Azerbaijan is preparing new credit-insurance rules that could protect borrowers when they lose their jobs for reasons beyond their control, allowing an insurer to cover some or all of the remaining bank debt under an eligible policy.
Vugar Bayramov, a member of parliament’s Economic Policy, Industry and Entrepreneurship Committee, said the Central Bank has prepared the rules and that their introduction is expected soon. He spoke to Xəzər Xəbər, according to a Vesti Baku report.
The proposed mechanism would insure a borrower against involuntary unemployment. If a worker is laid off or the employer closes, an insurance company could assume the bank obligation, provided the circumstances meet the policy’s conditions.
How the Proposed Coverage Would Work
Bayramov offered the example of a borrower who takes a 10,000-manat loan, about $5,880, and agrees to unemployment coverage offered through the bank.
If the borrower makes two monthly payments of 800 manats, about $470 each, and then loses the job because of staff reductions, the insurer could pay the remaining 8,400 manats, about $4,940, under the example.
The arrangement would not cover every departure from employment.
Who Could Qualify
A covered event is expected to include job loss caused by circumstances outside the employee’s control, including the elimination of a position or the termination of an employer’s operations.
A person who resigns voluntarily would not be entitled to have the loan repaid by the insurance company. Bayramov said such limitations would be needed to prevent abuse of the benefit.
Other reporting on the proposal indicates that the coverage is expected to apply to borrowers working under valid employment contracts. Possible qualifying events could also include the expiration of an employment contract, a change in ownership of the enterprise or a final court order reinstating a previous employee.
Could Loan Interest Rates Fall?
Bayramov said the mechanism could also reduce the price of some bank loans. By lowering the risk that debt will go unpaid, unemployment insurance could reduce banks’ direct and indirect costs and create room for lower interest rates on covered products.
Insurance would add a cost for borrowers, however, and final premiums, payment limits and procedures will depend on the rules ultimately approved. For consumer loans, participation is expected to remain voluntary, leaving customers free to accept or decline the insurance.
The proposal does not automatically cancel existing debts. A borrower would need an applicable insurance contract, and the loss of employment would have to satisfy the approved criteria before the insurer could make a full or partial payment.