DEBT COLLECTORS

The concept of "collection services", which until recently were unknown to many Azerbaijanis and even now are not understood by everyone, has very quickly become part of our daily lives. The term "collecting" means travelling around and collecting debts from juridical persons and private individuals. The thing is that the increase in the amount of lending in Azerbaijan recently has inevitably led to an increase in debt defaults, and collecting agencies can play an important role in reducing the considerable amount of arrears that have accumulated.  For example, the amount of arrears by the end of 2012 was AZN 748.8m (5.9% of the total loan portfolio of the banks) compared with AZN 633.8m at the beginning of the year.

Pay back the loan or...!

There have always been plenty of debtors who, for various reasons, do not wish to pay back their "dues", or will not do so in principle. In the old days (and occasionally now) there were people, not especially law-abiding, who were hired to "wheedle debts", but then the process became more civilized and was transferred to the law-enforcement bodies, official receivers, and so on.

As various forms of small loans developed and the types of organization dealing with this broadened (banks, non-bank credit organizations, credit unions, and also ordinary commercial organizations selling their products and offering payment deferment services), so the problem became more acute. And collecting organizations, which were essentially operating as mediators between the debtor and the creditor and promising to assist in the reimbursement of the debt for a certain renumeration, became very popular. 

Experience has shown that the work of the collectors is not a matter of crudely coaxing money out of people by using force and threats. Everything is carried out in quite a civilized manner, but very seriously and persuasively.  First, the experts of collecting agencies collate the accessible information about the debtor, his property and financial situation and then check his details as presented by the creditor. Then, a barrage of correspondence is unleashed using e-mail, SMS-messages and surface mail, with demands that the accumulated amount of debt be cleared as soon as possible. Contact is made with the debtor and a dialogue is conducted. Other bargaining chips are also employed if necessary. One conversation with a boss, colleagues, friends, relatives or a mother-in-law may eventually be more effective than a number of direct conversations with the person in debt.

If all these measures do not produce the desired effect the collecting agencies switch to the next stage of their work, which is to take legal action. The agencies are helped by professional lawyers who prepare the notices of claim and other documents and also represent the loan provider in court. The legal process and the passing of sentence on enforced recovery of debt are monitored by staff of the collecting agencies.

Because the monetary remuneration of the collectors depends on the sum of money to be recovered, their intention to carry out the case entrusted to them is not a matter of doubt.

The regulator is only "for"

Collecting agencies started to emerge on the Azerbaijani market comparatively recently - since the year before last - but they virtually started work last year. By way of comparison, they began operating independently in Russia from 2004, and now there are about 1,000 agencies (in the USA there are 7,000), whereas in Azerbaijan they are so far only in single figures, and the collectors operate within the banks. Often such agencies operate in the role of creditors, buying up the debt from the original creditor at a reduced value of debt.

Whatever the case, the effectiveness of their work is obvious otherwise the Central Bank of Azerbaijan would not support the setting up of collecting agencies and would not consider it necessary to develop this institution in the country. Rasad Orucev, the general director of the CBA, for example, believes that this is a very important institution of the financial infrastructure and it will be a good thing if it is developed. "There are several such organizations at the moment and there is a trend to create such agencies on the local market. It is too early yet to estimate how they are influencing the situation, but on the whole this will materially help the banks to tackle the problem of questionable assets better," Orucev believes.

The work of collecting agencies in Azerbaijan today is regulated by general legislation, and at the moment the Central Bank sees no need to create a special law. The CBA believes the collecting companies are a new phenomenon for the country, are few on the ground and are not showing an appreciable return. If they continue to develop, the Central Bank is prepared to apply the best international experience to regulate this sector, which would mean the work of the agencies will be regulated by general requirements of the process of the collection of loan debts by the banks.

A profitable business

It is more beneficial to entrust the task of how to spend the additional money (upkeep of personnel, leasing separate premises) and the time taken to recover old debts to the collectors and to pay them out of the funds collected, and at the same time they can build up their own business. That is the view of Samir Mustafayev, the director of one of Azerbaijan's collecting agencies. He pointed out that among the agency's clients are leading banks and household appliance shops, as well as individuals. The range of loan debts varies from AZN 400 (the loan for purchasing a telephone) to AZN 0.5m. The banks hand over cases on problem loans in the form of a portfolio consisting of several hundred cases. "As the money is returned we pass it on to the banks who in turn send us new cases," Mustafayev said.

There could be several items in one portfolio, and therefore the interest rates will accordingly vary. Usually the payment to a loan agency is from 20 to 50% of the amount of debt depending on the complexity of the case. The payment on loans up to one year with a guarantee is within 20-25%.

The most important condition for a collector to take on the recovery of a loan is an affirmation of the amount of debt on a contractual basis or on the part of a commissioner for oaths, otherwise this is deemed to be unlawful activity, although there are more applications in this section.

In order to ensure that a debtor does not leave the country, as soon as his place of domicile is established, on the basis of a judicial decision all possible routes out of the country are blocked. Accordingly, the border and customs services are brought into this process.

What is most interesting is that the majority of people who meet their debts to banks are not those who directly take out a loan but their guarantors. For example, someone without a good credit history takes out a loan in the name of a relative, friend or acquaintance and then stops paying the monthly instalments or doesn't pay anything at all, and, naturally, the debt is passed on to the guarantor. Such instances occur more often in auto lending. Therefore, the person in whose name the car is taken becomes a debtor of the bank.

In a case where the collectors are unable to recover a debt, the lawyers embark on clerical procedures and after legal proceedings the collectors are again involved and together with the officers of the court complete the procedure of recovering the debt.

In short, there is an obvious need for collecting agencies in the context of the present situation in Azerbaijan's financial sector. And their work is important because a reduction in the level of accounts receivable enables the banks to offer their borrowers more preferential lending conditions and thereby help to develop business and attract new clients. That is precisely why the task in the battle against overdue loans is more and more becoming a priority for the banks.