AZERBAIJAN: Finance in Focus LEVERAGING POSTAL NETWORK FOR FINANCIAL AND Knowledge SOCIAL INCLUSION Notes Financial inclusion plays a vital role in poverty alleviation, This paper provides a brief overview of the postal network creation of jobs, promotion of regional and economic reform in Azerbaijan and transformation of Azerpost, diversification and growth. While financial systems developed Azerbaijan’s state postal operator, into an efficient platform significantly over the past decades, financial access however for basic financial services delivery throughout the country. remains unequal and uneven regardless of the level of a This complex reform, supported by the World Bank loan for country’s GDP per capita or technological sophistication Financial Services Development Project and the grants from of the leading banks, with millions of households and the Swiss Office of International Cooperation (SECO), was businesses throughout the world still having no access to the launched in 2006 and helped the government of Azerbaijan basic financial services. Moreover, these unbanked clients to improve financial services delivery and inclusion in the can often fall into a deeper poverty and social exclusion country in parallel with modernizing and digitalizing Azerpost, trap, as financial access to the basic services (such as expanding its financial services delivery capacity, enhancing payments, money transfers, savings accounts, and insurance its financial viability and maximizing the public value of services, micro- financing) is essential for development of Azerpost extensive branch network of 1,600 offices. In the entrepreneurship and financial safety of households, and is period of 2007-1H2015, Azerpost total revenues, largely critical for delivery of social financial support and remittances, from financial services (as universal postal services remain especially to rural or remote areas. The recent slowdown of loss-making) tripled, while volume of financial services’ economic growth and continued vulnerabilities in financial sales increased four times. In 2015, Azerpost reached markets pose even bigger challenges of financial inclusion financial breakeven without state subsidy, and productivity at the backdrop of financial institutions’ deleveraging, of its staff increased 3 times. In 2009, Azerpost corporatized with consequent contraction of lending to micro, small and and became LLC, while in 2010, based on the new postal medium enterprises (MSMEs), staff reduction and networks legislation, it was licensed as a non-bank financial institution optimization (through closure of subsidiaries, branches, and subject to prudential supervision of the central bank. reduction of investments into traditional services delivery platforms (including physical outlets, ATMs, especially in As the financial sector of Azerbaijan remains fairly small, with remote rural areas). Penetration of alternative modern one of the lowest levels of financial inclusion in the region and solutions such as mobile or internet banking and other the shaken stability of the banking sector after the rapid drop in fintech services is still limited and dependent on the level the oil prices and local currency devaluation in 2015, financial of digitalization of economy, internet access, consumer stability and access for economic recovery and poverty protection framework and financial capability of clients which alleviation is one of the major priorities for the country policy remain generally low. makers. In this context, the role of Azerpost, that accounts for two-thirds of the country’s financial sector’s physical In this context, the synergy of postal and banking services that infrastructure and is one of the market leaders in remittances enables wider distribution of financial services and outreach transfers, utilities payments, and social payments delivery in in remote areas through large networks of postal operators is the rural areas, is becoming more important for financial and one of the unique, cost effective and often faster solutions for social inclusion, as well as countercyclical response. improving financial inclusion both in developed and transition economies. Expanded postal network infrastructure in many The experience of Azerpost’s reform can yield valuable countries, especially in the Former Soviet Union, but also in insights for policy makers in the Former Soviet Union a number of developed economies, is often provided by the countries and beyond that are facing financial inclusion and state as a public good at taxpayers’ cost, but is growingly access issues and may want to leverage their own postal underutilized due to reduced use of the traditional mail networks to promote greater financial and social inclusion and postal services, and increasing private sector postal as well as enhance efficiency and sustainability of postal services. On the other hand, expansion of financial services operators. and institutions, especially in rural areas, is constrained by high investment costs for physical infrastructure and brand This note was prepared by Angela Prigozhina, Senior recognition. In this context, partnership between financial Financial Sector Specialist, and Johannes Boon, International institutions and postal networks helps the earlier to reduce Consultant on Postal Banking. The