Regulation for Expanding Rural Financial Services: USAID Azeri Rural Credit Project (ARC) Capitalization, Governance, Ownership, Control

This paper presents the case of CredAgro, a non bank financial institution, created under the Azerbaijan Rural Credit Project (ARC), in late 2000, with the mission of providing access to working capital and investment loans for Azeri farmers. Agriculture is a vital component of Azerbaijan's economy with 30% of the population engaged in food production. However, farmers and agriculture-related rural enterprises have difficulty in obtaining credit from formal sources. The author presents aspects of CredAgro's strategy to serve the credit needs of farmers:

• Having a high control over credit quality, thus generating confidence and loyalty among clients;
• Expanding outreach through a network of branches with local representation and democratic control;
• Building client stake in the future of the institution by involving them in its capitalization.

The author also identifies key lessons learned from CredAgro's operations. Effective delivery of financial services in rural areas requires:

• High quality human resource;
• High institutional credibility and clients' confidence;
• High level of work planning and prioritization.

Finally the author identifies critical issues that have a bearing on CredAgro's future operations:

• Governance, ownership, and control;
• Capital structure and the right mix of debt and equity.