Hillary
Clinton, politician and expert on small entrepreneurships issues, once
stated, “Being innovative in small business fields allows countries to stride
forward in their giving journey. So, don’t let anybody tell you that it’s
only corporations and businesses that create jobs and enhance the economic
efficiency”(Meeting with small business owners, October 2014). In today’s
modern world, the policy agendas of the governments of almost all
industrialized and semi-industrialized countries comprise distinctive
strategies to encourage small entrepreneurships. Policymakers claim that
implementation of such strategies will have a positive impacts on the
essential economic variables, especially on the unemployment rate among the
youth. Thus, building such strategic plans to promote entrepreneurships
becomes much more significant in small economies rather than the big
developed ones. For instance, Azerbaijan is a typical example of a nation
that needs some effective strategies in order to enhance the stability in the
small business fields. This paper enlists a number of methods that can
potentially stimulate small entrepreneurships in Azerbaijan by avoiding the
particular problems such as financial illiteracy and inaccessibility to
credit funds, with which local entrepreneurs encounter. One of the potential
methods to stimulate small entrepreneurships in Azerbaijan is to avoid the
problem of so-called financial illiteracy. In order to be able to make
suggestions about what can be done to overcome this issue, we need first to
have basic understanding of what financial illiteracy actually means and how
it negatively affects the development of small businesses in Azerbaijan.
Generally speaking, financial illiteracy means not having enough knowledge
about different financial terms and areas. In more precise manner, this issue
arises when the corporation is not able to effectively organize the financial
principles, concepts and to make rational finance-related decisions such as
investing, managing debts, issuing equities, selling bonds. So, all these
problems result in a situation in which the entrepreneurs fail to make
strategic and tactical business decisions. In order to avoid such scenarios,
government bodies of Azerbaijan and policymakers work on a number of
strategies. The most famous strategy is to just enhance the financial
awareness of the owners. To do this, governmental bodies can offer some
training done by business professionals for the local business owners or at
least for their financial representatives. Additionally, Ministry of
Education should be involved in the process by opening finance-based courses
in high schools. With the help of these courses, not only potential
entrepreneurs of the future, but also majority of the population would have
basic knowledge about financial concepts and principles. Ministry of
Education has recently included this plan in its portfolio of prioritized
policies although there seem to be no relevant implementation yet. Moreover,
as a method to stimulate small entrepreneurships in Azerbaijan, we can think
of the ways to overcome the difficulties of business owners to have proper
access to credit funds. Before discussing which methods can be utilized
against this issue, we should first interpret what are those difficulties
that entrepreneurs encounter. Having improper access to available funds can
be analyzed from two distinctive perspectives: very high interest rates on
bank loans and so-called ‘collateral issue’. • Recent statistics reveal that
the name of Azerbaijan is in the list of countries in which the interest
rates on credit loans are far above the world average. Today, a typical Azeri
commercial bank charges around 30% interest rate on business loans to the
potential entrepreneurs, who are willing to borrow and start running their
small businesses. Obviously, such high interest rates discourage
entrepreneurs and prevent them from injecting funds to their businesses. In
order to avoid this problem, government should create a unique state bank(s)
whose primary business will be to make loans to entrepreneurships at a lower
interest rate. • In addition to very high interest rates, collateral issue is
another problem that small business owners encounter with. Today, typical
commercial banks require real estate as collateral while giving loans. Here
arise two major issues. First, having very high value collateral in the loan
contract threatens entrepreneurs to take such a high risk. In order to solve
this issue, government can just set some regulations which will prevent real
estate from being put as collateral. Obviously, this would create a harsh
condition for banks, and government would need to subsidize them as
compensation. Secondly, the procedures of real estate validation and
verification (which is required by the banks) are too overwhelming. According
to the research conducted by the CESD, due to the lack of properly working
register center, it typically takes over 6 months to validate and verify the
identification of the real estate for the loan agreement. To lighten this
hardship, one can recommend government to create a unique centralized
register system, which will decrease the time and effort that borrowers need
to spend while validating and verifying their real estates. As a final note,
these two collateral related issues are interconnected, so that if the
government of Azerbaijan would implement a policy (as recommended above) to
solve one of them, the other one would eventually be avoided as well. All in
all, this paper discusses various methods that can stimulate small
entrepreneurships by avoiding the problems that Azerbaijani small business
owners encounter, such as financial illiteracy and inaccessibility to credit
funds. Financial illiteracy is depicted a term indicating having insufficient
expertise and knowledge about basic financial principles and concepts, which
results in business owners not making rational finance-related business
decisions. The problem of inaccessibility to credit funds is explained from
two distinctive perspectives: very high interest rates and collateral issue.
It is described that Azeri commercial banks charge far-above-the-average
interest rates on the business loans; and in the loan contract real estate is
required as collateral. In addition to analyzing those mentioned problems,
this paper also recommends some methods by the help of which one can overcome
those issues. Financial illiteracy can be somewhat avoided by offering
financial training for the owners. Also, The Ministry of Education would need
to involve in the process by adding a number of basic finance-related courses
in high schools. To overcome the issue of high interest rates on loans,
government would need to create unique state banks, which will make loans to
small business owners at much lower interest rates. The collateral issue can
be avoided by either setting regulations to prevent real estate from being
put as collateral in the loan contracts; or creating a centralized real
estate registration system.