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Nazrin Abdul

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Citizen welfare remains the central focus of the state’s socio-economic policy. As developing countries face increasing global competitiveness, the standard of living of their citizens is inevitably affected. Among the most competitive sectors within these economies is the real estate market. In Azerbaijan, a significant trend observed across developing nations—the migration from rural regions to urban centers—poses a major challenge for the capital, Baku.

Additional factors, including business development and investment attraction, further contribute to the rise in land and housing prices in the city. This situation raises a critical question: how can young families, particularly those not employed in high-paying sectors, secure adequate housing? It is precisely in this context that the socio-economic reforms implemented by the state play a pivotal role, aiming to ensure accessible and sustainable housing opportunities for all citizens.

In response, the government has implemented targeted socio-economic reforms, with citizen welfare at the forefront of its agenda. Among these initiatives, the Mortgage and Credit Guarantee Fund (MCGF) plays a central role, providing subsidized mortgages and supporting small and medium-sized enterprises (SMEs) to foster broader economic development.

In this context, Fitch Ratings recently affirmed MCGF’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at ‘BBB-’ with a stable outlook, reflecting the Fund’s strong operational and financial links to the Azerbaijani state and its critical role in the country’s housing policy. Fitch’s assessment underscores MCGF’s dual function as both a financial institution and a socio-economic instrument, bridging the gap between affordable housing provision and sustainable economic growth.

Fitch classifies MCGF as a government-related entity (GRE), noting that its rating is effectively equalized with the sovereign due to its deep integration with state policy and reliance on government funding. The agency assigns a “virtually certain” support score of 50 out of 60, reflecting the combination of responsibility-to-support and incentive-to-support factors that secure the Fund’s financial stability.

Decision-making and oversight are tightly controlled by the state. MCGF is a non-commercial entity whose liquidation or reorganisation requires a presidential decree. Its board of trustees, appointed by the president and composed of representatives from the presidential administration, key ministries, and the central bank, approves borrowing limits, strategic goals, budgets, and investment programs.

Financial backing from the state further reinforces the Fund’s credit profile. MCGF receives annual capital injections, totalling 172.7 million manats for 2024–2025, used primarily to finance social mortgages. Additionally, the central bank provides a buyback guarantee for the Fund’s bonds, currently holding about 80% of its outstanding debt. The Fund benefits from exemptions from income tax and enhanced market attractiveness due to preferential bond classifications. Fitch expects such regulatory and political support to remain robust at least through the medium term, with an additional 100 million manats earmarked for social mortgage and SME financing in 2026.

MCGF’s mission is strategically significant: it is the only entity responsible for subsidized housing loans in Azerbaijan, managing around 80% of the country’s mortgage portfolio. Its operations directly enable affordable access to housing for vulnerable populations while also supporting broader economic objectives by facilitating financing for non-oil sector SMEs. Fitch notes that any default by MCGF would materially disrupt national housing policy and undermine public confidence in the financial system, highlighting the Fund’s critical policy role.

Despite its non-commercial mandate, MCGF demonstrates financial resilience. In 2024, the Fund posted a profit of 23.2 million manats, consistent with the previous year. Gradual expansion of the loan portfolio increased net interest income, while higher personnel costs offset some gains. Asset quality remains strong, with impaired loans representing less than 0.1% of the mortgage and rent-to-own portfolio. These metrics underline the Fund’s capacity to sustain its operations while fulfilling its social mandate.

Fitch draws parallels between MCGF and other government-backed housing entities globally, including Kazakhstan Housing Company, India’s Housing and Urban Development Corporation Limited, and France’s Action Logement Services. All these institutions exhibit high GRE support scores, reflecting their strong government ties and critical policy functions. This comparison emphasizes the increasing importance of state-backed housing institutions in emerging markets as instruments for social welfare and economic stability.

The Fitch rating reaffirms MCGF’s stability and strategic importance, signaling sustained government commitment to affordable housing. For young families and SMEs, the Fund provides a reliable mechanism for accessing long-term, low-cost financing. At a broader level, MCGF contributes to economic diversification by channeling funds to the non-oil sector, supporting government efforts to create a resilient and inclusive economy.

In conclusion, MCGF exemplifies how a government-backed institution can successfully combine financial stability with socio-economic impact. Fitch’s affirmation highlights the Fund’s strong government support, robust financial profile, and critical role in advancing Azerbaijan’s housing policy—offering a model for other emerging economies facing similar urbanization and affordability challenges.