Aynur Aliyeva began 2015 in limbo and facing uncertainty. Her CEO had just left Azerbaijan and gone back to the Philippines, thousands of miles away, having been denied a renewed work visa a few months earlier. As his deputy at the Azerbaijani microfinance company Viator, Aynur stepped in, working feverishly with lawyers and government authorities to bring the CEO back. Unbeknownst to her, a far greater challenge loomed just ahead.
On February 21st of that year, the Azerbaijani currency, the manat, lost 25 percent of its value — all in a single day. For a country whose currency had been steady since at least 2000, even during the height of the global financial crisis in 2008-09, such a devaluation was a major shock. It capped a year of severe economic pressures, with falling oil prices over the past year having already been felt in every corner of the petroleum-driven economy. Even with that, the devaluation was something new entirely — “snow in the middle of summer,” thought Aynur.
These pressures were bearing down on Viator. Like other MFIs in the country, much of Viator’s portfolio was lent out in USD-denominated loans, and most of its debt was likewise in dollars. Now its borrowers — few of whom actually earned USD incomes — were facing large payment shocks, on top of already being affected by the slowing economy. Viator was entering an existential crisis. Meanwhile, Aynur spent those initial few months navigating between a remote CEO, concerned investors and staff, and a loan portfolio that was fast deteriorating.
In April 2015, Aynur was finally appointed CEO. With that uncertainty resolved, Viator embarked on a crisis response. Its first step was to change its lending policy; until then, Viator had been lending between a third and half of its loans in USD. With the devaluation, it began to sharply curtail this practice, bringing USD disbursements down to zero by the end of the year. That was just in time, because on December 21st, the manat was suddenly devalued again, this time by another 32 percent. With these two devaluations, the manat had lost half of its value — and the decline would continue through 2016 into 2017.
The resulting fear and uncertainty, combined with a major recession, destroyed trust and threw the entire financial sector into turmoil. Viator was a small fish, had no deposits, and certainly did not meet the too-big-to-fail test. Its primary shareholder was a Norwegian NGO that, while morally supportive, had little financial expertise and no access to additional capital. If Viator was to survive, it would have to do it on its own.
And survival was indeed at stake. Several of the country’s MFIs, far larger and more important than Viator, would not make it.
Aynur had never run an MFI in the midst of crisis, but that had its advantages, too — she carried no “founder’s syndrome” baggage; whatever mistakes were made previously were made by her predecessor. This allowed her to ignore the past and focus entirely on the present and the future.
In the meantime, in Viator’s portfolio, things were going from bad to worse. By the end of 2015, 47 percent of its loans were overdue. A year later, that number had grown to 77 percent, comprising mostly loans that were by then more than 12 months behind. Faced with such numbers, most managers would panic.
Aynur did not panic. With many of the country’s financial institutions — banks and MFIs alike — hunkering down in the midst of crisis, Viator suddenly found a wide-open market. In the face of uncertainty and volatile cash flows, people still needed to borrow. And so Viator continued to lend. Indeed, no matter how bad things got during the long crisis period, Viator never stopped lending.
Having already switched to entirely local currency loans, Viator focused on the best clients and low-risk products. Chief among these was the jewelry loan, which allowed clients to monetize the gold received during weddings and other family events — a common cultural practice in Azerbaijan. With this secure and relatively liquid collateral, Viator could lend during the depths of the crisis, and still keep credit risk low.
Of course, this new lending was far below pre-crisis levels. Midway through 2016, monthly disbursements averaged AZN 0.6 million, or 70 percent lower than a year earlier. By mid-2017, this was cut again by half, down 83 percent from the level set two years before. These lower disbursements were accompanied by lower operating costs; in 2016 alone, operating expenses were halved, mainly through salary cuts and staff attrition, as well as layoffs that prioritized retention of the best-performing and most experienced staff.