BAKU, Azerbaijan - An unemployment-insurance mechanism for bank borrowers could help prevent loan delinquencies after job losses, though making such coverage mandatory would add to the cost of borrowing, an Azerbaijani finance expert said.
Elnur Guliyev, director of Crypto Consulting and a lecturer at UNEC Business School, told Globalinfo.az that the idea could protect both borrowers and banks if its price and conditions are designed carefully.
Guliyev offered the example of a borrower earning 800 manats a month who pays 300 manats toward a bank loan. A sudden job loss can place the payment burden on the borrower’s family and lead to arrears and additional charges. If an insurance policy temporarily covered scheduled payments during qualifying unemployment, it could reduce that risk.
The effect on borrowers would depend on the premium and the policy terms. Requiring customers to bear the entire cost could be especially difficult for low-income borrowers and people with several loans.
As an illustration, Guliyev described a 10,000-manat loan with a hypothetical annual premium of 120 manats, or 10 manats a month. The 120-manat figure is an example, not an approved or announced tariff.
Insurance would not automatically erase the debt. Any benefit would depend on the cause of unemployment, the coverage period, payment limits, exclusions and other contract terms. No final details about an insurer, premium formula, qualifying job-loss events or maximum benefit period were reported.
A properly structured system could ease pressure on households while helping banks reduce nonperforming loans, Guliyev said.
The proposal was also reported by Vesti Baku.