Credit and Loan Victims in Azerbaijan
Azerbaijani citizen Mazahir Panahov set himself on fire in front of a Republic Bank branch on May 23 of this year. The reason? An outstanding $140,000 debt. He died in June.
A similar case occurred in 2015, when a resident of the Nakhchivan Autonomous Republic of Azerbaijan, Malik Huseynov, also set fire to himself and died from his injuries.
According to statistics released by the Central Bank of Azerbaijan, as of March 1 of 2017, the share of problem loans in the total loan portfolio of the country stands at about 9.8%.
Independent experts believe that the current figures on problem loans do not reflect the reality on the ground and are rather understated. According to international rating agency Moody's Investors Service, in early 2017 the share of problem loans was 25% of the total volume of loans issued in Azerbaijan.
According to other international standards, the upper, advised limit for the share of problem loans (due in 90 days) in the total volume of issued loans is about 7%.
In 2014, Gunel Hasanova’s family took out a home loan of $3,000 from Bank of Baku. They were paying their bills on time, but in 2015 the head of the family fell ill, lost his ability to work and retired with disability benefits. After that, the family could not pay back their loan.
The loan was backed by an insurance company, which had obligated itself to cover the loan if “the loan receiver dies or becomes disabled”. However, the insurance company refused to pay up, and the family’s case is currently being reviewed in Baku’s Court of Appeal. The family intends to take the course to the European Court of Human Rights if need be.
According to economist Akram Hasanov, in Azerbaijan there is no practice of insuring cash loans. The credit itself is not insured, but rather the guarantee or the life of the client.
“Insurance services offered in such cases consist of insuring either the guarantee against the loan, or the life of the loan receiver. However, it is always a question whether such insurance policies will be paid out or not if need be. The fact of the matter is that insurance companies come up with contracts that are designed to implement all sorts of tricks against their clients”.
Collector activity not regulated by the law
Economist Togrul Mashalli says that Azerbaijan’s legislation is critically lacking regulatory articles on the activity of debt collectors in the country.
"The main job of collectors abroad is to return problem loans legally. Due to this fact, they either provide the bank with such a service and receive compensation for their work, or they take on these loans and then the interest turns into their profits. But in Azerbaijan, because of the lack of appropriate legislation, there are only companies that offer such services [and banks don’t use them].”
Unfortunately, few people are able to apply to the court system for help when unjustly persecuted by Banks or debt-collection agencies. Many are unable to afford the cost of a trial, and others lack faith in the judicial system.
"The most important issue for the state [in this matter] is to check the process by which banks are working. Data should be compiled on problem loans: to whom and under what conditions are these loans being given? Have these loans been given to entrepreneurs and businesses, or to private citizens?” asks Akram Hasanov.
According to him, the share of citizens in problem loans is very small.
“The volume of problem loans owned by ordinary citizens is 20-30 percent of the total amount. The state should identify the primary source of loans issued without collateral, and with low interest and find ways to return them to the bank."
Bankruptcy not much of a solution
Until 2015, Azerbaijani citizens were unable to declare bankruptcy unless they were business owners. Now, after an amendment to the law, any citizen can apply to court and declare bankruptcy, and thus free themselves from debt repayment. However, in the case of bank loans, a guarantor generally stands behind the loan who is then forced to pay up.
A bill to cover up the gaps in loan law has been in the works since 2014
In 2014, Azerbaijani and German experts worked together to produce a draft law on bank loans. It was submitted to parliament the same year, and has been sitting there since. Banks have been proactively trying to stall the bill, but it is expected that it will be passed by the end of 2017. The document aims to address gaps in the legislation and solidify unclear points in banking and loan contracts down to the smallest of details.
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