Approved with the decision (Minutes No 19) of the meeting dated November 25, 2009 of the Supervisory Board

of Azerbaijan Republic National Fund for Entrepreneurship Support

EVALUATION CRITERIA of investment projects submitted by entrepreneurs to receive credits on account of Azerbaijan Republic National Fund for Entrepreneurship Support
Evaluation of investment projects of the entrepreneurs by the authorized credit entities in accordance with the criteria determined by the National Fund for Entrepreneurship Support provides the effectiveness in making decisions on the financing of projects. Appropriate scoring system has been determined depending on importance level of evaluation criteria. Every criterion consists of sub-criterion and evaluation is carried out according to the sub-criterion. Actual evaluation score is determined on the criterion while multiplying the respective scores given to sub-criterion of the criteria. Specification of criteria on evaluation of an investment project No 1 2 3 4 5 6 7 8 9 10 Total Name of criterion Compliance of an investment project with the economic policy of the Government and priorities determined by the Fund (Table 1) Compliance with the minimum requirements for the preparation of investment project (Table 2) Technology to be applied for production of a product (works and services) (Table 3) Regional importance of the investment project (Table 4) Innovation, import replaceable and export orientation of envisaged product (works and services) to be produced as per investment project (Table 5) Economic efficiency indicators of an investment project (Table 6)* Impact of the product (works and services) to be produced as per investment project on strengthening of competitive environment (Table 7) Business history of the entrepreneur (initiator) (Table 8) Impact of the investment project on social, cultural and ecological environment (Table 9) Establishment of new employment places on the investment project (Table 10) Max score Actual score

*Maximum score is added on the total price score while assessing the investment projects on small credits

Total evaluation score of the investment project ____________________________ Minimum passing score on the evaluation of investment project is 60 (sixty).

1.

Compliance of an investment project with the economic policy of the Government and priorities determined by the Fund

Privileges must be granted for financing the implementation of arrangements emerging from the decrees and resolutions of the President of Azerbaijan Republic and State Programs, including the projects meeting the priority tendencies on specified economic fields and economic rayons to implement the State economic policy and effective placement of Fund proceeds. (Table 1) Evaluation on 20 score scale

1 Compliance with the decrees and resolutions of the President of Azerbaijan Republic and State Programs

2 Compliance with priority tendencies on the fields of economy

Sub-criteria 3 Compliance with priority tendencies on economic rayons

4 Role of the investment project in implementation of State economic policy and in achieving regional balance

5 Compliance of the investment project with traditional specialization habits

Total Score

Note: Maximum score for each sub-criterion is determined with the proportion of the score accepted on evaluation score scale to the number of sub-criteria (20:5=4). Sub-criteria evaluation indicators Fully unsatisfactory 0 score Unsatisfactory 1 score Partially satisfactory 2 scores Satisfactory 3 scores Fully satisfactory 4 scores 2. Compliance with the minimum requirements for the preparation of investment project

Minimum requirements put for the preparation of investment projects determines the complexity of the works considered by the entrepreneurs in the project. Defining weaknesses and strengths in the process of implementation of investment project meeting the minimum requirements, provides proper evaluation of the results of an investment project. (Table 2) Evaluation on 15 score scale

Sub-criteria 1 Comprehensiveness of the data of an investment project 2 Compliance of the data on sections of an investment project 3 Trustworthiness of financial calculations 4 Completeness of attachments on investment project 5 True and accurate preparation of an investment project

Total Score

Note: Maximum score for each sub-criterion is determined with the proportion of the score accepted on evaluation score scale to the number of sub-criteria (15:5=3). Sub-criteria evaluation indicators Unsatisfactory 0 score Partially satisfactory 1 scores Satisfactory 2 scores Fully satisfactory 3 scores

3.

Technology to be applied for production of a product (works and services)

Provision of population with high quality products, specialization of the entrepreneurs on the export oriented and import replaceable products, production of competitive products, provision of productivity and higher profitability, improvement of working condition of the employees and implementation of such similar arrangements consist of application of modern technology in the production process on the investment projects. The above noted guarantee the quality and competition priorities in the production in line with increasing the effectiveness of investment project implementation. (Table 3) Evaluation on 15 score scale

1 Application of higher technology

2 Effect on production

Sub-criteria 3 Effect on provision of productivity and high profitability

4 Effect on competitive production

5 Privilege of similar technologies

Total Score

Note: Maximum score for each sub-criterion is determined with the proportion of the score accepted on evaluation score scale to the number of sub-criteria (15:5=3). Sub-criteria evaluation indicators Unsatisfactory 0 score Partially satisfactory 1 score Satisfactory 2 scores Fully satisfactory 3 scores 4. Regional importance of investment project

Purposed direction of the investment to the regions plays a unique role in their social-economic development. Meanwhile, effective management of investment is considered as principal factors for the economic development of any region. Selection of investment projects considered as a priority for the region is carried out taking into consideration primarily the compliance of the project with the economic specialities of the region, effective use opportunities of the current potentials, achievement of regional balance through remedial of sharp difference in social-economic development of regions, provision of employment, bringing of latest technologies on the modern production and other such factors. (Table 4) Evaluation on 15 score scale

