The Role and Effectiveness of Banks and Financial Institutions in Supporting Business Development in Azerbaijan

Banks and financial institutions pose significant contributions for entrepreneurs’ development and economic growth of a nation. They help allocate resources and capital better in the economy, support business by providing loans, provide risk management for avoiding possible failures for enterprises, support small and medium-sized enterprises development and innovations, and by providing financial inclusion they enable further enhanced living standards around society. A lot of studies and literature exist in this matter, however still they do not do enough to explain this fate. Thus, this paper examines previous research and analyses the methods and ways of financing enterprises by banks and financial institutions for addressing financial obstacles which businesses and the ones who aim to set up business in Azerbaijan. The primary data is obtained from a questionnaire among different entrepreneurs which currently work in Azerbaijan and secondary data from past literature. Recent years have shown that in countries with highly developed economies, where small and medium-sized businesses receive strong support, banks and financial institutions play an important role in business development and have a positive impact on enterprise growth. In the case of Azerbaijan, this study examines the local situation and draws conclusions based on the survey results. Furthermore, the financial institutions’ support of small and medium-sized enterprises is one of the key drivers of diversification and employment. By managing risk, reducing transaction cost, providing financial resources, banks provide a more stable business market. The paper also imposed some recommendations which shows despite their contributions banks and financial institutions still need further improvement. It suggests that banks should take over the reins of enterprises and play a more constructive role and should be more inclusive in operations from the start up to exit.