authors have benefitted costs to outreach wider clientele, especially in underserved from the support of Rolf Behrndt, GFMDR Practice Manager, areas, while the latter gains additional income and Larisa Leshchenko, Azerbaijan Country Manager, and wish investments for services modernization and sustainability. to thank Liudmila Uvarova and Aichin Lim Jones for guidance Successful examples of various modalities of postal finance and design of this edition. Special gratitude is to the Swiss and postal banking partnerships exists in many countries, Government and our partners in SECO, the management and including for example Estonia, Brazil, Morocco, Belgium, UK, the team of Azerpost, Central Bank of Azerbaijan, Ministry of Ireland, Italy. A number of countries, including USA, India are Communications and Technologies, and Ministry of Finance considering postal banking reforms for financial outreach and for the long-term outstanding partnership, cooperation and inclusion. support. AZERBAIJAN: LEVERAGING POSTAL NETWORK FOR FINANCIAL AND SOCIAL INCLUSION AZERBAIJAN: LEVERAGING POSTAL NETWORK FOR FINANCIAL AND SOCIAL INCLUSION Angela Prigozhina, Senior Financial Sector Specialist Johannes Boon, International Consultant on Postal Banking THE POSTAL FINANCE NETWORK MODEL In many countries around the globe the size, spread, and demographic reach of post office networks significantly exceed that of bank networks. Frequently, it is required by law (as is the case in Switzerland or Azerbaijan) that post offices are present in all regions and in rural communities. Therefore, postal networks encompass the management of property, equipment, and personnel to ensure that citizens have access to key basic services (including mail, goods, cash delivery, and utilities payments), even in the most remote areas. Banks traditionally build out their networks in larger centers on the basis of commercial viability, while modern financial services (including mobile and e-banking) have not yet penetrated to rural areas, especially in former Soviet Union countries (FSU), due to limited digitalization or poor financial literacy. As a result, many micro, small, and medium-size enterprises (MSMEs) and low-income residents remain without adequate access to basic financial services or incur extra costs to access them. This situation constrains economic diversification and regional development and inhibits social inclusion and shared prosperity. To increase financial and social inclusion, a number of countries have chosen to integrate their public postal networks into financial access infrastructure. Indeed, in the United Kingdom, Italy, Brazil, China, Austria, and France, post offices offer customers the ability to open bank accounts and maintain savings accounts, deposit pension checks and withdraw cash, receive and transfer remittances, make utility payments and pay debts—all for a modest fee. In fact, traditional postal services often represent less than 10 percent of the total operations of post offices, while financial services bring much bigger revenues. By formally integrating post office branch networks into the financial fabric of a country, banking and social services are delivered to a larger group of underserved citizens, and the revenue streams associated with financial services enhance viability of the postal network, enhancing its public value and mitigating the risk of a fiscal burden. Postal banking is also beneficial for the financial sector, as it allows financial institutions to reduce fixed assets costs and use postal networks to distribute their services through an agency or a partnership arrangement. For policy makers, such integration of postal assets and financial services to reach public policy objectives of financial and social inclusion, especially for the rural poor and MSMEs, can be a more cost and time effective approach as compared to developing new financial distribution infrastructure through greenfield investments. This also helps reform postal networks, increase their viability and lift the value of public assets at lower fiscal costs 3 AZERBAIJAN: LEVERAGING POSTAL NETWORK FOR FINANCIAL AND SOCIAL INCLUSION POSTAL OPERATIONS IN THE POST- After the breakup of the Soviet Union in 1991 Azerbaijan’s incumbent telecommunication provider was separated from SOVIET ERA the postal operator and in 1997 was renamed to Aztelekom. Azerpost Production Association became a state-owned Until the 1990s, multimodal large postal networks were and enterprise under the Ministry of Communications. By that still remain in many cases a common feature of the countries time, traditional postal services in Azerbaijan had declined of the FSU. Newspaper and mail delivery functions were severely to less than 10 percent of the peak volume, therefore often bundled with telecommunications services. Post raising fiscal subsidy amount to cover Azerpost fixed costs. offices provided limited financial and social services to By the end of the 1990s, Azerpost was barely breaking even households, such as pension payments, money transfers, and its core operation had evolved into a paper-based cash and small-deposit taking. During the past decade, many of payment network for pensions and social security transfers these postal monopolies fell apart in the absence of public of the state, utilities