




































AGORA International Journal of Economical Sciences, http://univagora.ro/jour/index.php/aijes 

ISSN 2067-3310, E-ISSN 2067-7669 

Vol. 17, No. 2 (2023), pp. 1-9 

 

1 

 

THE IMPLEMENTATION OF DIGITAL CHANNELS IN BUSINESS 

PROCESSES AND ACCESS TO FINANCE FOR MSMES IN AZERBAIJAN 

 

N. AKHUNDZADA, I. RZAYEVA 

 

Nazrin Akhundzada1, Inara Rzayeva2 

Azerbaijan State University of Economics (UNEC), Azerbaijan  
1 http://orcid.org/0000-0001-8049-0318, E-mail: nazrin.akhundzada@gmail.com  
2 http://orcid.org/0000-0003-2122-0603, E-mail: inara_rzayeva@unec.edu.az  

 

Abstract: Digitalization is assessed as a factor contributing to the sustainable growth of 

business entities. Implementation of digital solutions has been recognized as a key tool stimulating 

expansion and development of micro, small and medium enterprises into the economy. Micro small 

and medium enterprises represent a vast majority of firms in Azerbaijan. Limited access to financial 

resources is one of the key challenges exhibited by this size of enterprises. The rate of usage of online 

services by firms accelerated after COVID-19 pandemic. Despite significant progress during recent 

years, the adoption level of digital technologies particularly for financial services among population 

and entrepreneurs still needs to be developed.  This article applies time series regression analysis 

and finds the existence of positive relationship between digitalization of business activities 

exemplified by e-commerce and the amount of credit funds allocated micro, small and medium 

business entities. The authors suggest about the existence of other factors that contribute to financial 

inclusion of small and medium-sized enterprises. 

Keywords: digitalization; access to finance; entrepreneurship; e-commerce; e-banking 

 

INTRODUCTION 

During recent years Azerbaijan experienced remarkable reforms in the improvement of the 

business environment. According to OECD (2022), the expansion of e-government services by using 

digital technologies for completing many procedures such as company registration, business 

licensing, public procurement, customs and visa applications online is evidence of significant 

progress. The development of SMEs stands out as a crucial goal because these firms are the main 

contributors to job creation and sustained economic growth. They can also be interpreted as a source 

of prompt for diversification in the economy which eventually leads to an increase in productivity 

(OECD, 2019).  

According to State Statistical Committee of The Republic of Azerbaijan  (2022) in 2021, the 

value added generated by MSMEs was 16.4% of the total value added in the economy. This figure 

was by 16.7% in the previous year. When it comes to the distribution of value added across sectors, 

32.7 percent of value added generated by MSMEs was recorded in trade and repair of transport means 

sector, 13.6 percent in industry and 12.9 percent in construction. As it was mentioned before MSMEs 

play an important role in job creation. While looking at employment figures of MSMEs, we can 

observe that there was a 41.8 percent contribution in 2021 to total employment across all firms. Other 

interesting results were given about investments made by MSMEs. According to published figures in 

Statistical Yearbook 2021, more than 74.7 percent of investments of MSMEs in fixed assets were 

financed through internal sources. 

http://orcid.org/0000-0001-8049-0318
mailto:nazrin.akhundzada@gmail.com
http://orcid.org/0000-0003-2122-0603
mailto:inara_rzayeva@unec.edu.az


THE IMPLEMENTATION OF DIGITAL CHANNELS IN BUSINESS PROCESSES AND ACCESS 

TO FINANCE FOR MSMES IN AZERBAIJAN 

 

2 

 

In general, MSMEs represented 99.7 percent of all active enterprises in the country in 2021. 

Meanwhile, micro firms make up 97.3 percent of all MSMEs. In terms of distribution of MSMEs by 

economic activity shown in Figure 2, firms registered in trade; repair of transport means constitute 

32 percent of the total number, to be precise is 119306 out of 355906 of all enterprises. The next 

largest share of enterprises is found in the sector with the label "other" which contributes to 

approximately 21 percent of the total number of firms. These two sectors compose more than half of 

all MSMEs in the economy. The third place is allocated to transportation and storage activity with 20 

percent share.  

The goal of this article is to prove empirically the existence of a link between digitalized 

business services and the accessibility of funding for MSMEs in Azerbaijan. MSMEs that usually 

suffer from lack of collateral or find it difficult to prepare relevant financial statements about their 

business may explore the advantages of using digital financial services for payments, savings and 

borrowing issues. Demand for bank digital services mainly concentrated on consumer products 

related to mobile banking and payments. 

