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					    1.1. Name of the organization and founders:

       Name of the Organization: Non banking credit organization “Finance for
Development” Limited Liability Company
   Founder: OXFAM Great Britain International Humanitarian Organization
   (See site of: www.oxfam.org.uk )

    1.2. Nature and mission of organization:
“Finance for Development” (hereafter FinDev) is a non-for-profit financial institution founded by
Oxfam GB to provide a financial support to the low-income people, entrepreneurs, displaced
persons and refugees, by issuing micro credits.

     1.3. Purpose of establishment:
The purposes of establishment of Finance for Development were: (a) to improve the access of
those people to financial services who has not access to traditional financial sources; (b) to
increase and improve income, business and employment opportunities of vulnerable; (c) to
support people in creating saving, to facilitate in formalizing the own capital of those people by
means of savings; (d) to improve the village banking groups up to formal credit unions level; (e)
to facilitate the development of sustainable micro entrepreneurs.

    1.4. Background of organization:
In Azerbaijan, Oxfam – our founder – works since 1993. In 1997, Oxfam started a „Saving and
Lending‟ program in Azerbaijan.

Prior to FinDev‟s establishment, Oxfam had carried out a study on the existing formal and
informal savings and credit systems. The results of the study showed that formal bank systems in
Azerbaijan were not addressing the needs of people who would like to be engaged in small and
medium enterprises (SME). Practically, there was no local institution providing micro loans.
Savings operations also have been stopped due to liquidity and distrust of people to local finance
institutions because of bad experiences from then recent pyramid games.

The project has passed different development phases such as pilot (August, 1997 – July, 1998),
development (July, 1998 – March, 1999) and interim (March – December, 1999) phases, during
which project performed different activities preparing itself for the next stage. In January 2000,
Oxfam GB started Future Financial Institution (FFI) project in Barda, central region of
Azerbaijan, 350 km southwest from Baku. The main purpose of the Future Financial Institution
was to establish self-sustainable micro-finance institution, operating in Barda and surrounding
regions of Azerbaijan.

Due to Azerbaijan legal framework the Oxfam GB had to separate the FFI project and register as
an independent entity. After registration at the Ministry of Justice in September 23, 2002 and
obtaining the License from the National Bank of Azerbaijan in April 2003, the “Finance for
Development” has become a non-profit limited liability non-banking credit organization
operating under the legislation of Azerbaijan Republic.

    1.5. Sectors and Clientele
“Finance for Development” provides service for people, who (a) are in the beginning of business
activities, but has experience, (b) have a micro entrepreneurs units (master-shops, entities of
small-scale producers and etc.) and want to develop activities, for example, masters, raw leather
(skin) and lining production, the small and medium scale master shops for the maintenance and
repair of cars and other techniques, (c) who make small-scale trade activities in bazaars, markets,
and the mobile trade through the ways, (d) who make activities in service sector, such as
hairdressers, suit makers and etc, (e) who have a previous experience and want to implement or
start business and livelihood on the basis of this practice.

“Finance for Development” serves the following sectors: (a) raw leather and skin processing and
production closes, (b) vegetable gardening and food processing, pickle processing and
production, (c) service shops, sewing, repair masters and etc., (d) small production enterprises
and workshops, (e) livestock and husbandry activities, dairy processing and etc. (f) agricultural
activities, (g) trading with various imported and local products, (h) consumption loans for
covering food, medicines, education, weddings, funeral and clothing.

    1.6. Services and Loan products
Finance for Development targets micro entrepreneurs for the provision of financial services
through the creation of groups on village banking type methodology (saving-credit groups,
development funds) and group guaranteed solidarity groups (guarantee groups, progressive
groups, shareholders groups), as well as individual small and medium entrepreneurs.

The monthly interest calculates on 2,5 – 4 % on Declining Balance for the offered loan products,
which is designed to cover operating expenses, loan loss reserves, and costs of capital by
organization. The experience in region showed that the people gave an advantage to the Declining
Balance. The loans are given for 1 (one) up to 18 months with monthly installments (depending
on types of supported groups, products and applicants‟ business) and disbursed in Azeri Mantas.
FinDev is likely hedge against inflation by indexing one of the free convertible currencies, such
as Euro or USD. Once it achieves scale, FinDev is expected to revise the interest rate based on
actual costs of the price components. FinDev regularly revises market indicators in review of the
interest rate on the products and is flexible to modify interest rate, loan product, period and other
components when necessary.

Actually, loans size range from US$ 50 up to US$ 1000. The loan products by the Finance for
Development are primarily a character-based loan product that focuses on the Five C’s of Credit:
character, capacity, capital, conditions. FinDev does not ask for Collateral. Rather, the group
as a whole is responsible for each member‟s repayment. If one person is unable to repay her loan
on time, then the group as a whole is required to pay for her. Other group members will not be
able to receive future loans until the previous loan is paid in full.

