Overview
SOA Kredit LLC, formerly Shore Overseas Azerbaijan (SOA), is a locally registered limited liability finance company, licensed by the National Bank of Azerbaijan as a non-bank credit organization. It was formed in 1999 as a wholly owned subsidiary of SBI with initial start-up and loan capital provided through a USAID-sponsored financial sector project grant. SOA Kredit offers SME loans from $5,000 to $300,000 and home purchase and improvement mortgage loans from $5,000 to $100,000. SOA Kredit is the first and currently the only finance company in Azerbaijan offering seven year mortgage loans. As of July 2005, SOA Kredit’s total portfolio consisted of 362 active clients and a portfolio outstanding of $5.7 million. Average loan size in both the residential mortgage and SME loan portfolios is approximately $19,000.

History
Originally, SBI’s task in Azerbaijan was to provide technical assistance to two local banks to support on-lending of SME credit lines provided by the IFC, but in 2000 SBI shifted to delivering credit directly to small business owners. Not unlike the motivations behind the creation of institutions such as Domenia Credit in Romania, this shift was due to a combination of factors:

• third party providers of loan refinancing lines were not willing to extend additional long-term credit to the banks, considering them to be overly risky and unreliable partners and,
• the partner banks were reluctant to fully embrace best practice lending methodologies.

Thus, to achieve the original intent of the program – to improve access to credit of local entrepreneurs – SBI undertook as a pilot project the formation of an independent, regulated financial institution. SOA obtained one of only three non-bank limited lending licenses issued by the National Bank of Azerbaijan at that time and lending began in August 2000.

In September 2002, SBI initiated an extension and expansion of the SOA project, with additional grant support from USAID. As part of this effort, residential mortgage lending products were introduced in the first quarter of 2003. Mortgage products, policies and procedures were modeled closely after international standards as well as SBI’s very successful mortgage lending project with banks in Georgia. Planned acceleration of mortgage lending activities were hampered by a lack of capital later in the year; however, this constraint was ameliorated in September 2004 with the closing of a $2.5 million long term credit from the U.S. Overseas Private Investment Corporation (OPIC).

Since its inception, SOA Kredit has disbursed some 1,200 loans for approximately $17.7 million. Portfolio at risk has remained at less than 1% and total write-offs over the four and a half years of activity are less than 0.5% of portfolio outstanding. The company is currently generating over $90,000 in interest income per month and is operationally sustainable.