Development of the financial sector and raising financial literacy over the past several years have improved the financial inclusion in Azerbaijan, but it is still significantly lower than in many comparator countries, finds the new World Bank report Enhancing Financial Capability and Inclusion in Azerbaijan. The report, which analyzes the results of a survey of 4,620 adults across the country, was presented today in Baku at a joint event organized by the World Bank, the Central Bank of Azerbaijan and the Financial Markets Supervisory Chamber.
Financial access and inclusion are important for household welfare, economic growth and shared prosperity. Azerbaijan is behind the average of upper middle income countries in terms of financial access, financial inclusion (number of adults with a bank account) and financial infrastructure. A survey indicated that only 36.4% of adults in Azerbaijan have a bank account as compared to 39.7% in Georgia, 53.9% in Kazakhstan, 56.6% in Turkey, 60.8% in Romania and 83% in Serbia.
Reforms aimed at enhancing financial stability, strengthening financial consumer protection and developing quality financial services are key prerequisites for restoring public trust in the financial sector and increasing financial access and inclusion. “To make financial services more accessible, their cost, especially for basic financial products, needs to be reduced through increased efficacy of banks, and higher transparency and competition in the financial sector”, said Larisa Leshchenko, World Bank Country Manager in Azerbaijan.
Financial access and inclusion depend on a number of factors, including income level, employment status and the size of a household. Households in Ganja-Qazakh region recorded the highest level of financial inclusion at 38.3%, while Shaki-Zaqatala region has the lowest level financial inclusion at 32.3%. The survey also found that unemployed adults were 6 percent less financially included than the average employed person. Younger women seem to have lower financial inclusion as a result of their lower economic participation. Low financial capability and high costs for basic financial services seem to be among the main impediments for using financial services.
Limited distribution networks and insufficient consumer protection frameworks also constrain financial access and inclusion. The banking sector branch network in Azerbaijan (per 1000 adults) is one of the smallest in Europe and modern financial services delivery (including branchless banking and digital finance) are not sufficiently developed. Credit infrastructure (i.e. credit bureaus and secured transactions framework) is still underdeveloped. “Azerbaijan needs to develop non-bank financial institutions and modern distribution platforms for financial services, including e-banking and mobile banking”, noted Angela Prigozhina, Senior Financial Sector Specialist who leads the World Bank’s financial sector work in Azerbaijan. “Delivery of basic financial services through the national postal operator Azerpost was an important reform launched several years ago. With 1,600 branches around the country and partnership with banks and other financial institutions, Azerpost can contribute significantly to raising financial inclusion and access in the country”, noted Prigozhina.
Azerbaijan has made many important steps towards advancing financial consumer protection and raising financing capabilities, including establishment of a financial literacy website, and development of a national financial literacy strategy ad recommendations to banks for responsible lending and handling of complaints. Financial literacy is also set to become part of the national school curriculum. “A national financial literacy strategy needs to be accompanied by a detailed action plan to be supported and implemented by a broader community of public and private stakeholders”, said Siegfried Zottel, Senior Financial Sector Specialist and lead author of the survey report. “Implementation of this strategy will require use of various communication channels to raise the financial capability of households and companies,” noted Zottel. “It is also important to consider creating a financial ombudsman for complaints handling.”
The report was prepared at the request of the Central Bank of Azerbaijan under the Consumer Protection and Financial Literacy technical assistance project funded by Switzerland’s State Secretariat for Economic Affairs (SECO).