 

  Figure 1. Sectorial Distribution of MSMEs in Azerbaijan  

 

Source: The State Statistical Committee of the Republic of Azerbaijan 

 

Azerbaijan has taken many important actions to support the development of entrepreneurship 

in the country. There have been implemented several state programs for the development of 

entrepreneurship and improvement of the business environment up to nowadays.  

SWOT analysis performed for SMEs in Azerbaijan mentions strengths and weaknesses along with 

opportunities and threats that SMEs exhibit in the country in the Strategic Roadmap. From the strong 

sides, we can point to the existence of legislative framework for the entrepreneurship and constant 

expansion of the scope of the "electronic governance" system among many other points, whereas 

from the weakness part, it is worth mentioning the lack of highly qualified professionals, poor 

business skills, particularly at medium management level and difficulty in access to financial 

resources. Introduction of private credit bureaus and movable collateral registry creates an 

opportunity for MSMEs to get financing.   Small and Medium Business (SMB) Development Agency 

of the Republic of Azerbaijan otherwise called “KOBİA” was established to support small and 

medium businesses by ensuring proper coordination and regulation. One of the steps taken towards 

the adoption of digital channels by SMEs is introduction of online sales platform for micro, small and 

medium entrepreneurs called “KobMarket”. SMEs can easily register there and sell their products 

according to relevant guidelines.  



Nazrin AKHUNDZADA, Inara RZAYEVA 

3 

 

As admitted by the State Statistical Committee of the Republic of Azerbaijan (2022), the role 

of banks in financing capital investments declined in 2021 compared to the importance of internal 

sources of funding. Meanwhile, the enterprise survey conducted by World Bank by interviewing 225 

firms from July 2019 to March 2020 demonstrates in Figure 2 that the percentage of firms of different 

size not feeling necessary to obtain a loan is higher in Azerbaijan compared to the average of Europe 

and Central Asia (ECA) region (World Bank, 2020).  

 

Figure 2. Percentage of firms not needing a loan  

 

 

 

 

 

 

 

 

 

 

 

 

Source: World Bank Enterprise Survey 

 

World Bank (2020) collected data to measure regulations applied to SMEs across 190 

economies. One of the dimensions quantitatively measured in this report is getting credit. This 

indicator focuses on two sets of issues. The first one is the strength of the credit reporting system and 

the second one is the effectiveness of collateral and bankruptcy laws in facilitating lending. There are 

two main indexes captured in Figure 3 for Getting Credit Score:  

● Strength of legal rights (0-12)     

● Depth of credit information ( 0-8) 

The score for strength of legal rights was at a maximum of 12, whereas depth of credit 

information stood at maximum of 8. These indexes reflect important issues regarding legal 

framework, collateral registry and distribution of credit data.  

 

Figure 3. Getting Credit- 2020. Azerbaijan  

 

 

 

 

 

 

 

 

 

 

Source: World Bank Doing Business 2020 



THE IMPLEMENTATION OF DIGITAL CHANNELS IN BUSINESS PROCESSES AND ACCESS 

TO FINANCE FOR MSMES IN AZERBAIJAN 

 

4 

 

Digital Payments Strategy of Central Bank of Azerbaijan for 2021-2023 has been developed 

to ensure access to affordable payment services for all groups of population and businesses (CBAR, 

2021). According to statistics, the volume of e-commerce transactions in the country has increased 

from 2016 to 2020 by 12.1 times. An upward trend was also found in the usage of e-banking services. 

As a piece of evidence, 61.6 percent of customer transfers from current accounts were made through 

e-banking in 2020 compared to 4.5 percent in 2016. However, despite the rapid growth over the last 

few years, the level of adoption of cashless payments among the population still lags behind those of 

advanced countries.  

Analysis of trends about sources of loans issued for MSME reveals that funding of credits 

given by banks is mainly financed through internal funds of banks. According to Financial Stability 

Report prepared by CBAR (2022), the percentage of funds provided by banks accounts for more than 

80% of total sources from 2020 to 2022. Regarding the share of MSMEs lending in total business 

loans, there is a strong upward trend from 2018 until 2022. This indicator obviously states a surge in 

access to finance for MSMEs so that recently more than half of distributed credit has been given to 

these types of firms. The growth of business loans continued due to implemented anti-crisis measures 

to minimize the negative impact during the pandemic period as it is mentioned in Financial Stability 

Report of 2021(CBAR, 2021).  

 

Figure 4.  Percentage of business loans allocated to MSMEs in Azerbaijan  

 
Source: Central Bank of Azerbaijan 

 

On the other side, the number of opened current accounts in banks for individual entrepreneurs 

who comprise micro businesses increased dramatically since 2016. Basically, this fact suggests an 

increase in the usage of banking services by them. 