The operation currency of FinDev is Azeri manat. It means that organization insures clients from
exchange rate losses. Besides, the lending through Declining Balance is more attractive to client
than Flat methodology of calculation of Interest rate.

Finance for Development‟s another offer is the facilitation to create the group's internal savings
(in saving-credit and development groups). Group members accumulate the membership fee in
the group‟s internal Total Saving Fund. Groups use this fund to disburse credit to members only;
interests from this amount accumulate in the group‟s internal Total Interest Fund. There are
several advantages of group savings. First of all, these savings are one of the instruments to
reduce the credit risks. On one hand these activities help every member to form his/her own
capital (It's difficult for the poor people to form their own capital and savings independently). On
the other hand these savings support group‟s long-term and stabile activities. The Finance for
Development‟s vision is that the savings in the groups can be one of the factors, which supports
the common activities of members. Experience shows it is possible to accumulate on average an
amount of 10,000,000 (ten million) AzM in groups‟ internal funds within two or three year (up to
number of member).
“Finance for Development” offers the beneficiaries trainings on "Management of credit and
group funds", “How to calculate the interest rate on flat and declining balance methods”,
“Bookkeeping and accounting”, “How to prepare application documents for loan (how to prepare
required forms, write business plan, loan projections)”, “How to manage income and expenses –
budget planning, “Management of accounting and financing”, “Management – Leadership and
management training for group leaders and bookkeepers”, “How to found and manage the
development funds and credit unions”.

First of all trainings conducted during group formation processes. In next stages Loan Officers
train the groups through site visits to the group meeting and business places. The loan officers
observe through the group's financial management, the situation of clients' credit using and make
evaluation of activity. Also, they train and support groups' bookkeepers.

Another offer of FinDev is creation of direct and indirect job places for clients. The indirect
opening of job places means that through the credit the potential clients are able to open
business/jobs for him-/her and others.

Direct job places are described below; each group established on the village type methodology
(saving-credit groups and development funds) have a Chairperson and a treasurer. The
accumulated savings in-group disburses to members of groups and brings interest to the group.
The salary paid to the group‟s Chairperson and treasurer from the group‟s interest income.

FinDev provides technical support to beneficiaries. Each group receives treasure books,
stationery and etc. from FinDev.

After this period FinDev will support the well performed village banking groups to register as
Credit Unions separately or by joining. During this period groups will attract new members,
group Steering committees and members will develop the fund management skills.

     1.7. Credit methodology
         a. Village banking product and saving component
One of the lending methodologies used by FinDev is the village banking type of methodology.
Village banking groups are community-based associations, which have credit and saving
components and are utilizing the village banking methodology pioneered by Finance for
Development. The clients applying for the loan form one of the following types of the credit
groups which are based on Group guaranteed Saving and Credit principles. Group members are
required to have active businesses, to know and trust each other. These groups generally consist
of up to 15 (for saving and credit groups) and up to 60 (for development groups) individuals.
Although Finance for Development provides the initial loan capital for the group, the members
themselves run the groups; they choose their members, elect the steering committee (chair and if
needed members of committee) and recruit or elect the treasurer, establish their by-laws,
distribute loans to members and collect savings. FinDev provides micro and small loans in manat
equivalent of up to US$ 200 to first-time borrowers with a maximum loan size of US$ 700. Loans
are issued to both saving-credit groups and development funds for 1 – 12 months. The amount
depends on loan period and cycle and there is a grace period in repayment for livestock activities.
The loan is issued on the basis of loan projection. The amount of loan cycles is linked to the size
of business and financial condition of participants. The interest rate on loan is 4% monthly on
declining balance.
Finance for Development will give its clients in the village banking groups‟ incentives to save.
FinDev has found that most clients maintain on an average more than three times the savings
requirement. In the village banking methodology, clients typically pool their personal savings in
an internal account, managed by the group. The groups will then lend the money amongst their
members to earn interest on their saving. Elsewhere, in the world, some village banking groups
choose to deposit the money in a commercial bank account (as a guarantee for an external loan
and to earn interest), however, the level of distrust to the formal banking system in Azerbaijan
limits the applicability of this option. The FinDev will explore legal options for accepting and
intermediating clients‟ deposits, too, within the current legal framework.