payments, and some money transfers. It financing and growing competitive pressures. Lucrative had neither resources to upgrade its functions, nor the legal telecommunication businesses were spun off and privatized, and regulatory framework for expansion into a broader range private mail carriers were allowed to compete with the of financial or postal services delivery. In 2007, Azerpost government-owned postal service, and quasi-monopolies in suffered another major shock from the Government’s financial and social service functions were phased out. The decision to distribute pensions through banks. Within a year, initial expectation was that in the new economy private banks Azerpost was facing a dramatic budgetary and operational and other financial institutions would bridge the financial crisis. inclusion gap, and competition would lead to better product development and broader market penetration. However, with respect to increasing financial inclusion, these hopes often proved to be overly optimistic. Although banks did in fact AZERPOST-WORLD BANK REFORM become more robust and customer-oriented, their service PROGRAM networks did not expand as widely or as rapidly as policy makers expected, leaving many MSMEs, as well as poor and To meet the government goals for improved social and rural citizens, still outside the system. Another downside was financial inclusion and to increase the quality and value of the impact of de-coupling telecommunication and financial Azerpost’s services delivery network, the authorities decided functions on the ability of postal operators to ensure business to revamp Azerpost’s operational model and expand its role continuity in the face of increased competition. With the in financial services provision. This was supported by the withdrawal of income and government support for financial need to fill financial access gaps in the backdrop of a fairly and social functions by the late 1990s, the national postal small and underdeveloped financial sector. However, this operators in the FSU faced severe crises of purpose, mandate, required a complete corporate transformation of Azerpost, and financial viability. with sound governance, internal controls, accounting and reporting systems, human resources reform, and introduction THE EXPERIENCE OF AZERPOST of new financial products. Internet access and technological upgrades of the main offices and branches was also essential. Azerbaijan’s postal operator—Azerpost—faced similar Provision of financial services also meant revamping the legal challenges. Between 1940 and 1970, the post office and regulatory framework to ensure that Azerpost is properly network in Azerbaijan had tripled to over 1,590 outlets, regulated as a financial institution, and its governance of which 1,171 were located in rural areas. At its peak, the responds to the modern practices. Finally, development of organization boasted delivery of more than 75 million letters the extensive agency relations and partnerships with other per year, nearly 100 million newspapers and magazines, financial institutions or services providers was necessary for several million parcels, and telegrams to the country’s 7.4 the new financial services delivery and reform of Azerpost million households and businesses. Intercity and trunk calls branch network. also ran through the network, and regional post offices hosted switching centers and antennae for telegraph and In support of this reform in 2007-2011, the authorities sought telephone services. Post offices also acted as agents for the help through the World Bank Financial Sector Development national state Savings Bank, collecting deposits and retail Project (FSDP1) and a grant from the Swiss Office of investments into state bonds, delivering social security International Cooperation (SECO). The program supported and pension payments, administering utility payments. Azerpost modernization with a focus on the branch network Operations reached their zenith in the 1970s, when the internet access, computerization, connection to the payments organization employed more than 6,000 citizens, but growth systems, development of management information system stagnated soon after and remained at more or less at the (MIS) and products. Further on, additional SECO grant under same level for several decades. the Financial Sector Modernization Project (FSMP) was 4 AZERBAIJAN: LEVERAGING POSTAL NETWORK FOR FINANCIAL AND SOCIAL INCLUSION provided during 2012-20162 to support continued reforms and parcel services, including e-commerce, and financial of the internal controls, accounting and reporting, staff services under numerous agency agreements with the state, training, and product development. The result of this effort service and financial companies (including banks, money is impressive. transfer operators, insurers, microfinance providers). These include transfer of remittances, foreign currency exchange, Service Expansion — prior to the program, Azerpost’s debt and cash collection, payment settlements and issue of extensive rural network was not seen as a part of the financial payment cards. Azerpost is now one of the market leaders in access infrastructure of the formal financial sector. Now remittances transfers. it accounts for roughly two-thirds of the physical access infrastructure (measured