Impact corresponding surge of inflationary outcomes for the economy.

of Financial Illiteracy to the Development of Small Entrepreneurship in
Azerbaijan The notion of power has been reflected on the growth of businesses
in the world since the emergence of economic influences. Acquiring the key
competencies and joining to the phase of continuously developing world
requires nations to sustain their healthy economic models. Correspondingly,
the existence of a sound economic systems can only be achieved through
promoting private sector, which is the essential tool of attracting
investments, boosting productivity, and creating jobs. Entrepreneurship and
more precisely, the dynamism of entrepreneurial activity is the most
essential factor since it ensures growing competition and stimulates
innovation. Azerbaijan, as a relatively new member of capitalist world, needs
to establish the entrepreneurial facilitation to achieve a sustainable
development path and diversify its oil-led economy. The goal has been almost
inevitable after the recent changes in oil prices and corresponding surge of
inflationary outcomes for the economy. However, the process is not an easy
task for the government to implement. Based on the report by Center for
Economic and Social Development (CESD), more than 100,000 legal entities have
been registered for entrepreneurial activity in Azerbaijan, including the
spheres of Industry and Construction, Agriculture, Service, Wholesale trade,
Retail trade, Transportation, and other economic activities (p-3 2012).
Despite the fact that annual growth of entrepreneurship comprises all of the
specified spheres, the trend is far beyond the expectations and full
potential. The highlighting problems with the functioning of entrepreneurial
systems are analyzed to be lack of competition, legal and regulatory procedures,
shortcut of research and development programs, and weak access to finance
(Kuriakose 2013). The weak rate of competition and existing monopolies have
always been known to discourage newcomers from engaging in business
activities. Azerbaijani government, with the collaboration of US agency for
International Development, is constantly working on establishing laws that
precisely address to prevent unfair competition in the market (Kuriakose
2013). Moreover, creations of efficient registration processes and reduction
of time required for registration from 30 days to 7-3 days for businesses has
played a role on stimulating investors (CESD 2012). Nevertheless, the
essential reason beyond the problem seems to be the reluctance of people for
coming up with entrepreneurial activities. Although it is the responsibility
of regulatory forces to initiate policies to eliminate barriers for a free
economy and establish new financial institutions, there needs to be
sufficient demand for the expansion of private sector by individuals rather
than by solely government. Thus, there is a need for investigating the core
of the problem and identifying the reasons of unwillingness for engaging in
entrepreneurial activities. It turns out that there exists an ongoing
information unavailability; financial illiteracy prevents people from
discovering opportunities in potentially profitable spheres. The problem of
financial illiteracy is widespread and credible in most of the underdeveloped
and developing countries. Studies indicate that considerable portion of
households are lacking knowledge of basic economic principles, which creates
cases of unsuccessful financial decisions and transactions (Zureck 2015).
Moreover, considering the complex nature of daily transactions, financial
illiteracy is being reflected in people’s saving behaviors by leading to less
efficiency and irrationality. Subsequently, the overall financial system is
affected since the savings of households are the main sources of funds for
financial institutions. Furthermore, the importance of financial literacy is
illustrated by Indonesian government’s decision for declaring 2008 as “the
year of financial education” and the initiative of the Reserve Bank of India
to establish Financial Literacy and Credit Counseling Centers across the
country (Andoh and Nunoo 4). Taking global facts into consideration, the
result is to be drawn that the impact of financial illiteracy is significant
for the entrepreneurial ambiance in Azerbaijan. Similar to the initiative in
India, Central Bank of Azerbaijan started a collaboration with Savings Banks
Foundation for International Cooperation (SBFIC) to develop financial
knowledge and literacy in Azerbaijan. The main responsibility of the
collaboration is to make people aware of the management of debt accumulation.
As a part of the project, the parties are assisting to obtain finance from
German government. Moreover, with involving of the Ministry of Education, it
has been decided to organize classes related to financial literacy in
determined pilot schools (CESD 2012). Nevertheless, the project is comprising
only a little sphere of the system and there is a need for the formation of a
national strategy. The most efficient way of boosting financial literacy is
through practice; small enterprises should have access to loans to get along
with the credit institutions and develop models of executing future
investment opportunities. However, the credit organizations are reluctant to
collaborate with small business. The interest rates are high despite of the
insignificant amount of loan offers and branches of the institutions are not
sufficient to cover all enterprises in the regions. The severe requirements
of collateral exacerbate the situation. Moreover, the government’s plans to
facilitate businesses with loans through National Business Promotion
Foundation operates inefficient with insignificant amount of loans regardless
of its lower annual interest rate (CESD 2012). As a consequence, credit
organizations seem to stimulate financial illiteracy rather than eliminating
it. The second reason of reluctance to engage in entrepreneurship is
associated with the communication and consultation between government and
private businesses. It has the most negative impact on those in pursuit of
information regarding to target market. In some cases, people with
potentially profitable start-up ideas end up abandoning their plans since
they cannot identify a segment of customers within the country. On the other
hand, analyzing foreign markets and reaching customers abroad seems an
impossible task for them. Azerbaijan Export and Investment Promotion
Foundation (AZPROMO), which is established by the Ministry of Economic
Development, has made considerable efforts to ease the concern. Being aimed
at the development of non-oil sectors through exportation, AZPROMO helps
local suppliers to reach global customers. However, the efforts are still
insufficient to influence the majority; essential proportion of newly
established enterprises is in Baku and regions takes less than 50% altogether
(CESD 2012). Therefore, the government needs to implement a reformatory plan
of expanding consultation services to private business and encompass the
spheres of accessing external source of funds, as well as potential market
development. In final analysis, financial illiteracy is among the most
damaging factors for the development of small enterprises in Azerbaijan. The
main determinants of financial illiteracy are reflected by the lacking ability
to reach sufficient investment funding opportunities and the availability of
permanent consultation with government. Nevertheless, the attempts of
diversifying the economy and ending oil export’s superiority, several steps
should be done. First of all, there needs to be an established dominant
national strategy to improve financial literacy of people. As it is stated in
a study by World Bank, majority of educational institutions are unable to
produce industry-relevant skills to boost the planned economic innovation in
Azerbaijan (Kuriakose 2013). Inability of financial institutions to stimulate
enterprises is a part of this problem. Thus, educational institutions should
be forced to be an active part of radical reformation. Furthermore,
government should enhance its provision of consultation with private
businesses to support their mission of development and assist them on the way
of reaching potential customers. The stated options for entrepreneurial
development will play an indispensable role on the emergence of new
businesses. Since the reluctance for establishing enterprises was the main
reason of under developing, the market will obtain a sophisticated economic
system by eliminating all significant barriers for private sector.
References: 1) Andoh, Francis Kwaw, and Jacob Nunoo. “Sustaining Small and
Medium Enterprises through Financial Service Utilization: Does Financial
Literacy Matter?”
2) Kuriakose, Smita. “Fostering Entrepreneurship in Azerbaijan.” Open
Knowledge Repository, Washington, DC: World Bank, 4 Sept. 2013, 3) “Small and Medium
Entrepreneurship in Azerbaijan; Country Assessment.” Center for Economic and
Social Development, 2012, pp. 1–18. 4) Zureck, Alexander. “Financial
Communication in Small and Medium-Sized Enterprises.” Financial Communication
in Small and Medium-Sized Enterprises, 2015, pp. 23–35.,