What small enterprises. Offering soft-loans and guarantees

What
can stimulate small entrepreneurship in Azerbaijan in current volatile
situation? According to the developed world economy we can cite that small
enterprises have a significant role in the economy of the country. They get
the huge portion of employment in the giant industrial and developed
countries. Throughout they also account for a disproportionately large share
of new jobs, especially in those countries which have displayed a strong
employment record, including the United States and the Netherlands. They are
main participator of sustainable domestic growth. As well as it also has
relative share in the Azerbaijan economy. However, current macroeconomic
condition impedes the operation of small enterprises in Azerbaijan. “What are
the reasons of that?” is big question in this case. What should we do as a
corrective action in order to stimulate small entrepreneurship? First of all
needless to say, small entrepreneurs have inevitable financial problem such
as creating venture capital. Reasons for insufficient capital are high rates,
higher values of collaterals (mainly real estate) and rejection of funding by
creditors and lenders. Loans for start-up are almost unavailable. Overall,
lack of sustainability in the securities market is one of the factors
impeding small businesses access to financial sources. According to the World
Bank in the world economy more than half of the small enterprises lack access
to finance, which hinders their grows. In Azerbaijan according to the report
BEEPS V even in 2013 14.6 percent of surveyed enterprises had got loan or a
line of credit down from 19.9 in 2009. Moreover 4.7 percent of surveyed
enterprises financed their capital with bank loan while rest 92.8 percent
financed itself with through private internal funds. As a corrective action
we have to accelerate loan programs for small enterprises. Offering
soft-loans and guarantees for start-ups are important steps by funds and
banks in this uncertain economic condition. A percentage of the loan is
guaranteed by the state so that, in the event of default, the loss to the
financial institution is only a proportion of the sum at risk. In return, the
charge paid by the borrower on such loans is higher than under normal
arrangements since an additional premium is paid to the state to cover
expected losses. Even so, the Small business is able to access funds from a
financial institution without access to collateral. Additionally Government’s
subsidies, tax concession and reducing administrative costs will stimulate
the small business fields. Moreover new laws have to be prepared on private
credit bureaus and registry of moveable assets, because there is backlash in
centralized register of pledges as well which force business owners not to
get loan from banks. There is no single centralized register of pledges in
Azerbaijan. Once the property pledged as collateral is notarized, it is
registered by the State Service for Registration of Real Estate. However
Secured Centralized Transaction Registries ensure that small business owners
can provide moveable collateral as a basis for more lending. Private Equities
can also help the small business to increase its capital. Under the help of
Private Equity Funds these businesses can increase its value and cash flow
simultaneously. This partnership method is widely accepted all over the world
and it will be crucial step for small businesses if we apply this in
Azerbaijan. Additionally, increasing initiative to use exit mechanism and
applying sales to portfolio investors will revive small businesses that have
liquidity problem. All in all the government should complement and support
the development of the private-capital industry and financial markets
including increasing the skills of the people involved in undertaking this
task. A danger is that “excessive” public interference (including spending)
will crowd out or retard the development of private financial intermediation.
Second obstacle is the lack of financial illiteracy and strategic action
plans to support start-ups. According to the worldwide experience we can see
that top countries enhance quality of managers through trainings and
providing access to advisory and consultancy services. One of the main
reasons of Japanese extreme development is these extensive assistances to
small business managers. Nevertheless recent years this problem is getting
solved by government. Public Participation Law (adopted in 2014) provides
hearing, consultation, written consultation via Internet in a legal basis for
public. Till 2015 159 draft legal acts from 20 state agencies had been posted
in the platform. In October 2011 opened platform helps entrepreneur to become
aware of which kind of documents and legal permits they need for operating.
Moreover, the Ministry of Economy and Ministry of Taxes often organize
meetings with entrepreneurs in both the capital and the regions of the
country. These recent steps show that we are actually on the right track;
however there is not such system or a web portal that shows previous consultations
or current outcomes of these meetings. As a result of this case they can’t
compare results and measure the efficiency of used method. Establishing this
system will surely help the entrepreneur who did not attend in these
consultations and also authorities will track the methods that are used.
According to the MSME (Access to Finance Demand and Survey in Azerbaijan) ,
over 35 percent of small business holder do not keep financial records or
conduct future cash flow planning . Notwithstanding these facts fact
financial literacy is not integral part of school curriculum. This will
require mutual internal partnership within education system. Linkages among
business life and education are generally good and moving entrepreneurial
learning will show its affect on future business activities. It is crystal
clear that we have to implement more techniques in agriculture sector because
it has untapped potential as a non-oil sector.(roughly more than 5% of GDP
and app. 35 % of jobs) There should be courses for the farmer to help the
lead their occupation and increase production capability. Recent years
Azersun Company applies this rule and organizes such events for its
suppliers. (Mainly farmers) As a third step improving general technology
receptor capacities of firms especially assisting them in R&D project and
creating sustainable business environment will help to compete in
international business environment. According to the last years’ data as a
country our R spending share of GDP is approximately 0.2% and it is
relatively small number. Nevertheless we have to increase this amount because
at the time the firm has established, innovation is vital for growth. For
instance, company who makes simultaneously R has to get tax cut by government,
this can be considered as a subsidy and contribution for innovation. The
fastest growing entrants are those that translate strategy into action in the
form of R, innovation and training, put great emphasis on hiring
skilled employees and motivating employees, and balances the enhancement of
their capabilities in different areas — the last being particularly
important in high-knowledge sectors. Additionally collaborations can be a key
element of any R project, and is often crucial to achieving success.
Collaboration can take place between your business and another enterprise,
local universities. It allows for transfer of skills and knowledge, and
access to facilities, expertise and potentially new ideas. For facilitating
business environment legislations have to seek the most cost effective means
of satisfying legal requirements. As an initial step new regulations should
be examined in a systematic way. Those chosen legislative change should have
to clearly justify any new procedures. Economic side effects, such as
differential compliance costs according to firm’s size, showing are estimated
and quantified. Massive use should be consisting of information technology.
Increased utilization of information technology creates opportunities for
decreasing bureaucratic burdens on small businesses. For example, enterprises
could be given a single number for use in all their dealings with government.
This would prevent the duplicating information to a variety of government
departments such as taxation, business registration or employment agencies.
The problem with this is that, whilst wider acceptance of electronic data
interchange (EDI) would be particularly useful to smaller enterprises, it is
precisely these firms that are the least likely to have access to expertise
in this area. They therefore run the risk of being significantly and
increasingly disadvantaged. In the final steps as a country we have to
prepare our program that provides governmental promotion of technological and
innovation management for small businesses. For instance Ireland has FORBAIT
this is for overall diagnosis of firms, Austria has MINT program for
innovation, US has PBS service that is for benchmarking firm’s performance. I
strongly believe that the program that involves innovation and benchmarking
in it will help our small business in global competitive market. Considering
purchasing power of overseas we have to implement much more policies that
focus on easy access of small businesses to foreign market rather than
locally. In conclusion, as developing and young country we have to thrive our
economy not only oil sector, for this reason we should create chance for
small businesses like Japan has done before. That is why it is appropriate to
apply all the programs simultaneously that mentioned in this writing. Both
Government and small business holders have to collaborate in order to
implement financing programs (especially creating sustainable financial
market), R (increasing spending, collaborations), increasing use of
technology and mainly enhancing financial literacy. Government on by its own
has to create sustainable business environment, increase the internal
competition and finally help the businesses to operate at overseas.

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