Ayaz Museyibov, Head of the Strategic Planning and Development Department at the Center for Analysis of Economic Reforms and Communication (CAERC), has answered questions regarding responsible lending policy and its future development prospects.

1. Mr. Museyibov, let us begin with a basic question: what is responsible lending policy and what is its main essence?

Responsible lending policy is a methodological framework that encompasses a set of policy measures aimed at preventing excessive borrowing by consumers. It includes a wide range of mechanisms and procedures such as preventing conflicts of interest, assessing repayment capacity, evaluating the suitability of credit usage, disclosing assessment results to consumers, and preventing inadequate practices.

To understand its essence, it should be viewed from several perspectives. From the perspective of credit institutions, it focuses on mitigating credit risks and forming a healthy loan portfolio by assessing borrowers’ repayment capacity when issuing consumer loans based on available resources. From the perspective of citizens or bank clients, it promotes responsible borrowing behavior among borrowers and guarantors, thereby preventing excessive debt. From a macroeconomic perspective, it helps prevent systemic risk accumulation and supports financial stability, while also strengthening public trust in the banking system.

2. What are the main institutional tools of responsible lending in international practice?

In international best practice, credit reporting systems (CRS) are the main instruments of this policy. The most standard service provided is the credit history report, which reflects a subject’s current credit obligations and how those obligations have been fulfilled.

In addition, there are negative credit reports that include only adverse information. Such reports are more concise and typically include only individuals with negative credit histories. As a result, access to credit resources for individuals listed in negative databases becomes more limited. This helps credit institutions maintain stable levels of non-performing loan portfolios and encourages borrowers to adhere more strictly to financial discipline.

3. What are the main services provided by CRSs that are considered part of responsible lending culture?

The most widely used CRS service is individual credit scoring. This system uses mathematical and statistical methods to evaluate a client’s ability to repay credit based on their credit history.

In developed countries, scoring models may include not only standard indicators (credit transactions, payment behavior, inquiries, etc.) but also additional data such as third-party information (court decisions, bankruptcy records) and demographic indicators (age, etc.).

Another important service is benchmarking, which is a comparative statistical report that evaluates a financial institution’s credit portfolio against other institutions and the overall market based on credit history data.

4. How do scoring and benchmarking contribute to responsible lending?

A credit institution with access to standardized scoring models generally has lower operational costs compared to others, mainly due to reduced human resource involvement in creditworthiness assessment.

At the same time, when lending is based on tested models, the probability of allocating credit resources to unsuitable clients decreases. This leads to a reduction in non-performing loans, which in turn lowers overall credit costs. Banks can then pass these benefits to customers through lower interest rates and commissions, a practice already common in advanced financial systems.

Benchmarking allows institutions to evaluate their credit portfolio performance and risk exposure compared to peers, enabling optimization of credit policy and improved risk management.

5. What new institutional tools can influence responsible lending, particularly in banking operations?

One of the key tools is automated decision-making systems, which significantly improve credit processes in several ways. Their main advantages include real-time processing, risk mitigation, reduced dependence on human error, and lower resource consumption.

These systems enable rapid credit analysis, automated underwriting, and efficient data exchange with other databases. One important example is portfolio monitoring systems, which immediately notify lenders when changes occur in a borrower’s credit history, such as new loans or repayment updates. This allows banks to respond quickly and avoid negative chain effects in credit operations.

6. What should borrowers pay attention to when taking loans?

First of all, all credit matters are regulated by a contract between the borrower and the bank. Therefore, borrowers should carefully review all terms of the agreement, including loan amount, duration, interest rate, commission fees (if applicable), and other payments.

It is also recommended to seek clarification from bank representatives and use available electronic information platforms. Regular monitoring of personal credit history and maintaining a positive credit profile is essential.

In developed financial systems, lending decisions are often based more on expenditure and debt assessment than income alone. As a result, individuals with poor financial discipline face limitations in accessing financial services across various sectors.

7. What measures are currently being implemented to promote responsible lending?

Several institutional mechanisms such as credit bureaus, credit registries, and movable collateral registries are already operational in the country.

Within the framework of relevant state programs and strategic roadmaps, awareness-raising activities are also being implemented. Currently, CAERC, the Central Bank of the Republic of Azerbaijan, and the Azerbaijan Banking Training Center are jointly carrying out initiatives to promote responsible lending.

Due to the pandemic, activities have been shifted to online platforms. Training modules on responsible lending have been developed, and educational programs have been organized for journalists, NGOs, business entities, and banking professionals on managing risks related to excessive borrowing.

Additionally, online trainings, brochures, TV programs, social media campaigns, and expert interviews have been conducted on topics such as credit potential assessment, consumer loan characteristics, guarantor rights and obligations, and responsible borrowing. These initiatives are ongoing.