Small and Medium Enterprises in Azerbaijan : Achievements, Financing Constraints and Policies

The purpose of this paper is to briefly illustrate the evolution of SME sector in Azerbaijan following the transition, its surging economy-wide significance and challenges with respect to financial inclusion. Due to the well-documented severity of the latter, considerable portion of this paper is devoted to reviewing the effectiveness of three main avenues that serve to fulfill the external funding needs of SMEs, namely government schemes dedicated to enterprise financing, Azerbaijani commercial banks and capital markets. Comprehensive analysis of each of them allocates significant mismatches, the causes of which are generally complex and heterogeneous in nature. Research concludes with suggestions on developing ailment specific pills that can potentially remedy the severity of the observed mismatches if not completely eliminate them. This topic should be pertinent for Azerbaijan, since following the resource driven 13.7 percent average annual growth rate between 2000 and 2011, the Azerbaijani authorities are aspiring to build the diversified trajectory underpinned by non-petroleum producing sectors of the economy (SME alike) and cognizant of the need to strengthen the health of overall financial system in order to do so