Rabita MSME Line

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	24867
Company name	Rabitabank
Country	Azerbaijan
Sector	Finance & Insurance
Environmental category	FI-1
Department	Global Financial Markets Group
Status	Active

Date SPI disclosed	October 10, 2006
Projected board date	November 15, 2006
Previous Events	Invested: April 25, 2007 Signed: March 15, 2007 Approved: February 6, 2007

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Rabitabank (Rabitabank or the Bank) is a medium-sized commercial bank based in Baku, Azerbaijan, focused on providing financing to Micro, Small and Medium Enterprises (MSMEs) in Azerbaijan. Rabitabank had equity of $9 mln and total assets of $43 mln as of the end-June 2006. Rabitabank was established in 1993 by public sector companies controlled by the Ministry of Communications in order to provide new banking services to communications sector companies. Since then the Bank was privatized and currently 97% privately owned. Since its formation, Rabitabank managed to expand to 12 branches throughout Azerbaijan, diversify its client base beyond what originally used to be a mainly communications sector niche. Today the Bank provides a full range of banking services, including corporate banking, retail banking and trade finance. However, the primary focus of the Bank from the outset has always been MSMEs and the Bank has identified the MSME sector as their primary target market in their long-term strategy.

The Bank became IFC’s client in 1998 after receiving the first $400 thousand credit line fully repaid by now. Subsequently Rabitabank received the second $1.2 million credit line in 2003 with currently outstanding amount of $900 thousand. The previous loans and technical assistance provided as an integral part of the investments helped the Bank to grow its balance sheet and become a profitable medium-sized bank focused on the MSME sector.

In order to grow further, the Bank approached IFC with a request to provide a new loan in order to expand further its lending to MSMEs.

IFC is considering a new credit line Loan to Rabitabank up to $2 million with a convertible option. The long term funding would allow the Bank to strengthen its balance sheet in view of the expected expansion and increased demand for funding from MSMEs, entrepreneurs and individuals. The investment will be accompanied by targeted technical assistance to contribute to the institutional capacity building of the Bank and improve such areas as Risk Management, Strategic Planning, and MIS.

Anticipated development impact of the project

The World Bank Group strategy in Azerbaijan is to support diversified economic growth and maintain macroeconomic stability, as a necessary condition for reducing poverty. In recent years, Azerbaijan has achieved strong economic growth largely as a result of oil sector development and high international oil prices. The World Bank Group strategy is focused on achieving balanced development in the non-oil sector across Azerbaijan's regions. Sustainable economic development can be achieved if driven by a dynamic private enterprise sector outside the oil sector and stronger financial sector intermediaries, supported by a more streamlined efficient and transparent public sector. Within this context, IFC’s strategy in Azerbaijan is focused on broadening financing opportunities for MSMEs linked with as well as outside the oil and gas sector and financial sector development.

This project is highly complementary to the World Bank Group country strategy. The project will enable IFC to play a tangible role in promoting MSME development in Azerbaijan by supporting an MSME focused medium-sized local bank willing to improve it risk management practices, structures and procedures.

IFC's expected development contribution

By making available the long-term funding IFC will play a role in increasing competition in the MSME lending market, contributing to the development of non-oil sector and economic growth. The IFC technical assistance will help the Bank to improve its Risk Management practices, Strategic Planning and MIS and thus strengthen the Bank in view of the planned expansion of MSME lending.

Environmental and social issues - Category FI-1

As an existing client, this project has been categorized as Category FI Type 1 project according to IFC's environmental and social review procedure. The project is required to establish and maintain a Social and Environment Management System (SEMS) to the satisfaction of IFC, to ensure that its investments are in compliance with applicable National Environment, Health, Safety and Social laws. The project must designate appropriate individuals who will have responsibility for the implementation of the SEMS.

The project has already provided an SEMS acceptable to IFC signed by the top management and designated appropriate individuals to manage the SEMS. The project must submit annual environmental performance reports to IFC, as per an IFC format and commit to implement the SEMS as provided to IFC.

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