as “touch points”) for basic financial Platform Modernization — Until 2007, nearly all of the services in the country and is larger than the branch network payment services of Azerpost were paper-based and manually of any other bank. With offices in all of the regional districts processed, with high cost and operational risk. By 2012, and provincial towns, Azerpost implements a key function 1,079 post offices were equipped with modern technology for of social and financial inclusion obliged by the government. financial services delivery. Regional offices were linked to The law on postal services was revised in 2008 to streamline the internal reporting and accounting system and interfaced Azerpost’s governance and accountability, and expand its with the interbank payment system (see Figure 1.). In addition mandate. In 2010, Azerpost was transformed to the Limited to improved cash and liquidity management, Azerpost also Liability Company (LLC) and received the financial services introduced its own cash logistics operation, which was license as a non-bank financial institution supervised by the critical for cash payments and collections in remote areas financial regulator. Azerpost provides an expanded range of where automated teller machines (ATMs) and bank branches services, such as utility and other recurrent payments and are typically absent. cash delivery, postal Figure 1. Azerpost automation and connectivity: number of connected and equipped offices 1200 1,100 1000 800 600 400 200 75 0 2005 2015 Source: Azerpost internal data, Azerpost financials 1 The FSDP, approved by the World Bank Board in May 2005, included several components, such as modernization of the payments system at the Central Bank of Azerbaijan and reform of Azerpost. Of this loan, US$10.75 million was allocated to support of Azer- post’s modernization. The loan is now being repaid by Azerpost to the Ministry of Finance of Azerbaijan. 2 FSMP is still under implementation, with the closing date of June 30, 2016. The grant in the amount of US$0.55 million supports Azerpost audit and development of a corrective action plan for further reform of financial management and internal controls, man- agement and staff training, pilot rebranding. 5 AZERBAIJAN: LEVERAGING POSTAL NETWORK FOR FINANCIAL AND SOCIAL INCLUSION Financial Management and Viability — Since 2007, New Competitive, E-Commerce Profile — Despite severe Azerpost total revenues tripled, largely through the 4-times competition from at least 30 private postal operators in increase in the sale of financial services (see Figure 2). Staff Azerbaijan, Azerpost, through its technology investments, productivity has tripled (Figure 3). Net earnings have also product improvements, and enhanced staff productivity, improved and are expected to be positive in 2015—for the achieved operational excellence in its courier, express, and first time in 10 years and without a government subsidy. In parcel delivery services. This accomplishment was part of a 2010 Azerpost had its first audit report under International general movement to develop e-services as a way to support Financial Reporting Standards (IFRS), and in 2014 the auditor regional and MSME development as over 81 percent of all issued the first unqualified audit report in Azerpost’s recent e-commerce purchases in Azerbaijan are made by companies. history, confirming an improved financial position, enhanced The improved e-commerce platform now not only contributes internal processes, and strengthened financial controls. to Azerpost’s financial sustainability but also promotes its brand recognition across the country. Figure 2. Azerpost total revenue, 2005-1H2015, AZN billion 35,000 32,858 31,316 30,000 25,651 26,911 25,000 24,129 21,776 20,000 17,943 15,000 13,863 12,107 9,754 10,497 10,000 5,000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Azerpost internal data, Azerpost financials Figure 3. Azerpost Staff, Productivity Increase, 2004-2015 7000 6000 5000 4000 3000 2000 1000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 FTE (Full Time Employees) Sales per FTE in AZN per year Source: Azerpost internal data, Azerpost financials 6 AZERBAIJAN: LEVERAGING POSTAL NETWORK FOR FINANCIAL AND SOCIAL INCLUSION Enhanced Management Capacity — Between 2013 and managers and nearly all tellers and operators. This helped 2015, Azerpost significantly improved its management strengthening of customer focus, quality of service, and capabilities and services delivery through an extensive management capacity across the organization. The program training program. An internal Learning Management System supported creation of Azerpost training center, development (LMS) designed and implemented under the FSMP project of 28 learning modules and launch of a “train-the-trainers” in 2013-2015 supported training of more than 3,600 of the program. (see Box 1 for more details). 