Group members, by mutual consent, decide how to manage their collective savings. Many re-lend
internally to members. Some finance collective income-generating activities. Each group‟s
bylaws stipulate the eligible activities including borrower profiles, loan amount, tenors, interest
rates, fees and collateral requirements. However, FinDev does require that all internal account
loans must be current by the end of each loan cycle. Interest earned from the lending of amount
from internal accounts is used to cover groups‟ operational and administrative costs. In
development funds, earned interest besides operational cost can be used for communities‟ social
and development needs (for example, health service, health insurance system, information and
advice center, education and training purpose and etc.). In development funds the members can
participate in saving, but cannot be borrower. Who participate in saving s/he will have free access
to services, which are supported by fund. At the end of the cycle, internal account earnings are
divided among the members according to their percentage in total savings. This income can be
distributed to members or added to the clients‟ savings. FinDev‟s experience indicates that the
demand for savings services is robust, and that its savings approach processes significant
potential for future innovation.
          Saving – credit group
The number of people in the group fluctuates from 5 up to 15. One person from each family can
be a member of saving – credit group. The size of saving amount is the same for all members of
the group. The credit is given for the term of 1 up to 12 months. The members of the group are
obliged to create the Group saving Fund during the paying back period. This type of credit has
been designed especially for most vulnerable population. The main purpose of this activity is the
establishment of the Group Fund for that group‟s future sustainability.
          Development funds
The development funds established on the village banking type are different from saving-credit
groups for their foundation character and operating method. The development fund is the
coalition of saving-credit groups from the same areas or regions. The main component in the
development groups is the members‟ periodical savings and loans borrowed from external
sources. The number of the members of the development funds can be 20 to 60 persons. In
comparison with savings and credit groups, here several persons from any family can be the
group‟s members (but only one person from each family can borrow). Besides, the members‟
saved amounts can be different as against saving-credit groups. The development funds can
allocate money from their generated income for solution of health, education and other social
problems of the area they are established and now function. The main purpose here is to stimulate
saving process through credit component and create financial sources of the people united in the
groups.

         b. Loan on Solidarity type of methodology
Besides village banking methodology, FinDev has used solidarity type of methodology. There
are clients among the beneficiaries of FinDev, to whom the village-banking product is not
suitable. Especially, the urban-based clients give advantage to more flexible groups. Besides,
there are some clients that the village banking groups and products on this model does not answer
the demand of their business.
          Guarantee Group
The group ranges between 5 up to 15 people in size. The type of group differs from the previous
one in that each member can invest his/her part in different spheres of business. There are no
savings in-groups. Each member has separate business (especially, small-scale service, trade and
other activities). These groups are typically solidarity groups. The loan size varies initially from
US$ 200 up to US$ 800 per client. The loan is issued on the basis of loan projection. There are no
fixed amounts for loan cycles. The amount of loan is linked to the size of business and financial
condition of participants.
          Progressive Group
The group ranges between 3 up to 5 people in size. Each member has to have formal registered
business (especially, medium-scale service, trade and other activities). There are no savings in-
groups. These groups are typically solidarity groups. The loan size varies initially from US$ 400
up to US$ 1000 per client. The loan is issued on the basis of loan projection. There are no fixed
amounts for loan cycles. The amount of loan is linked to the size of business and financial
condition of participants.
          Shareholders Group
The number of the people in the group fluctuates from 3 up to 5 who are shareholders in the same
business. The credit is given to the t groups for 1 – 12 month period. The member of the group is
obliged to use the loan on the same business. Each member of the group shares the obligation of
the others. Initial loan to the group is up to USD 400 and maximum is USD 1000 for whole
group. The loan is issued on the basis of loan projection. There are no fixed amounts for loan
cycles. The amount of loan is linked to the size of business and financial condition of participants.

    1.8. Rules and regulations for Finance for Development’s operation
The Finance for Development is an independent non-for profit financial institution. FinDev has
adopted its Charter, “Internal Lending Rules”, “Policy and procedures manual”, Instructions on
operations, Accounting, MIS-Loan Performer for portfolio management, capable Staff.

As we have mentioned in the reports, the credit and other financial activities are regulated on the
basis of Law of Azerbaijan Republic “About Banks and Banking Activities”, Rules of the National
Bank “About The Establishment and licensing of Credit Organizations and its branches” and, on
the other hand, according to the Addenda of the National Bank to “Rules about The
Establishment and licensing of Credit Organizations and its branches”.

