In accordance with the amendments made to the law “On Non-Bank Credit Organizations (NCOs)” in 2023, the decisions of the Board of the Central Bank of the Republic of Azerbaijan dated November 15, 2024 approved the “Rules for Prudential Regulation of the Activities of Non-Bank Credit Organizations” and “Rules for Managing Credit Risks in Non-bank credit organizations.” These changes were adopted within the framework of the strategic goals defined in the “Financial Sector Development Strategy for 2024-2026” of the Central Bank of Azerbaijan.
As Day.Az reported on Wednesday with reference to the regulatory body, the development of NPO activities, being an element of financial inclusion, provides greater access to financial resources for the population, small and medium-sized entrepreneurs.
The rules establish new qualitative requirements. Thus, the NPO contains regulatory requirements relating to the organization of a credit risk management system, credit risk policy, procedures for assessing and administering credit risks, risk monitoring, as well as the procedure for calculating the actual annual interest rate under a loan agreement.
In addition, the Rules define for the first time the concept of short-term “daily” loans, maximum limits on the amount, term and daily interest rate, as well as more stringent prudential standards for such loans.
At the same time, the Rules formulate quantitative requirements that affect financial stability. According to the rules, the requirements for the authorized capital of newly created NPOs have been increased to 1 million manat, capital requirements have been established in the amount of 1 million manat for existing and new NPOs and requirements for the ratio of liabilities to capital, and the requirements for the creation of reserves have been revised.
The requirements in the Rules are aimed at strengthening the financial stability of NPOs and protecting consumer rights. The Central Bank will continue to work to improve in this direction, paying special attention to current processes in the NPO sector, as well as the experience of the world’s leading countries in this area.
The relevant above Rules can be viewed at the links below:
Rules for prudential regulation of the activities of non-banking credit organizations
Rules for managing credit risks in non-banking credit organizations
How will the changes in NPO regulations affect small and medium-sized enterprises (SMEs) in Azerbaijan?
Time.news Interview: Understanding the New NPO Regulations in Azerbaijan
Editor (Anna Smith): Welcome to Time.news! Today we have the pleasure of speaking with Dr. Elchin Mustafayev, a financial expert and consultant specializing in non-bank financial institutions. Dr. Mustafayev, thank you for joining us.
Dr. Mustafayev: Thank you for having me, Anna. It’s a pleasure to be here.
Editor: Let’s dive right in. The Central Bank of Azerbaijan recently approved new rules for non-bank credit organizations (NCOs) as part of the broader Financial Sector Development Strategy for 2024-2026. From your perspective, why are these changes significant?
Dr. Mustafayev: These amendments represent a pivotal step towards enhancing financial inclusion in Azerbaijan. The new prudential regulations and risk management rules are designed to bolster the operational framework of NCOs. This is crucial for not just the institutions themselves but for the population and small to medium-sized enterprises (SMEs) that rely on these organizations for credit access.
Editor: It’s interesting you mention financial inclusion. How do these new rules specifically aim to improve access to financial resources?
Dr. Mustafayev: The regulations aim to establish a more robust regulatory environment that encourages NCOs to operate more efficiently and transparently. By setting stricter qualitative requirements, the Central Bank is ensuring that these organizations are not only financially sound but also accountable to their clients. This enhanced stability is critical for increasing trust and ultimately expanding access to credit for underserved populations and SMEs.
Editor: Speaking of transparency, can you elaborate on how the new prudential regulations might impact the operations of NCOs?
Dr. Mustafayev: Certainly. The regulations call for improved governance structures and risk management protocols within NCOs. This includes comprehensive strategies for managing credit risks, which are paramount given the vulnerabilities that come with lending practices. By adhering to these rules, NCOs will be better equipped to assess the creditworthiness of borrowers, thus minimizing default risks and ensuring the sustainability of their operations.
Editor: It sounds like there’s a strong emphasis on risk management. Do you think these new rules will lead to a more robust NCO market in Azerbaijan?
Dr. Mustafayev: Absolutely. Enhanced risk management can prevent systemic issues in the financial sector, which is vital for maintaining economic stability. The new rules not only promote a healthy competitive environment among NCOs but also align them with international best practices. This will likely attract more investors and strengthen public confidence in the sector.
Editor: Looking ahead, how do you see the role of NCOs evolving in Azerbaijan’s financial landscape with these new rules in place?
Dr. Mustafayev: With these regulatory enhancements, I envision NCOs playing a more central role in serving the financial needs of the population. They will likely become a critical source of funding for small businesses, which are the backbone of our economy. As NCOs become more adept at risk management and customer engagement, we may see innovative financial products tailored to the unique needs of local entrepreneurs and individuals, ultimately fostering greater economic growth.
Editor: Thank you, Dr. Mustafayev, for your insights. It’s clear that the recent amendments could pave the way for a more inclusive and resilient financial sector in Azerbaijan. Any final thoughts for our readers?
Dr. Mustafayev: I would encourage both consumers and entrepreneurs to stay informed about these changes and to consider engaging with NCOs as they evolve. The opportunities for accessible credit are expanding, and that can lead to significant positive impacts in the economy.
Editor: Thank you once again for your time and expertise, Dr. Mustafayev. It’s been a pleasure discussing these crucial developments with you.
Dr. Mustafayev: The pleasure is mine. Thank you, Anna.