Small finance means faster growth, enlarged productivity and internationalization.

Entrepreneurs are important for economic growth of each country and a key
contributor of employment. They have been recognized to play a vital role in
economic development and growth. Therefore, governments have become
increasingly engaged in policies to support them and entrepreneurship over
the last 20 years. They are considered as the backbone of the economic in all
countries because they account for 80% of the global economic growth. Given
the fact that every 9 out of 10 jobs are created by them worldwide, improving
their access to finance means faster growth, enlarged productivity and
internationalization. In Azerbaijan also has special features and definitions
for them. According to the Cabinet Council Decree of the Azerbaijan Republic
on Criteria for Defining Small and Medium Enterprises Based Upon the Economic
Activity dated April 20, 2004.They are as follow: “small business units shall
have less than 50 employees and annual turnover of AZN 500,000 in industry
and construction; less than 25 employees and annual turnover of AZN 250,000
in agriculture; less than 15 employees and annual turnover of AZN 1 million
in wholesale trade; and less than 10 employees and annual turnover of AZN
250,000 AZN in retail trade, transportation, services and other forms of
economic activities.” Azerbaijan has adopted some legislative acts aimed at
regulating the development of small and medium-sized enterprises, including a
system of economic and legal relations. Examples include the Law on
Entrepreneurship, the Law on State Support for Small Business, the Law on
State Registration and State Registry of Legal Entities, etc. At the same
time, much work has been done to institutionalize relations between state and
businesses therefore giving birth to the establishment of the Azerbaijan
Export and Investment Promotion Foundation (AZPROMO), the Council of
Entrepreneurs, and other bodies. Most sole owners of the enterprise without
forming a legal entity were registered in Baku. According to the State
Statistic Committee, 37,7 % of total small institutions which is 76 293 are
situated in Baku. Beside all these, if we compare with other EaP (Eastern
Partnership) and EU (European Union) countries, the level of small
entrepreneur development in Azerbaijan is lower. According to the 2016 OECD
(The Organization for Economic Co-operation and Development) SME Policy
Index, Azerbaijan has made substantial improvement over the last 4 years, but
still needs improvement in dimension like regulatory framework, access to
finance, internationalization. After devaluation, our currency has plummeted
after moving to a floating exchange rate, causing a rush on dollars affected
bad to our economy and also as other people that conduct business, small
entrepreneurs suffered from increasing price which leads to low demand of
customers to those products. Beside this, there are some main problems that
small entrepreneurs face in Azerbaijan. Here they are: 1) the absence of a
coordination structure, implementation body. The absence of a coordination
structure and implementation body due to use of different employment
criteria, thereby affecting the quality of statistics on small entrepreneurs.
As the data do not differentiate micro-enterprises, it is difficult for
policy makers to design policies. The informal economy remains a problem for
the authorities, with ‘practices of the informal sector’ identified as the
biggest obstacle to doing business. 2) high costs of borrowings, a lack of a
legal framework for both bank and non-bank sources of finance. Access to
finance is one of the major problems that Azerbaijani entrepreneurs face, in
that three out of four entrepreneurs experience difficulties while seeking
operational financing. Accessibility of the banks and their services as
improved, while the cost of borrowing and the time required to process
requests has been reduced. Limited availability of the credit funding and
restrictive conditions, such as short or non-existent grace period and high
interest rates, as well as expensive processing payments, make loans less
attractive for entrepreneurs. An improved communication with clients would
increase demand for financing and, consequently, lead to increased supply. 3)
the absence of a comprehensive innovation strategy and an enabling
environment for trade finance (export promotion). A more strategic approach
is needed to ensure that innovation support measures being introduced by the
government are comprehensive and effective. The government could also make
strong general support to small entrepreneurs by promoting private advisory
services for businesses. On the other hand, there are some factors that can
stimulate small entrepreneurship in Azerbaijan in current volatile situation.
