The Azerbaijani government will cover 50 percent of the interest payments on business loans obtained by entrepreneurs operating in cities and districts outside Baku and the Absheron district.
According to the decree signed by President Aliyev on June 9, the state guarantee and interest subsidy mechanisms will initially be introduced as a pilot program, and they will remain in force until December 31, 2030.
Previously, such support was available only to businesses operating in Karabakh and East Zangezur. Under the 2023 regulations on “State Guarantees and Interest Subsidization of Loans Granted to Business Entities Operating in the Territories Liberated from Occupation”, these measures were administered by the Mortgage and Credit Guarantee Fund.
The new decree transfers these responsibilities from the Mortgage and Credit Guarantee Fund to the Business Development Fund, a state-owned institution operating under the Ministry of Economy.
Businesses across all regions of the country, except Baku and the Absheron district, will be eligible for state-backed loan guarantees and interest subsidies on loans denominated in Azerbaijani manat. Under the new terms, the government will subsidize 50 percent of the accrued interest on business loans carrying an annual interest rate of up to 13 percent.
Under the previous regulations applicable to Karabakh and East Zangazur, the maximum eligible interest rate was 15 percent, of which the government covered 10 percentage points while the borrower paid the remaining 5 percentage points. According to the new framework, loans issued at an annual interest rate of 13 percent will qualify for a subsidy covering half of the interest cost, equivalent to 6.5 percentage points.
The decree also introduces a differentiated state guarantee mechanism. Previously, if a business operating in Karabakh and East Zangazur failed to meet its loan obligations, the Mortgage and Credit Guarantee Fund compensated participating banks for up to 90 percent of the outstanding principal.
Under the new rules, state guarantees will continue to cover up to 90 percent of the principal amount in the same territories, while businesses in other regions will be eligible for guarantees of up to 50 percent.
The requirements related to repayment performance have been tightened as well. Under the previous framework, entrepreneurs lost eligibility for state-guaranteed financing if loan repayments were overdue by more than 60 days. The new rules reduce this threshold to 30 days.
The maximum loan amount eligible for a state guarantee has been set at 5 million manats. For groups of related borrowers, the ceiling has been increased to 10 million manats.
Following the introduction of state-funded interest subsidies in the liberated territories, lending activity in these regions increased significantly. As of April 2026, total lending in the Karabakh Economic Region amounted to 566.4 million manats, while the East Zangezur Economic Region recorded 33 million manats in outstanding loans. The volume of lending directed to Karabakh region has expanded rapidly, surpassing several other economic regions, including Mil-Mughan, Nakhchivan, Mountainous Shirvan, and Shirvan-Salyan.
Investigative reports suggest that a large share of businesses operating in Karabakh and East Zangezur are owned by companies linked to President Ilham Aliyev’s family, senior government officials, and cabinet ministers.
Such companies have established dominant positions in key sectors of the regional economy, including agriculture, construction, hospitality, and food services. However, residents reportedly face significant barriers to establishing and operating independent businesses.
The hospitality sector in the region is also reported to be largely controlled by companies associated with the president’s family. Furthermore, internally displaced persons resettled in the Karabakh region are allegedly employed at facilities owned by politically connected companies under relatively low-wage conditions.
Karabakh also benefits from substantial tax incentives. Since 2023, residents and businesses registered in this region have been exempt from profit tax, property tax, land tax, and simplified tax obligations for a period of ten years. These incentives also apply to non-operating income earned by companies operating in the region.
In addition, resident companies registered as VAT taxpayers are exempt from value-added tax on the import of machinery, technological equipment, industrial installations, raw materials, and production inputs used in economic activities for ten years beginning in 2023.
State support programs for Karabakh and East Zangazur have disproportionately benefited companies linked to the political elite of Azerbaijan. Against this backdrop, the expansion of state-funded interest subsidies for business loans to other regions raises important questions regarding transparency, accountability, and equal access to public financial support.
Given Azerbaijan’s comparatively low standing in international corruption perception indices and its classification as a “moderately free” economy—lagging behind neighboring Georgia and Armenia on key measures of economic freedom—concerns persist regarding the transparency and impartiality with which access to state-supported financing is administered.