5,000 Azerpost staff, including senior and branch Box 1. BEST PRACTICES: Training Program at Azerpost and E-learning model Staff capacity at post offices has long been a challenge performing continued analysis to understand the training for financial inclusion efforts. Without skilled staff, postal needs of Azerpost staff. The ABTC also reviewed organizations and especially the tellers in post offices are Azerpost’s human resources policy and incentives to use limited in their ability to innovate, provide quality services training as an instrument to promote motivation and ensure and extend outreach to those who are excluded from the loyalty, and developed respective recommendations in formal financial system. New applications of technology this context. are bringing new opportunities for services delivery, but also require investments into professional development The initial implementation of the training project results and training. Such approaches as e-learning have the are impressive. In a relatively short period of 18 months potential to dramatically expand the accessibility of of program design and implementation more than 3,643 high-quality content at a lower cost than traditional people or more than 60 percent of Azerpost staff have training models, and thus boost much-needed capacity in been trained. Azerpost now has a long-term training the sector. model that is essential for increasing staff capacity and expanding scope of training. It has 31 in-house trainers The training project implemented by Azerpost under the on 22 topics for financial services, and 13 trainers on World Bank-SECO program has catalyzed innovative 6 topics for postal services, making in total 44 in- approaches to building Azerpost staff capacity in financial house trainers for 28 training topics. The trainers services delivery through the creation of an e-learning are involved on a project basis and provide training solution with online learning tools. Azerpost’s Learning during hours outside of their regular full-time jobs Management System has been built in partnership with within Azerpost, therefore earning training fees. This Azerbaijan Bank Training Center (ABTC). ABTC provides additional motivation for young professionals performed an in-depth gap analysis of needs and in Azerpost to enhance their knowledge and share it with requirements for Azerpost training, which confirmed other colleagues through training. Moreover, Azerpost is extensive need for training Azerpost staff at all levels. now offering e-learning on 16 topics on the basis of its The training program was designed with consideration new corporate LMS portal. of differences in service packages provided through the postal network, differences in client segments, as well as Azerpost in-house training program forms a sound financial education needs of staff in the last mile and at the foundation for expanding its staff knowledge and skills doorstep of rural communities in order to transfer financial on a sustainable and cost-efficient basis and is important literacy and promote financial inclusion. This included for enhancing quality and capacity of Azerpost’ financial basic computer literacy skills as well as soft skills. services delivery, in particular in rural Azerbaijan. The ABTC jointly with Azerpost generated high- quality, Azerpost’s training project provides interesting lessons dedicated, and specific course content and built a for other postal networks on both a national and a community of practice within Azerpost through train- regional scale. It turns out to be an effective approach to the-trainers program. The in-house Azerpost training increasing and improving capacity in delivering access to center was established with the aim of developing and financial services through the post offices. implementing internal training program as well as 7 AZERBAIJAN: LEVERAGING POSTAL NETWORK FOR FINANCIAL AND SOCIAL INCLUSION SMART LESSONS 3) Partnering Challenges Postal financial operators cannot maximize their brand value and appeal to large groups of new customers by offering only Transition from a Soviet dinosaur toward a limited menu of traditional products. A one-stop shopping a Caucasian tiger on a bumpy road; concept with a complete range of basic financial services is challenges and lessons needed to advance financial inclusion. To build, organize, and operate all these services stretched far beyond the capacity of The transformation was challenging and complex, requiring Azerpost. Therefore Azerpost sought to bring other licensed flexibility, extra time, effort, and creativity from World Bank financial institutions’ services into its platform through and Azerpost teams. agency agreements. Although a broader product portfolio fills needs and adds convenience for clients, it also poses risks. It 1) Force Legacy Issues into the Open implies Azerpost’s official endorsement of commercial, third- To provide financial services, Azerpost needed reorganization party activities and requires a high degree of cooperation from and licensing by the financial regulator. Transforming a other market players. Managing risk, selecting partners, and postal operator into a non-bank financial services provider building fair and competitive conditions based on proper cost- sounds simple, but is challenging in practice. Such transition benefit analysis and rollout plans proved to be challenging, requires not only legal corporatization reform, but the whole not least because the expectations of Azerpost and the partners redesigning of an organization internally. This included a new differed. The capacity building in management accounting, governance structure, streamlining roles of the State Property market analysis, and assessment of financial performance Agency