Besides above-mentioned legal basis, the operation is managed on the instructions and rules of
Finance for Development – “Internal Lending Manual for FinDev”. The Manual consists from the
following parts (rules):
     Microfinance policy framework document for the Oxfam (GB) owned subsidiaries in
        Caucasus;
     “Group Guaranteed Lending Methodology” – Lending principles;
     “Loan amounts, periods and repayments procedures” – Rule;
     “Lending according business capacity” - Rule;
     “Rule and criteria for establishments borrower groups” – Rule;
     “Loan application, approval and disbursement procedures” – Rule;
     “Criteria for collateral” – Rules for individual lending;
     “Late and delinquencies management” – Rule.
     “Rules for operation and management of village banking and solidarity groups” –
        Instruction;
     “Instruction for Client Assessment”,
     “Instruction for Evaluation and Monitoring”,
     “Instruction for Business Assessment”,
     “Unification Form for Client‟s Loan Projection (for individual lending)”,
     “Financial Manual (for Accounting and Finance division of FinDev)”.
The instructions are prepared for the regulation of different parts of operation, such as group
formation, group evaluation, client assessment, business assessment, loan projection (how to
write proposal for loan). Staffs use these instructions in their daily activities.

    1.9. Procedures of group formation, application and loan approval.
Group members are required to have active businesses, to know and trust each other. Preparation
of group to disbursement consists of four stages. These stages can be passed in three group
meetings during 10 – 15 days period before the first cycle loan disbursement. Group
responsibility, repayment procedures and other important issues are explained by the Loan
Officer during these meetings.

At least one field visits and analysis of business of each member of the group are done prior to
loan approval. Business analysis form includes basic data about income and expenditure and
simple calculation of profit. Based on this calculation, business history – if available, community
participation and credit history (in case of existing clients) – of client is assessed.

Good clients are given a chance to increase loan amount in every next loan cycle and according to
the development of business. Next cycle loans are issued in maximum 5 banking days after
receiving application documents and when the result of evaluation is acceptable. One field visit
and business analysis should be done before approval.

On the end of the current loan cycle the group applies for next cycle. All loan documentation is
standardized for group Loans. Application documents consist of the following documents: (1)
Application on behalf of the group (loan need of the group), (2) Form for Analysis of Financial
and Business Condition of Applicants (for each member), (3) Guarantee Agreement (Contract)
signed by and among the members. These unification forms are available from FinDev. The
group prepares loan application independently. The application documents show the loan size
needed per client and other conditions, such as loan period, grace period and etc. The Loan
Officer receives application documents for next credit in the meeting and initially reviews the
loan application and business assessment forms and cheeks receivability of these documents from
group. Only after his/her approval, before loan preparation, Credit (branch) Manager and Loan
Officer make business assessment of the group. The documents received by the Loan Officer are
registered in the Organization. After receiving the application documents the presented
information is assessed (monitored) by the Loan Officer and Credit (branch) Manager through
visits to business sites (there is an “Instruction for Business Assessment”). As the result of
assessment they make notes/recommendation for decision.

There are “Rules for lending mechanism for FinDev according to the loan cycle and against
business capacity”. The Rules regulated the loan size per client, period and other terms are
determined.

MIS Officer records the contract details and information about clients to Loan Performer and loan
ledger card for the group is printed. In this stage Treasurer records the contract details to the
Revolving Fund in Excel program. Representatives of the group members that are situated far
from the office receive loan from the office and distribute to members with the participation of
the loan officer.

Monitoring and evaluation of outstanding loan and businesses is made on a biweekly basis during
the first loan cycle and at least monthly for well-developed groups.

    1.10.       Responsible individuals
 i.   Supervisory Council members appointed by Trustees of Oxfam Great Britain:
(1) Ms. Shovcat Alizadeh – Chair of Council (Tajikistan Country Representative of Oxfam GB)
(2) Mr. Azer Hasanov – Vice-chair of Council (Azerbaijan Country Representative of Oxfam
    GB)
(3) Ms. Sevinc Alizadeh – member (Program officer, Azerbaijan Representation of Oxfam GB)
ii.   Board members of Finance for Development appointed by Trustees of Oxfam GB:
(1) Mr. Jalal Aliyev – Chair of Board;
(2) Mr. Nabi Samedov – Vice-chair of Board;
(3) Mr. Etibar Ashir – Member of Board;

      1.11.      Executive management staff of organization:
FinDev‟s total staff number is 15. “Finance for Development‟s” staff is as following:
    i. Head office:
Jalal Aliyev – Chair of Board;
Abulfaz Maharov – Finance Manager (& acting MIS specialist);
Saida Gurbanova – Human Resources Manager;
   ii. Barda branch:
Nabi Samedov – Branch (Credit) Manager
Madina Shukurova – Loan officer
Fegan Salimov – Loan officer
Fexreddin Gasimov – Loan officer
Ilhama Aliyeva – branch accountant (& acting MIS specialist)
Mehman Aliyev– treasure;
Ramin Salahov – Receptionist;
  iii. Mingechevir branch:
Mubariz Gurbanov – Branch (Credit) Manager;
Vezir Aliyev – Loan officer
Arif Badalov – Loan officer
Anar Shahbazov – branch accountant (& acting MIS specialist);
Sevinj Khalilova – treasure;


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