While Azerbaijan’s financial system is overwhelmingly dominated by banks, the country is in urgent need of more diversified and flexible financial products to support the growth of small and medium-sized enterprises (SMEs), according to a new report from the Asian Development Bank (ADB).
The ADB notes that banks account for 95% of all financial sector assets in Azerbaijan, with 70% of those concentrated in just four major banks, the largest of which is state-owned.
Despite some lending to SMEs—primarily secured by collateral—the report points to a significant lack of dynamic financial instruments that could enable broader SME expansion, both domestically and abroad. As a result, SMEs contributed only 18% to Azerbaijan’s GDP in 2023, highlighting the limited role of small businesses in the national economy.
Outside of the banking sector, capital markets remain underdeveloped, the ADB says, with stock market capitalization at just 4% of GDP by the end of 2023. In contrast, the insurance sector is showing moderate growth, with total assets reaching approximately $1 billion, or 1.5% of GDP. Life insurance continues to dominate the market.
The report underscores the need for regulatory reforms and financial innovation to boost access to credit and capital markets, particularly for underserved sectors like SMEs.