1 Use of natural resources of the region

2 Effect on the employment problems of the region

Sub-criteria 3 Importance of the investment project for local budget

4 Effect on solution of social-cultural problems of the region

5 Role in establishment of infrastructure for the regional development

Total Score

Note: Maximum score for each sub-criterion is determined with the proportion of the score accepted on evaluation score scale to the number of sub-criteria (15:5=3). Sub-criteria evaluation indicators Unsatisfactory 0 score Partially satisfactory 1 score Satisfactory 2 scores Fully satisfactory 3 scores

5. Innovation, import replaceable and export orientation of envisaged product (works and services) to be produced as per investment project Encouragement of the entrepreneurs for implementation of investment projects for production of innovation, import replaceable and export oriented products (works and services) will primarily contribute to rapid social-economic development of the country. Support on the investment projects in such direction positively impacts the fulfillment of arrangements on motivation of export and improvement of import structure of the country. (Table 5) Evaluation on 10 score scale Total Score

1 Innovation

2 Import replaceable

Sub-criteria 3 Export capable

4 Competitive

5 Development of ancient folk art

Note: Maximum score for each sub-criterion is determined with the proportion of the score accepted on evaluation score scale to the number of sub-criteria (10:5=2). Sub-criteria evaluation indicators Unsatisfactory 0 score Partially satisfactory 1 score Satisfactory 2 scores 6. Economic efficiency indicators of the project*

Calculation of main economic efficiency indicators of the investment project demonstrate the economic effectiveness of the project and contributes to making purposed decisions on financing and selection of alternative projects. (Table 6) Evaluation on 5 score scale Total Score

1 Efficiency of investment

Sub-criteria 2 3 Trustworthy of Investment calculations on recovery efficiency indicators ability

4 Investment profitability

5 Risk assessment

Note: Maximum score for each sub-criterion is determined with the proportion of the score accepted on evaluation score scale to the number of sub-criteria (5:5=1). Sub-criteria evaluation indicators Unsatisfactory 0 score Satisfactory 1 scores *Not required for small credits 7. Impact of the product (works and services) to be produced as per investment project on strengthening of competitive environment

One of the main requirements of the economic system possessing the market relations is the provision of production in a healthy competitive environment. Establishment of competitive environment by the manufactured products positively effects the formation of quality priorities of products and fully satisfaction of consumer demands.

1 Market position

2 Price policy

Sub-criteria 3 Quality privileges over similar products (works and services)

4 Demand satisfaction level

5 Role in formation of healthy competition

(Table 7) Evaluation on 5 score scale Total Score

Note: Maximum score for each sub-criterion is determined with the proportion of the score accepted on evaluation score scale to the number of sub-criteria (5:5=1). Sub-criteria evaluation indicators Unsatisfactory 0 score Satisfactory 1 scores 8. Business history of the entrepreneur (initiator)

Transparent and progressive business history of any entrepreneur (initiator) assures the investors in making a proper decision in financing of his investment project. Besides, the experience of the entrepreneur gained on such a field helps to assess the risks related to financing. (Table 8) Evaluation on 5 score scale Total Score

1 Attachment to historical work (production) habits

2 Professionalism level on relevant field

Sub-criteria 3 Experience on a relevant field

4 Management skills

5 Reliability

Note: Maximum score for each sub-criterion is determined with the proportion of the score accepted on evaluation score scale to the number of sub-criteria (5:5=1). Sub-criteria evaluation indicators Unsatisfactory 0 score Satisfactory 1 scores 9. Impact of the investment project on social, cultural and ecological environment

In line with social-economic priorities achieved in implementation of the investment project, it may have negative or positive impacts on social, cultural and ecological environment. This process may initially result in environmental pollution, danger to life and health of the employees and disruption of cultural-business relations during a certain production activity. Therefore, the above factors are taken into consideration in selection and evaluation stages of investment projects. Meanwhile, the investment projects positively affecting production of environmentally clean products and improvement of the environment are given advantages. (Table 9) Evaluation on 5 score scale

1 Environmental impact of the investment project

2 Environmental protection arrangements

Sub-criteria 3 Existence of communication systems in an investment project

4 Impact of investment project on social-cultural improvement

5 Technical safety arrangements

Total Score

Note: Maximum score for each sub-criterion is determined with the proportion of the score accepted on evaluation score scale to the number of sub-criteria (5:5=1). Sub-criteria evaluation indicators Unsatisfactory 0 score Satisfactory 1 scores

10. Establishment of new employment places on the investment project Considering the fact, that poverty reduction and new employment are one of the main tendencies of the Economic policy of the Government, establishment of new employment places on account of lax credits of the government are considered as main priorities. Therefore, establishment of new employments in the investment projects financed from the lax credits of the National Fund for Entrepreneurship Support are among the objectives. New employments are established based on the trend and volume of activity, production (works and services) characteristics of the entrepreneur and credit amount required for the investment project. (Table 10) Evaluation on 5 score scale

1 Local labour force use level

2 Involvement of higher educated specialists on the investment project

Sub-criteria 3 Establishment of stable working places on an investment project

4 Involvement of young specialists on an investment project

5 Professional development of the employees

Total Score

Note: Maximum score for each sub-criterion is determined with the proportion of the score accepted on evaluation score scale to the number of sub-criteria (5:5=1). Sub-criteria evaluation indicators Unsatisfactory 0 score Satisfactory 1 scores

These criteria are effective from the date of their publication