MONEY THROUGH THE POST

The market for retail banking services in Azerbaijan is developing quite quickly against the backdrop of the overall growth in the Azerbaijani economy. In the past decade there has been a significant increase in the number of banks serving private individuals and looking to develop their business in the country's regions. More and more banks are looking for alternative ways to build up their customer base and are greatly helped in this by the development of technology, the improvement in the quality of service, the expansion in product lines and the constantly growing public demand for banking products and services. In order to cover the widest possible customer base the banks are establishing cooperation with major state and private enterprises. World experience shows that postal communications are often one of the most effective channels to develop banking services. This is what motivated the Azerbaijani government when it decided to connect the country's post offices to the banking and finance sector's electronic system.

Over to the National Bank 

Under the Azerbaijani government and World Bank's Developing Financial Services project, by the end of 2008 and beginning of 2009, 1,200 of the 1,536 post offices of the Ministry for Communications and Information Technology's Azarpoct state enterprise will be providing banking and financial services. The project is costing $17.5 million, of which $12.25m have been allocated by the World Bank as a credit for 40 years with a 10-year grace period, and the remaining $5.25m is being financed by the Azerbaijani government.

The banking services proposed for the post offices include making certain kinds of payment, issuing debit and even credit cards, receiving deposits and making rapid money transfers. Issuing credit will be excluded.

A project management group has been set up and a plan of action confirmed, a new plan of accounting for Azarpoct has been drawn up and the services of consultants FASP have been secured. Moreover, a room has been set aside in Azarpoct for the central server, computer equipment has been bought for post offices in Baku and the regions and the training of new staff is under way. At present FASP is also working on a strategy and organizational structure for Azarpoct.

Novruz Mammadov, who heads the Communications Ministry's postal department, said that the automated corporate information system is now being installed at Azarpoct and the first module will come into operation this November. Testing will begin then.

The system allows more than 1,500 post offices to connect to the central server, automates traditional postal services and provides banking and financial services.

"Post offices in Baku, Sumqayit and the Abseron District will start for the first time to provide banking and financial services to the general public from 2009," Novruz Mammadov said.

At the start of this month Azerbaijan's Milli Maclis (parliament) approved the relevant amendments to the law "On the postal service". Under these amendments Azarpoct's functions have been significantly extended, R+ was told at the Ministry of Communications and Information Technology. 

"Soon post offices will be able to provide banking services to the public. The post offices will provide services such as cash deposits and pensions and benefits payments without any hindrance," the ministry said.

Now that the amendments to the law have been passed, the Azarpoct state enterprise can apply to the National Bank of Azerbaijan (NBA) for a banking licence. They will do this before the end of the year.

However, banking services will be introduced gradually. The relevant National Bank bodies will review the Azarpoct network's readiness to provide these services. Permission to provide banking services in post offices will depend on this review.

The chairman of the Milli Maclis permanent commission on economic policy, Ziyad Samadzada, said "the right conditions have to be created first for post offices to start providing financial services".

"Only after all the requirements have been met will the state bodies be approached, the audit carried out and permission granted. So the passing of the amendments to the law does not mean that the country's post offices will be instantly providing new services," Ziyad Samadzada said.

In this respect the date for the implementation of the project to modernize the country's postal network may be extended to the first half of 2009. At present this question is under discussion with representatives of the World Bank.

The Azerbaijani government is planning to allocate around eight million manats in the coming year as part of the project for state enterprises to provide universal services. As for the 1.5 million manats allocated for this year, they are being spent on extending the Azarpoct network, opening new post offices, creating postal agencies, etc.

Profit and jobs

At present 1,536 post offices are operating in the country, of which 37 provide services to the general public in towns, district centres and settlements while 1,199 operate in rural areas, according to figures from the Ministry of Communications and Information Technology. It is common practice worldwide for post offices to provide banking services, Novruz Mammadov said. Usually bank branches are located in towns with quite a large population. As a result residents of the provinces cannot make full use of banking and financial services. Moreover, the regions have been developing recently, which means that it needs to become easier for them to integrate into the country's banking and financial system.

"Having carried out research, the World Bank concluded that the best way to provide banking and financial services to villages would be to use Azarpoct's post offices, as they cover all the remote regions of the country," Novruz Mammadov said.

The Development of Financial Services project has a commercial as well as social purpose, the deputy minister for communications and information technology, Iltimas Mammadov, said. "Since post offices will be able to provide all types of financial services (commercial, insurance, pensions, benefits, wages etc.) and a range of banking services, including money transfers, in all populated areas, this will allow the national postal operator to receive additional income. Moreover, the project will have a beneficial effect on the welfare of postal workers and will mean the creation of around 1,000 new jobs," Iltimas Mammadov said.

He said that the main stages of the project have been completed - the infrastructure for the provision of financial services in the capital has already been created and the work remains to be done in the regions.

The project envisages the future provision of Internet services, such as e-commerce, online banking, e-mail and others, which will also bring additional income.

On a larger scale, the full implementation of the project will improve the general public's financial culture and smooth out the disproportionate social and economic development between the cities and the villages. Business development in this direction will also attract significant volumes of unproductive financial resources into the economy. This will boost the capitalization and creditworthiness of the banking system which has become especially topical recently with the world financial crisis. So banks, the vast majority of whose clients are major enterprises and wealthy citizens, will be able to work via the post office link with most of their potential clients - modest investors and small and medium-sized business and not only in the densely populated cities.

Post Office bank a reality

There are many examples of successful collaboration between post offices and banks throughout the world. The postal systems of developed countries have long since become major financial institutions. Universal service providers - as postal workers are called in developed countries - consider partnership with the banks and the provision of financial services via their post offices to be the best mechanism to attract new customers and increase profits. For example, in Italy 42 per cent of the post office's income comes from banking services. Since the 1990s many post offices have been working as fully fledged commercial enterprises, providing such complex services as e-commerce. Moreover, in some countries (Italy, Switzerland) post offices independently provide financial services and collaborate with banks, acting as their agent and providing banking services for a specific percentage commission. In other countries (Germany, the United Kingdom, the Netherlands, the Scandinavian countries etc.) specially created post office banks provide and control postal and banking services. There are more than 80 national post office banks throughout the world, most of which have already been in operation for several decades and in many cases play a formative role in their national economies, according to Russian media reports. The format is simple: first the public is served by post offices, the financial and banking divisions of which may later become a separate juridical entity - a post office bank which can be controlled by the post office or the state. They can also be privatized.

One example of postal banking business is Germany's Postbank, which was created in 1989 by the German postal service, Deutsche Bundespost, to provide financial services to the public, and later turned into a major universal bank, serving retail and corporate clients, and a leader on the German banking services market.

Azerbaijan also has quite high potential to develop the post office-banking business. The basis for this is the high rate of growth of the country's economy as a whole and the banking sector in particular and the growth in the prosperity of citizens who have an ever increasing need for top-level financial services. There's just one small thing left, as they say - establishing collaboration between the post office and the banks. At the same time post offices need to be modernized. Most of them, especially in rural or remote areas, are not well equipped technically, despite the fact that in the past five years alone more than 400 post offices have been opened in Azerbaijan to improve the postal system. In order to organize the efficient provision of banking and financial services post offices need to be equipped with all the necessary banking technology - cash machines, POS terminals, communications and computerized work stations. After all, the postal infrastructure which we have inherited from the Soviet era was not built to collaborate with banks.