AZE.US
Borrowers in several regions of Azerbaijan face significantly higher interest rates than residents and businesses in the capital, according to official data.
At the beginning of July, the average lending rate in the Mountainous Shirvan economic region stood at 20.64%, compared with 12.72% in Baku.
The national average was 14.12%.
This means loans in Mountainous Shirvan were about 1.6 times more expensive than in the capital.
Interest rates were also close to or above 20% in the Central Aran, Gazakh-Tovuz, Shirvan-Salyan, Lankaran-Astara and Karabakh economic regions, highlighting a considerable gap in access to affordable financing across the country.
Why Loans Are Cheaper in Baku
The difference is largely attributed to Baku’s position as Azerbaijan’s main financial and commercial center.
The capital accounts for most of the country’s loan portfolio. Banks serve more customers in Baku, business turnover is higher and competition among financial institutions is stronger. These factors allow lenders to spread risks across a larger number of borrowers and reduce operating costs.
The situation is different outside the capital. Business activity is more limited, some industries depend heavily on seasonal income and banks often assess the risk of late repayment as higher.
A less developed collateral market, the limited liquidity of regional real estate and the cost of maintaining local branches also increase the price of lending. Banks compensate for those risks by charging higher interest rates.
Expensive Credit Slows Regional Growth
High borrowing costs are both a cause and a consequence of weaker economic activity in the regions.
When an area has fewer businesses and reliable borrowers, banks face greater risks. Those risks make loans more expensive, while costly financing discourages entrepreneurs from opening new businesses or expanding existing ones.
The result is a cycle in which weak economic activity drives up interest rates, and high rates further restrict investment and development.
Reducing the gap between Baku and the regions could require broader state-backed credit guarantees, interest-rate subsidies and stronger financing programs for small and medium-sized businesses.
Improving the credit history system, partially insuring lending risks and giving banks access to cheaper financial resources could also encourage lenders to offer more favorable terms.
Affordable loans alone, however, cannot ensure regional development. Even low-cost financing may produce limited results if businesses face poor logistics, inadequate infrastructure, a shortage of qualified workers or difficulty reaching customers.
Other countries in the region use a combination of market competition and government assistance to reduce borrowing costs. Georgia’s business lending rates have generally ranged between 10% and 15% in recent years, while Kazakhstan uses subsidy and state-guarantee programs to make financing more accessible. Türkiye offers preferential lending mechanisms for priority industries, including agriculture, manufacturing and exports.
Azerbaijan is unlikely to narrow its regional lending gap without simultaneously reducing banking risks, expanding support programs and strengthening local economies. Until those conditions improve, businesses outside Baku may continue paying substantially more for access to credit.
AZE.US