as an owner and the Ministry of Communications as have helped Azerpost climb a steep learning curve in this the postal regulator and manager of Azerpost, and introducing respect, advancing its readiness and capability to structure to Azerpost financial regulation and supervision by the and enter into strategic partnerships. Central Bank of Azerbaijan. Building new a legal structure, enhancing transparency and accountability to the two 4) Technology and Process Re-engineering Takes Time regulators, financial and postal, building a new governance and Money model and separating the accountability of the postal services Before 2008, Azerpost’s use of technology was limited. The from other lines of business, and eliminating legacies of the program supported design and implementation of a new past (including the need to resolve hidden and off-balance systems architecture that helped to equip all post offices with sheet issues) was a complex task, that was achieved through a modern technology and solutions, and to connect them a step-by-step transition process. to the main office and other systems, including interbank payment system. A robust back office also had to be built that 2) Transparency, Governance, and Accountability interfaced with the interbank payment system. This helped Similarly to other FSU postal operators, before 2008 improve operations and productivity. Azerpost did not have a proper financial reporting system and its financial statements were non-transparent, making Initially, Azerpost’s focus was on increasing IT production it impossible to attribute losses to specific products or capacity to launch new payment services, under the operations. Therefore, the phase-out financial management assumption that new technology was mainly to be used to and accounting reform program was designed, taking into solve existing problems and attract new clients. Azerpost account Azerpost knowledge and absorption capacity. Such has since learned the limitations of this assumption. To be a a reform normally requires extensive guidance and capacity reliable financial service delivery channel in the digital age building with parallel significant technological investments. of financial technology requires partnerships with competent An application platform needs to be in place that supports both financial institutions and mobile telecommunication process automation as well as modern MIS applications that operators for the application of new technologies to expand modern companies, including financial services providers, access to and usage of the financial system. This requires normally rely on. Accounting and reporting functions needed more than the usage of modern technology for delivery of to be automated and consolidated at the level of the head financial services at the counters in post offices. Standardized office, and more advanced internal and external reporting in interconnectivity and interoperability with mobile and other line with IFRS needed be to be available for management, electronic channels for financial services is a requirement for regulators, and the public. Azerpost achieved significant omni-channeling. In parallel, development of e-commerce progress in all of these areas with new MIS, accounting and also helps to promote digital financial services, increase financial reporting systems. However further investments and postal revenues, and expand regional economic integration. actions are needed to introduce internal transfer pricing and cost and profit centers accounting. 8 AZERBAIJAN: LEVERAGING POSTAL NETWORK FOR FINANCIAL AND SOCIAL INCLUSION 5) Change Management, Human Resources, and The Way Forward Corporate Culture Across the Board In the past Azerpost as a state owned company secured jobs Despite enhanced capacity, Azerpost’s great postal network for nearly 6,000 employees, albeit with limited career and capacity remains underutilized. There is also a continued knowledge development prospects. However, the changing high demand for financial services coming from regions and competitive environment and delivery of modern financial pockets of society, especially in the changing landscape of services required reform of human capital management to the contracting and consolidating banking sector and lower increase the capacity and ability of Azerpost to survive at economic activity in response to the lower oil prices. There arm’s length from the state. Azerpost reform also confirmed is room for Azerpost to expand its services and broaden the need for a senior level transformation “champion” with the scale, scope, and number of partnerships to improve respective powers and mandate to drive the reform agenda financial services delivery, especially in rural areas. forward. Thus, the leadership of a highly motivated Minister of Telecommunications and High Technology along with the Azerpost reform could have been more impactful and appointment of an experienced, senior banker as the Deputy expedient, if it had strategic partnerships with leading Chairman of Azerpost responsible for the transformation domestic or international banks for “know how” and program was instrumental for Azerpost’s reform investments in products development at an earlier stage. implementation. Moreover, development under the World Rapid expansion of financial services