 

 



Nazrin AKHUNDZADA, Inara RZAYEVA 

5 

 

Figure 5. Number of opened current accounts by individuals engaged in entrepreneurship  

  
 Source: Central Bank of Azerbaijan 

 

METHODOLOGY  

The absence of relevant financial statements is one of the factors preventing access to finance 

for MSMEs (CBAR, 2021). On the other hand, the adoption of ICT-based services facilitates access 

to formal financial resources for MSMEs by making available records of business transactions via 

digital platforms. By using these records financial institutions can assess the creditworthiness of 

business entities. E-commerce platforms are one of the bright examples of such experience that 

enables banks and other financial institutions to obtain relevant information about the business 

performance of MSMEs. Entrepreneurs who use e-commerce to run their businesses are more likely 

to achieve financial inclusion (Wirdiyanti, Rosnita, et al. 2022). Digitalization also has an impact on 

the profitability of banks by increasing return on equity (ROE).  

This article applies time series regression analysis for Azerbaijan and investigates the 

following hypothesis:  

● Integration of digital tools into business processes improves the financial inclusion of 

MSMEs. 

 

Figure 6. Proxy variables for regression analysis  

 

 

 

 

 

 

 

 

 

To start research, we need to identify relevant variables for running a quantitative analysis. 

Firstly, we perform correlation analysis.  There are two variables in Figure 7 that are the most relevant 

ones, according to the existing literature, to analyse the relationship between the digitalization of 

business operations and getting access to financial resources for MSMEs. Another factor which plays 

    

Number of loans allocated to 
MSMEs 

 - represents accessibility of 
finance for MSMEs 

 

Number of e-commerce transactions 

 -represents the degree of 
digitalization of business  



THE IMPLEMENTATION OF DIGITAL CHANNELS IN BUSINESS PROCESSES AND ACCESS 

TO FINANCE FOR MSMES IN AZERBAIJAN 

 

6 

 

an important role for MSMEs in getting access to financial resources is asset quality in the banking 

system, according to  Armand, Ndoye and Sydorenko (2020). Asset quality can be measured by 

portfolio of non-performing loans (NPL) of the banking sector. The ratio of defaulting loans in 

Azerbaijan followed a sharp decline within consecutive years and reached 3.8 percent in 2022 

(Central Bank of The Republic of Azerbaijan, 2022). 

To normalize figures for the variables we use logarithmic functional forms. Two explanatory 

variables with intercept are included in the regression. The tendency to turn to digital channels 

expanded intensively after the COVID-19 pandemic when due to circumstances many operations 

were held online. Due to the novelty of this trend in the country and the relative scarcity of available 

data, the time span for analysis is short. The preliminary check of the time series indicates the 

existence of an upward trend from 2018 to 2022 for e-commerce transactions and loans provided to 

MSMEs, whereas for the portfolio of non-performing loans the opposite downward trend comes true 

as it is shown in Figure 7. 

The baseline regression model 1 is the following equation:  

 𝑳𝒏𝑳𝒐𝒂𝒏𝒕= 𝛼+ 𝛽𝟏𝑳𝒏𝒆𝒄𝒐𝒎𝒎𝒆𝒓𝒄𝒆𝒕+ 𝛽𝟐𝑳𝒏𝑵𝑷𝑳𝒕+𝜀𝒕                  (1)    

Notation:  

● 𝛼- intercept  

● 𝛽1-  slope coefficient on log function of e-commerce transactions held within country 

● 𝛽2- slope coefficient on log function of non-performing loans portfolio 

 

 

Figure 7. Time series graphs of key variables: lnecommerce, lnloan, lnNPL respectively  

 

 



Nazrin AKHUNDZADA, Inara RZAYEVA 

7 

 

 

 
(Source: Authors’ calculations)  

RESULTS  

The data set is obtained from Central Bank of Azerbaijan and captures years from 2018 to 

2022. The correlation coefficient measures the linear association between two variables. This 

coefficient is computed as the square root of R-squared obtained by regressing one variable on the 

other. A sign of coefficient shows whether the relationship is positive or negative. 

The correlation matrix in Table 1 illustrates a strong positive correlation with a correlation 

coefficient 0.95 between credit funds allocated to MSMEs and e-commerce transactions conducted 

in the country. By contrast, the number of non-performing loans demonstrates a strong negative 

correlation with the amount of loans given to MSMEs. Their coefficient of correlation is -0.69. 

