AZE.US
Borrowers in Azerbaijan who are turned down by banks can often obtain money from non-bank credit organizations, but the easier access may come with a higher repayment burden.
The difference reflects how these lenders fund themselves, the risk profile of their customers and the relatively small size of many loans, economist Khalid Karimli told Demokrat.az.
Karimli said non-bank credit organizations, known in Azerbaijan by the acronym BOKT, cannot accept deposits from the public. That removes one of the cheaper funding channels available to traditional banks.
Three Main Funding Sources
According to Karimli, non-bank lenders rely mainly on three sources of financing: money provided by their owners, loans obtained from banks and funds raised through bond issues.
Each of those sources can cost more than the funding available to a bank. Banks can draw on customer deposits as well as balances held in current accounts and card accounts, giving them broader access to comparatively inexpensive resources.
Non-bank lenders, by contrast, must borrow from banks, attract money from their shareholders or issue bonds. The cost of obtaining that capital is then reflected in the price offered to borrowers.
Higher-Risk Customers Raise Costs
Funding costs are only part of the difference. Karimli said many customers approach non-bank lenders after banks have already judged them too risky for conventional credit.
That leaves the lender facing two pressures at once: it pays more to obtain its own funds and it assumes a greater risk that customers will fall behind on payments.
Both factors affect the rate charged on a loan. The small size of many non-bank loans can also make their rates comparatively higher, Karimli said.
Fast Access Does Not Mean Easy Repayment
For someone who needs money urgently, speed and accessibility may outweigh the higher cost. But receiving funds quickly does not make the debt easier to repay.
Before signing, borrowers should compare the amount received with the total amount due, review the payment schedule, identify any commissions and understand the consequences of a late payment.
The decision should therefore be based not only on whether money is available immediately, but also on whether the borrower can meet every obligation by the required deadlines.