The Supreme Court of Azerbaijan has issued a formal warning regarding the risks associated with lending money with interest, commonly known as usury. While private lending is not inherently prohibited, authorities are tightening oversight on systematic, profit-driven lending activities that operate outside the legal framework for financial institutions.
This information was provided to the Operative Information Center-OMM by the Supreme Court.
The Court clarified that under Article 740.1 of the Civil Code of Azerbaijan, individuals are permitted to lend money with interest, provided the terms are clearly defined in a contract. However, there is a critical legal distinction between occasional private lending and the systematic, professional provision of loans to multiple individuals for profit.
Legal Risks and Consequences
The Supreme Court emphasized that engaging in systematic lending without the appropriate legal status—such as that required for credit institutions—can be classified as illegal entrepreneurship. This activity may lead to significant legal repercussions, including criminal liability.
Furthermore, the Court warned that individuals who attempt to collect debts through legal channels may inadvertently trigger an investigation into their own lending practices. If a court determines that the lending activity was illegal, the creditor may lose the right to claim the agreed-upon interest, potentially being limited only to the repayment of the principal amount plus a statutory 5% annual interest on delayed payments.
To mitigate these risks, the Supreme Court advises that all lending agreements must be formalized in writing, clearly stating the principal amount, interest rates, and repayment schedules. Documentation, such as bank transfers, is strongly recommended over cash transactions to ensure transparency and legal protection during potential disputes.
