Each week Emerging Markets ESG publishes an interview entitled, “Five Questions about SRI.” The interview features a practitioner’s insights about SRI in emerging markets and through Emerging Markets ESG shares this expertise with a wide global audience. The goals of Five Questions about SRI are fourfold:
- To collect a catalogue of examples of SRI in practice in emerging markets;
- To raise awareness about SRI in emerging markets;
- To reflect on what SRI in emerging markets means to practitioners; and
- To enable SRI practitioners in emerging markets to network with peers around the world.
This week’s interview is with Michael Hoffmann, General Manager and Chairman of the Management Board, AccessBank, Baku, Azerbaijan.
AccessBank CJSC was established as the Micro Finance Bank of Azerbaijan (MFBA) on October 29, 2002. On September 8, 2008 it was renamed as AccessBank. AccessBank’s mission is to provide access to financial services for Azerbaijan’s low and middle-income households and micro and small businesses. AccessBank is 100% foreign owned by six shareholders, consisting of: the European Bank of Reconstruction and Development (EBRD), the International Finance Corporation, the Black Sea Trade and Development Bank and KfW Development Bank – the German development bank (20% each); Access Microfinance Holding – a strategic investor in microfinance (16.5%); and LFS Financial Systems – a German consulting company (3.5%). Michael Hoffmann is General Manager and Chairman of the Management Board of AccessBank. Before joining AccessBank, Michael Hoffmann was with the EBRD from 2005 to 2012. As Head of the EBRD Samara Resident Office, he was responsible for developing business with large corporations, public entities and banks in the Volga Federal District of Russia. Mr. Hoffmann started his career in 1996 with HSH Nordbank AG, one of the Top 10 Banks in Germany, where was responsible for the bank’s business in the Baltic countries (Estonia, Latvia and Lithuania) as Head of the Tallinn Representative Office. Furthermore, Mr. Hoffmann was a member of the Board of Directors of GM-АvtoVAZ (2008-2012), a joint venture between General Motors and АutoVAZ based in Tolyatti (Russia). The JV manufactures cars under the Chevrolet Niva brand. Mr. Hoffman holds an Executive MBA from the University of Chicago, Booth School of Business, and a diploma as an Economist from Kiel University. He also studied political sciences and Slavic languages in Munster University. Born in Germany, Mr. Hoffmann is fluent in German, English and Russian.
Emerging Markets ESG: How would you define socially responsible investment (SRI)?
Michael Hoffman: In our case, SRI involves recognition of our development mandate and consideration of the development aspects of our business. Bearing these in mind, we should offer more value to our clients. In our relationship with each client, repayment capacity should be an important factor as should the development of each client and the client’s business.
Emerging Markets ESG: What distinguishes SRI from mainstream investment?
Michael Hoffman: SRI is by definition a type of investment that is customer-focused.
The investment spectrum is extremely broad – including commercial banking, hedging, investment banking, swaps, etc. In mainstream investment, the return on the investment is the primary consideration.
As I noted in my response to the first question, SRI has a broader mandate. In addition to the return on the investment, the development mandate of the investment is a primary consideration.
In our case, the ownership structure of the bank established our development mandate. Our main owners/shareholders are development institutions. Thus, AccessBank focuses on the development aspect of its business.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for companies in Azerbaijan to manage?
Michael Hoffman: The main challenge for businesses in Azerbaijan is know-how transfer.
The business environment in Azerbaijan is unique. The culture, the value system, the way business is conducted, the business sectors – all of these are different from the United States and Western Europe.
AccessBank has many agricultural clients. There is great potential for development. We see that Azeri agricultural businesses can become more competitive – on a national, regional (Commonwealth of Independent States [of the former Soviet Union]) and global scale – through development of qualified personnel.
Another important sector is construction materials. Here too, education is crucial. Education of qualified personnel is the key to development and competitiveness.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for investors in companies in Azerbaijan to analyze?
Michael Hoffman: To date, there has been little direct portfolio investment in companies in Azerbaijan, for example, through the stock exchange.
At the present time, the majority of foreign director investors in Azerbaijan are either major global players or regional players which are already present in Russia and the Commonwealth of Independent States.
The business climate here is specific, indeed unique. This market is not huge, in comparison, for example, with some of the major emerging markets. It is a medium-size market with its own dynamics. Thus, investors need to have local knowledge.
Emerging Markets ESG: AcccessBank has been operating for ten years. Which impacts have AccessBank’s investments in Azerbaijan achieved?
Michael Hoffman: AccessBank has over 120,000 clients. The majority of our lending is microfinance.
This summer I visited many clients. Through these visits I saw how the bank, by working with its clients, has had a developmental impact. We are especially active in the agricultural sector. In some regions, AccessBank is the only bank in town. During the planting season and harvest season, it is important that the bank works with each client to ensure that the client has the necessary financing to operate its business. Our development mandate is clear.
Another important sector is trade. We work with the retail sector and with distributors, for example, pharmacies. 10 years ago the retail sector was considerably different. We have seen impressive changes.