIF is the restoration and growth of economic activity, along with accelerating investment in the liberated territories of Azerbaijan. Since February 2024, within the framework of the "Support for Entrepreneurs Operating in the Liberated Territories" mechanism, a loan guarantee system has been established for entrepreneurs implementing investment projects in these areas, covering up to 90% of the loan amount issued by banks and non-bank credit organizations. Additionally, 10% of the annual interest rate on these loans is subsidized by the state for up to 36 months, and a preferential period of up to 36 months is applied, not exceeding half of the loan term. 

In 2024, based on entrepreneurs' applications, state guarantees amounting to 19.2 million manats ($11.2 million) were issued under the guarantee and subsidy mechanism, financing 12 projects totalling 23.4 million manats ($14.3 million), with subsidies on these loans amounting to 6.2 million manats ($3.6 million). Projects financed through this mechanism cover sectors such as industry, services, tourism, and agriculture and have been implemented in Shusha, Khankendi, Aghdam, Jabrayil, Khojaly, and other regions. 

To facilitate transparency and accessibility, the "Electronic Credit and Guarantee" information system was launched, offering remote access to loan applications without the need to visit credit institutions. Additionally, in 2024, SIF provided preferential loans totalling 8.1 million manats ($4.7 million) to SMEs in the liberated territories to implement three investment projects.

In turn, the Ministry of Economy has been consistently expanding the scope of preferential lending through SIF to support businesses in the Nakhchivan Autonomous Republic (NAR). Since March 2023, entrepreneurs in NAR have been granted expanded access to low-interest loans from the Fund.

A key focus of the Fund’s activities in recent years has been "green" financing, with the Fund developing its own ESG (Environmental, Social, and Governance) model in accordance with international standards.

"One of the priority areas for the Entrepreneurship Development Fund is 'green' projects: entrepreneurs now have the opportunity to use the preferential loan mechanism to finance renewable energy projects and receive loans with an annual interest rate of 5%," said Osman Khaliyev, Chairman of the Fund's Board, in an interview with local media last year.