As a key to success in Azerbaijan's economy, the financial landscape needs to change to allow greater MSME growth.

One of the pillars of an economy that seeks to achieve dependable and sustainable growth is cultivating a healthy environment for micro, small, and medium-sized enterprises (MSMEs). In a country focusing on diversifying revenue and alleviating its dependence on the often volatile energy markets, supporting MSMEs is a driving and vital concern, if not a prudent allocation of financial resources. As there have been major changes and shifts in the focus of the national economy, there needs to be similar and appropriate changes in financial access for MSMEs. The finance industry needs to adapt in Azerbaijan to support this critical base. Accordingly, Rolf Behrndt of the World Bank Group's Finance and Market Practice, “Azerbaijan's future growth will largely depend on the increasing role of innovative, skillful, and competitive MSMEs," a sector in which there is still much untapped potential.

MSMEs are the backbone and a main source of growth for an economy. For example, in Europe, they constitute around 99% of all businesses and employ two-thirds of the population. In the US, MSMEs employ over 50% of workers in the private sector. MSMEs are classified according to the number of people they employ and by the company's total turnover or revenue. In the summer of 2015, the Azerbaijan Cabinet of Ministers agreed to change the parameters of what constitutes a small and medium-sized business. Putting themselves more in line with international standards, small businesses in Azerbaijan are classified as having less than 50 employees and an annual revenue of AZN120,000 or less, and medium-sized businesses are for companies that employ between 50-125 employees and have an annual revenue between AZN120,000 and AZN1.25 million.

Unencumbered access to finance and necessary financial tools, especially lending, is a characteristic that must be present in order to optimize growth in this competitive sector. MSMEs in Azerbaijan currently do not enjoy that luxury. In a study conducted by the World Bank, access to finance was listed as the number one obstacle to development for MSMEs in Azerbaijan. The financial system in Azerbaijan is not very large, it is bank centric, and the state plays the major role in financing and ownership. In the current system, the process for financing prospects for MSMEs is challenging and access is limited. This is primarily due to the complicated credit application processes of the country, the general lack of collateral from MSMEs, and high lending costs. Although many MSMEs exist in the country, the reality is, despite the great diversification effort that has taken place in the country away from oil and gas, MSMEs still hold only a 10% share of the national GDP. Fortunately, changes in the financial realm can introduce a more profitable environment for MSMEs in the country.

Recently, there have been some steps in the right direction with regards to financial access from MSMEs in Azerbaijan. The International Bank of Azerbaijan completed a loan agreement with the European Investment Bank for €50 million. This money was loaned on the premise that it will be directed toward MSMEs and middle capitalization companies. This is a beneficial move on many levels. Not only will this loan enhance the financial access of MSMEs and help drive private sector development, but it will also add to the already robust domestic diversification efforts. The World Bank has also issued recommendations to Azerbaijan on steps they can take to achieve higher MSME growth. This includes simplifying the lending procedures, creating a secured framework for transactions, and improving risk management services. An additional benefit to strengthening MSMEs is the creation of new jobs for Azerbaijani citizens. This puts more income in the pockets of citizens, thus helping to reinforce the economy from within. All of this will help increase the overall economic power of Azerbaijan and raise the living standards for Azerbaijani citizens. By developing a financial sector with increased depth and creating innovative services to cater the needs of all MSMEs, Azerbaijan can achieve the environment that is necessary to grow domestic MSMEs into the powerhouse they can become.