 

Table 1: Correlation Analysis (Source: Authors’ calculations)  

Variable Lnloan  LnEcommerce  LnNPL 

Lnloan           1.0  

            1.0 

 

Lnecommerce           0.95 

LnNPL          -0.69            -0.85  1.0 



THE IMPLEMENTATION OF DIGITAL CHANNELS IN BUSINESS PROCESSES AND ACCESS 

TO FINANCE FOR MSMES IN AZERBAIJAN 

 

8 

 

Assuming that classical linear regression model assumptions hold, we regress our dependent 

variable log function of loans to MSMEs on two independent variables namely log function of e-

commerce transactions and log function of NPL portfolio. Regression output (Table 2) demonstrates 

coefficients of both regressors 𝛽1 and 𝛽2.  
 

Table 2: Regression Results for model 1 (Source: Authors’ calculations) 

Variable  Coefficient  p-value  

LnNPL 0.06 0.24 

Lnecommerce  0.39  0.03 

Cons.  13.6 0.02 

R-squared which measures goodness of fit is around 96 percent. According to obtained 

estimates, the implementation of e-commerce practices within the country positively affects the 

accessibility of credit funds for MSMEs. However, the regression output did not illustrate a 

significant coefficient for asset quality. Presumably, a small sample creates bias and inconsistency. 

Another possible explanation could be the irrelevance of NPL portfolio as an indicator for analysis 

as it captures asset quality within all the types of issued loans not only business loans. The only 

reasonable concluding remark from this time series analysis is that there is a strong positive 

relationship between the financial inclusion of MSMEs and digitalization of business in Azerbaijan. 

It implies that these variables move in the same direction. To eliminate the assumption of 

heteroskedasticity, we apply Breusch-Pagan test for heteroskedasticity in Table 3. As it is obvious 

from p-value, we accept the null hypothesis of homoscedasticity and there is no need to use robust 

standard errors. 
 

Table 3: Breusch- Pagan Test for heteroskedasticity 

Chi2(1) 0.02 

Prob (chi2)  0.87  

 

CONCLUSIONS 

This article discussed the current state of MSMEs in the framework of digitalization trends in 

Azerbaijan. The importance of the digital technologies is highlighted to achieve sustainable 

development. Access to formal financial resources has been recognized as one of the main obstacles 

for MSMEs. Considering that nowadays digitalization stands as a prominent factor for the 

development of MSMEs, the analysis includes an evaluation of the digitalization process and its 

implementation into business practices through conduction of e-commerce transactions. This 

hypothesis was tested for Azerbaijan as we have found positive dynamics in loans attributed to  

MSMEs as well as in the usage of digital tools by business owners within the country during 

recent years. The results showed a positive correlation for both indicators and suggested a positive 

impact on the external financing of MSMEs generated by the appliance of digital mechanisms in 

business processes. However, due to the scarcity of data, we could not prove the existence of a 

statistically significant relationship between loans issued for MSMEs and asset quality in the banking 

sector as it was expected. Further investigation may involve a detailed analysis of all possible 

determinants of financial inclusion of small and medium-sized enterprises including firm-specific, 

macroeconomic and institutional factors. 



Nazrin AKHUNDZADA, Inara RZAYEVA 

9 

 

REFERENCES 

1. Central Bank of the Republic of Azerbaijan. (2023). Digital Payments Strategy of the Central Bank 

of the Republic of Azerbaijan for 2021-2023. 

2. Central Bank of the Republic of Azerbaijan. (2021). Financial Stability Report. 

3. Central Bank of the Republic of Azerbaijan. (2022). Financial Stability Report. 

4. Fouejieu, A., Ndoye, A., & Sydorenko, T. (2020). Unlocking Access to Finance for SMEs: A 

Cross-Country Analysis. 

5. OECD. (2019). Azerbaijan: Driving Diversification through Strengthened Entrepreneurship. 

OECD Publishing, Paris. 

6. OECD. (2022). Promoting Enterprise Digitalisation in Azerbaijan. OECD Publishing, Paris. 

7. Strategic Roadmap for the production of consumer goods in Azerbaijan at the level of small and 

medium entrepreneurship. monitoring.az. 

8. The State Statistical Committee of the Republic of Azerbaijan. (2002). Micro, Small and Medium 

Entrepreneurship in Azerbaijan. Statistical Yearbook. 

9. Wirdiyanti, R., et al. (2022). How does e-commerce adoption impact micro, small, and medium 

enterprises' performance and financial inclusion? Evidence from Indonesia. 

10. World Bank. (2019). World Bank Enterprise Survey. 

11. World Bank. (2020). Doing Business 2020. 


