Posted by: Katherine Oglietti
Information for this MFI profile was provided through an interview with Tofig Gasimov, Director of International Relations at Parabank, Azerbaijan; MIX Market; and the Parabank website.
Parabank is one of the oldest commercial banks in Azerbaijan; it was formed in 1991. Though it has been successful as a commercial bank, it is currently scaling down in order to also reach a low-income population that, according to the bank’s social mission, still faces difficulties in accessing financing. It initiated its microfinance component in 2004 with a venture in unsecured loans for cattle breeding in rural villages. The bank now supports businesses in any scale, from micro to large enterprises, and it has made a shift from lending not only to individuals but also through solidarity groups. While Parabank viewed this shift as a risk, the portfolio at risk over 30 days on its microcredit portfolio is actually a percentage point lower than its regular portfolio.
As a commercial bank, Parabank is able to offer a wide range of financial services to its clients in both rural and urban areas such as fixed term and checking accounts, educational loans, and insurance products; the social performance report indicates that it is able to offer more products than its peers. Clients have access to vehicle and real estate insurance through several different insurance companies in Azerbaijan. Last year, Parabank included Credit Life Insurance in their programming in order to protect the unsecured group loans (which are only 3% of the loan portfolio). This covers the full amount of the loan in cases where the client is unable to repay the loan due to serious health conditions or death. Though initiated for the purpose of reducing the risk of overindebtedness for its low-income microloan clients, Credit Life Insurance will soon be applied to all types of loans. Here we see an increased focus on client protection that occurred simultaneously with a shift towards microfinance.
As a regulated commercial bank, Parabank is able to offer a variety of high interest, long-term deposit accounts, and it appears to have a strong focus in promoting savings - a current challenge in microfinance. According to MIX Market, Parabank has a 3:5 ratio of active voluntary savers to active borrowers. Deposits make up a larger portion of its assets (71%) than its peer group in scale (41%), despite the smaller number and value of savings accounts. Parabank also has a unique youth outreach component, offering savings accounts for youth and children in order to encourage a savings culture from a young age. The annual interest rate ranges from 10-20% on savings, depending on the deposit term and amount. However, this interest rate battles a 2008 inflation rate of 20.9% according to the World Bank; Azerbaijan has faced significant inflation hikes in recent years. A limitation for its microfinance clients is that the bank requires a minimum of 100 AZN, about $120 USD, to open a savings account. This compares to a GNI/capita of $3830, so for its low income clients, a savings account may still be difficult to open. In spite of this, the deposit accounts are evidently proving beneficial to clients, since the bank’s deposit portfolio has grown over 200% over the past two years. It is a member of the Deposit Insurance Fund so the National Bank of Azerbaijan secures deposits, which may encourage confidence in savings.
Another advantage of being a commercial bank is its ability to offer VISA debit cards to its microfinance clients that can be used to make deposits or withdraw cash with no commission charges. Facilitating the use of ATMs is another current challenge in microfinance, which we discussed in a previous interview with Swadhaar, India. Parabank improved client access to ATMs by collaborating with 28 different banks across the country so that its customers can use any of their ATMs with no commission charges. Parabank also offers money transfer and foreign exchange services, which are important for its low-income clients who receive a growing number of remittances. Azerbaijan absorbed over $1.5 million in remittances in 2008, which had grown by a factor of 27 in only eight years.
While many smaller MFIs (especially nonprofits who are limited by government regulations) are seeking ways to scale up in order to provide high quality financial services to their clients, Parabank offers an example of how a large-scale commercial bank can offer its competitive financial products to low income clients. Its increased deposit portfolio, lower PAR ratio for its microfinance portfolio, and the transfer of products designed for microfinance clients to all clients demonstrate that the shift towards microfinance has been mutually beneficial for the bank and its clients.
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For more information on Parabank, visit their website at: http://www.parabank.az/?lang=eng. You can access their social performance report at MIX Market: http://www.mixmarket.org/mfi/parabank/files.
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