What I’m Looking Out For
As I’ve said before, an organization I’m going to work at in Lankaran is called Araz Credit Union, loaning to farmers. Because of that, I’ve been looking into issues with microfinance in general. This is what I’ve got.
Now that the a few of the large obstacles, loansharking and inflation, have been moderated, banks are finally getting a good grip in the economy, and making a big difference to many small loan borrowers across the country. There are still a few problems that plague the practices of many banks, and they generally have to do with corruption. The viability of a bank can be completely destroyed by a few bad loan officers or shady practices.
First, it’s well-established that the 36% interest rate is what the market can sustain. When a bank or “credit union” offers rates lower than that, you can assume that the gap is being filled by corruption. If they’re at 23%, you can almost guarantee that someone is getting that other 13%, or more, through bribes. And some loan officers will take 20 or 30 Manat to make sure a loan gets approved. Additionally, it’s not uncommon for loan officers to extend bad loans to family and friends, without regard to the process or the ability of the borrower to pay it back.
Other problems, like accurate record-keeping, become serious problems. Some of those same corrupt loan officers will appraise a new table at 300 Manat. Then later, that borrower will miss a payment and the bank will go check out what’s going on, only to find that half of the assets were made up, and that the 300 AZN table is really just four 2×4’s nailed together. That’s not sustainable. Also, record-keeping systems at the banks themselves may not be up-to-date. Often, banks won’t necessarily keep good track of who has made payments on their loans that week. Or they won’t keep a credit history and won’t check at other banks to see if their potential borrower has other loans.
These are all reasons why the microfinance sector can use some shoring up. They’ve got the funding, and people who are willing to do the work to make it happen, but the knowledge base and assertive thinking required to monitor a credit enterprise just aren’t there, yet. A final example: A former PCV went to work for a bank in Azerbaijan to help them with their processes. On day one, he was introduced to their system for tracking days off: an excel spreadsheet with every employee’s name, and each day of the year had a column. When a vacation day was taken, the person tracking would fill the box of that day with yellow. When someone inquired as to how many days they had left, the tracking person would count all the yellow boxes in that employee’s row. This was not efficient. Our savvy PCV suggested changing the yellow box to a simple ‘1’. At the end of the rows, they put in a formula to add up all the 1s. Suddenly, it was no longer a 10 minute process to figure out vacation day amounts! That, right there, folks, is American business sense at its best.