Possibilities of application of venture capital financing methods as a mean of project finance by Azerbaijane banks

Collapse of the USSR resulted in recession of almost all post-soviet countries, he economic slump was partly consequence of weakening of relations between nterprises in economically interdependent countries. But major reason of the scession was outdated technology and inefficiency of the soviet industry in particular nd economy as whole. Alongside these factors, political instability, social disorder, nd ethnical conflicts further deteriorated the situation. The government of Azerbaijan attempted to stop recession and initiate economic ievelopment by increasing credit supply to the real economy through canalising entral bank's funds to public banks. However, the expected improvement has never ealised, and the increment of funds deteriorated financial strength of public banks lue to weak control over use of supplied funds. Furthermore, enterprises iccustomed to operate under soviet economic system were unable to adopt new nanagerial and financial techniques necessary to survive in market economy. Lack )f managerial and financial skills caused to bankruptcy of most of the newly launched jusinesses. Under these conditions, Azerbaijani banks tended to curtail funds lent to Bconomy of the country, especially to SMEs. Results of regression analysis (although t is not fully reliable due to insufficient observations) display that only twelve percent af economic activity was financed by bank loans. Deficiency of funds was major restriction on economic development. As a matter of fact, banks are unable to develop without development of entire economy. Therefor, Azerbaijani banks have to canalise more and more funds to real economy for sake of their own development. But lack of confidence in enterprises restricts enlargement of supplied funds.Venture capital proved to be most efficient way of financing small- and medium ized enterprises. Venture capitalists provide SMEs not only with funds necessary jr development or launch of a new business, but also with their knowledge and xpertises on financial and other strategic issues as well. Thus a good venture apitalist is a good entrepreneur and technologist as well as a good economist. From lis point of view, Azerbaijani banks are luckier than their colleagues in the West, ianks to specialist banks established in late 1980's and first years of independence, "hese specialist banks were concentrated in certain areas of economy, and therefor i large number of bankers (some with industrial background) in Azerbaijan are able o analyse certain sectors in depth. Azerbaijani SMEs and entrepreneurs backed by banks with both capital and ixpertise on financial matters can prosper in shorter time thanks to dynamic growth )f economy since late 1990s. Growing economy is crucial issue in venture capital nvestments as well as new technology. Venture capital investments involve hands- >n management. Hence banks may draw advantage of such investments since iands-on management eliminates asymmetric information. Equipped with all lecessary information, investors feel confident in taking investment decisions. However, not all of the Azerbaijani banks are able to implement venture capital nvestment methods since such investments require sound financial ground and strength as well as patience for maturity of investments.