How Are Interest Rates Set in NBFIs?

Citizens who cannot get bank loans or face long procedures often turn to non-bank financial institutions (NBFIs). While the simplified application process seems attractive, high interest rates later cause serious financial difficulties. Surveys show that citizens appreciate the accessibility but are dissatisfied with the high rates. Oxu.Az reports, citing "Xəzər" TV, that when citizens are in a dead end, especially without official employment, they are forced to accept high interest rates and take loans from these institutions. This leads to serious payment problems in the future. Respondents say that NBFIs take advantage of citizens' hopeless situation: "If you don't have a job, state banks don't give loans. The interest rates are very high. A person without a job is forced to take a loan, and later sells their property to pay the debt." Years ago, the main purpose of establishing NBFIs was to support low-income families who could not get loans without collateral, provide loans on favorable terms to start a business, and prevent widespread usury. However, over time, the activities of these organizations in the country began to deviate from their original purpose. Economist Khalid Karimli believes that the high cost of funds attracted by NBFIs and serving riskier customer groups necessitate higher interest rates: "Banks are larger structures with high turnover, so their administrative and management costs are relatively lower. NBFIs are mainly smaller structures, and their costs are relatively higher. When lending to a riskier segment, higher interest is required, and a risk premium emerges."