also requires further Bank-SECO project of an in-house training platform open Azerpost investments into financial and risk management to all levels of staff as compared to selective external bank systems, products development and quality controls, training programs for just a few senior staff (which was the human resources management, real estate management, practice in the past) allowed to train more staff and brought a rebranding and marketing. This suggests the need for significant and refreshing mind shift within Azerpost, leading continued institutional development of Azerpost to expand to enhanced capacity, improved motivation, and a greater its corporate efficiency and enhance quality of services customer-centric focus among staff and management. delivery in line with the modern postal banking practice. Azerpost supervisors and management team are committed to pursue further reforms and requested the World Bank BENEFITS WILL TAKE TIME TO continued support to complete Azerport transformation DEVELOP along the following lines: Although the program is already considered a success, it will • Accelerate the process of Azerpost corporate take time before the impact of all of the benefits will be visible. transformation. Adopt modern corporate governance Advancing financial inclusion takes time. Even though structure and principles in line with the international Azerbaijan is now considered a high-income economy, the practices. Ensure a greater distance between the level of financial inclusion in the country remains below postal operator and the Telecommunications Ministry, the market demand and is lower than on average in other and ensure sound regulation of a postal operator as a Europe and Central Asia economies and is much lower than financial institution. Adhere to standards and codes, in other high-income economies, as indicated by the recent including financial and prudential reporting, disclosure FINDEX 2015 report. As the financial sector of Azerbaijan and consumer protection that are commonly used in the is still fairly small and highly concentrated in the capital financial sector. city of Baku, the role of Azerpost remains significant for the financial inclusion agenda, especially in the regions. • Continue building strategic partnerships. Azerpost should pursue agreements with competent and Azerpost has achieved impressive transformational results responsible domestic and/or international financial so far and can serve as a useful lesson for postal operators’ institutions that are licensed and committed to the reforms in FSU. Azerpost improved its financial viability, joint expansion of financial services delivery in rural reached positive financial result in 2015 by tripling its Azerbaijan, thus facilitating financial inclusion and revenues from the sale of financial services, and achieved accelerating Azerpost institutional reforms. remarkable progress in developing its products, branding and training program, especially if compared to the • Strengthen financial management capacity. Continue pace of postal network reforms in other countries in the Azerpost’s financial management reforms, supported region. Support under the World Bank and SECO funded by the respective investments in technologies and staff projects has been instrumental in bringing Azerpost to the training, and advance the process of integrating Azerpost new level of its technological, operational development, enterprise resource planning (ERP) and MIS software financial management, products and HR policy reforms, and platforms. Introduce rigorous profitability analysis for improving Azerpost’s financial performance. client groups, products, and channels, develop internal 9 AZERBAIJAN: LEVERAGING POSTAL NETWORK FOR FINANCIAL AND SOCIAL INCLUSION Core elements of Azerpost corporate transformation Source: World Bank staff transfer pricing, calculate the net cost of the postal strengthen change management team, adopt modern universal service obligation, and prepare respective corporate management techniques, reporting and investment decisions. accountability standards. Enforce measurable qualitative and quantitative indicators for performance • Undertake a comprehensive review of real estate assets management. Create a corporate culture that focuses management processes. Azerpost continues to hold a on customer centricity and client satisfaction in parallel large portfolio of land and buildings spread across the with marketing and product quality management country. Eliminate or reconfigure unproductive space reforms. to support better access to financial services and other forms of digital and social inclusion, while rationalizing • Advance financial and digital inclusion in rural its costs and generating additional revenues from real Azerbaijan. Particular emphasis should be placed on estate assets management. supporting the transition from cash to cashless systems and improving the cost-efficiency and reliability of • Enhance human resource reforms, and adopt payments services, as well as on improving financial performance-based management contracts with the literacy—using post offices as a public and mass focus on improving remuneration and compensation. communications channel, transparency in financial Develop career and talent management programs, services, and child finance. 10