One of them should be decreased the interest rate of bank credits. As I
mentioned before, access to finance continues to be the main obstacle for
them growth in Azerbaijan. As, a rule, access to credit is on the banks’
terms, which include interest rates, securitization of credits and period of
borrowing. The current economic situation exhibits very high interest rates
for borrowings in the local currency. And in this situation, such conditions
seem unfavorable for them to take loans from the banks. Due to high inflation
rates and economic uncertainty, small entrepreneurs find it disadvantageous
to take long-term loans that are important for them. But if there is a
simplified system on the bank credit or loan to small entrepreneur, it will
encourage them to do business. For start-up, the person needs financial
support to start business. In this situation bank set interest rate for loan
that gives to that person to start business if that person’s start-up will be
successful in the future. Another one should be increased the standard
leasing services. One of the problems facing businesses is the lack of
standard leasing services. Local banks and credit organizations offer leasing
credits, yet their use is not wide-spread due to leasing rates that are
different from consumer credit and other rates. The major problem within
leasing sphere is insufficiency of long-term and low-rate financial
resources. And the capitalization level of leasing companies is too low. If
companies overcome to these kind of problems, it will encourage small entrepreneurs
to develop. Another one should be addressing the availability and quality of
small entrepreneur statistical data. The government must intensify its
efforts to increase the level of detail and quality of their statistics,
improve the accessibility of the data (by publishing regular updates on the
websites of the national statistical offices), improve international
comparability and use firm-level surveys of active companies to expand the
information available on certain topics. Another one should be that
simplified in the tax regime. The simplified tax regime is very efficient in
fostering the growth of small entrepreneurs, but the shift between simplified
and standard tax systems increases the tax burden significantly and
encourages underreporting by businesses, leading to a shadow economy and
corruption. Tax compliance is mostly pursued through repeated tax
inspections, which are often directed at smaller size companies. Among the
possible improvements, the report prioritizes reviewing the Value Added Tax
sill and consolidating further the simplified tax, while reducing the number
of Value Added Tax and social security reports by introducing a unified tax
reporting. Another factor should be engaged in foreign trade. For as long as
the exports of raw materials, dominantly oil, are prioritized, development of
the non-oil small enterprise sector will be somewhat hindered. Complicated
and costly foreign trade procedures represent major constraints for
import/export activities, resulting in lower competitiveness of exports and
higher pricing for imports. If government gives incentives or encourages
small entrepreneur to export, they will not only improve but also increase
the economy growth of country. Standardization and certification requirements
also represent an obstacle to foreign trade. Imported goods need to meet
local quality requirements even if they conform to international standards,
and many goods require approval from various state authorities. Export
products, on the other hand, lack internationally recognized certificates
facilitating access to the major markets. Another one should be improving the
institutional framework and intragovernmental policy co-ordination. It is
crucial for a more effective policy for the development of entrepreneurship.
A strategic approach towards small entrepreneur policy development, covering
a larger number of issues, including both horizontal and targeted support,
could further optimize the work of public institutions for entrepreneurship
support. They could then coordinate their various efforts to avoid exceed and
to ensure that all crucial areas affecting small entrepreneurs are addressed.
And last one I want to point out that should be sustaining of macroeconomic
stability and economic growth. Within these purposes, provision of qualifying
economic growth is priority. Aiming to these tasks, expanding of
diversification of the economy, government wants to minimize dependence from
oil sector, to transit to innovative economy, promote intensive production in
agriculture, developing of economy in clusters. Moreover, comprehensive
measure will go on strength energy, food and ecological security. Improving
business environment, establishing economic areas and industrial zones,
advice and information providing, strengthening government support to
entrepreneurship and developing business relationship, development of
entrepreneurship and regions will accelerate. Increase of social and economic
welfare of population remains the main direction and priority of
social-economic policy for the coming years. In conclusion, I would like to
say that for giving incentive or in other word that stimulate the small
entrepreneurs in Azerbaijan in current situation government should do actions
that I mentioned above. They could give incentives to small entrepreneurs and
that kind of small business owners to growth and improve the economy of
country. And in addition, government should encourage and subsidies them to
improve in the market.