The Azerbaijan MFI (AZM) was established in the late 1990’s as a non-bank financial institution providing microfinance services in Azerbaijan. The company had the vision to transform into a bank and mobilize resources in the local market. This would allow AZM to offer its clients a broader range of financial products and services demanded in the market.
An important step in the process involved organizational changes and improvements to functional areas. AZM set out to bolster the institutional foundation and bring in a higher level of professionalism, strengthening the control environment, enshrining concepts of checks & balance to each step of financial management and to enhance a sense of “ownership” over the company assets – i.e. in real terms undertake a re-engineering of Finance department.
The project (2007-2009) covered a complete “restructuring/redesigning/overhauling” of the Finance and Accounting department. The company improved revenue recognition, controlled operating expenses, detected frauds & leakages and instituted error free/timely reporting. At the end of the project, AZM’s total assets had grown to $60 million, from a $20 million base, and annual profits increased to $3 million, from $1 million, with loan portfolio quality remaining unchanged (PAR>30 around 0.5%). The OpEx ratio was improved to <21% from >29%. An impactiive® Partner led the project.
The project focused on implementing best practices (both control and reporting) from the corporate world and installing higher skilled professionals to implement the work; divided into three areas: (1) addressing alignment issues, (2) strengthening functional areas, and (3) redefining supervision.
(1) Addressing alignment issues – The project analysed the company balance sheet, of which most assets were liquid. The project focused on bringing income from the assets to maximize returns. Vigilant verification systems were exercised on all expenses because once the money leaves the doors, it’s very difficult to earn it back.
(2) Strengthening functional areas – The project executed company-wide functional area improvements including (a) standardizing payroll, (b) establishing an Account Payable (AP) function, (c) establishing a Budget control function, (d) reviewing & improving local tax payment processes, (e) coordinating with Legal department to handle all court cases more efficiently, and (f) managing the Banking (relationship & execution) and funds management process.
(3) Redefining supervision – The project changed reporting lines of all Finance and Accounting staff working in branches and located across the country – (a) administratively to Branch Manager and (b) functionally to Finance & Accounting Manager in Head Office. The project created two supervisory sections under CFO, each one to be led by an experienced professional who in turn will have oversight of around 30-35 branch staff including some in Head Office.
AZM became a larger, more profitable and better managed financial institution as a result of the project. Legacy systems from the company start-up stage were re-examined and either improved or replaced. The comprehensive restructuring of the company Finance and Accounting function allowed AZM to manage risk, grow sustainably, and become a leading MFI in the market.
