Procedures by international credit programs

Today in Armenia there are several credit programs that perform crediting for certain target groups. Those programs mainly create crediting options for Small and Medium Enterprises.

Among the credit programs operating in Armenia are:

KfW, that was created in the scope of financial cooperation between Germany and the Republic of Armenia, and the Credit Project of EBRD (European Bank for Reconstruction and Development).

The above projects grant express, micro and small loans that are intended for the use of legal entities, sole entrepreneurs, as well as some physical entities (those that perform entrepreneurial activities) operating in the trade, service and production spheres.

Applicants operating in the agricultural and production spheres pay low interest rates, service providing entities pay medium interest rates, and the trade companies pay high interest rates.

The following are obligatory requirements for the borrowers:

• They need to have an operating business at the time of application,
• If they own a trade company it should be operational for more than three-months,
• The company should belong to and be operated by a resident of the Republic of Armenia (if the company partially belongs to a non-resident of the Republic of Armenia, his/her share should not exceed 49% or the non-resident should have lived at least 10 years in the Republic of Armenia),
• The state ownership in the company should not exceed 49% or the state should not be directly involved in the daily management of the company,
• The newly established company should possess at least 30% of the sum of the credit provided.

In the framework of the credit projects of the United States Development Agency (USDA) the bank offers loans in USD.

Among recipients of credits offered by USDA are RA resident physical and legal entities that perform reprocessing of agricultural products on the basis of local source of raw materials or perform such production or service provision that enhances the realization of local raw materials.

The bank also offers business loans from its private sources.

As a rule, there are some entities that are not financed. Among them are companies that perform production of cigarettes, alcoholic beverages, weapons, casinos, luxury items, leather and fur items, as well as companies that pollute the surroundings.

The fact that the credit applicant has presented a clear-cut plan of operations of the company and the purpose of the credit is highly valued by the bank or the financial institution. Other financial institutions may also require the business plan of the company. Entrepreneurs that intend to enlarge the scope of their business are well aware of the possibilities, priorities and deficiencies of their company. That is why it is highly expedient that the business plan of the company be composed by the business owner himself. But before one can commence writing a business plan he/she needs to know what a business plan is, what answers it should give, what criteria it should meet, what problems it should solve, as well as how it is formulated and designed.

The business plan serves the following purposes:

• Procurement of financial means,
• Creation of guidelines to facilitate the problem solving processes,
• Establishment of an expedient plan of financial resource utilization,
• Evaluation, analysis and re-planning of the current company operations,
• Monitoring of income and expenses,
• Presenting the company overall activities, employee responsibilities to the new staff.

The Credit Project of the Eurasia Foundation,

Like in many developing countries in Armenia as well the SME sector does not have the opportunity to get formal crediting. This fact significantly limits the development of the sector and the flow of financial means to the SME sector which hinders the overall economic development of the country and the creation of new work places. The purpose of this credit project is to duly estimate the credit risks of the SMEs and make them acceptable for the Armenian Banks. In addition, the project also intends to secure crediting technologies and to dispose financial resources to the bank taking into account the credit repayment and currency risk regulation principles.

The above mentioned credit programs are aimed at enhancing the medium class of enterprises, create new work places, reduce poverty and unemployment.

If you are interested in getting more information about the above credit projects, you can visit the following sites:

KfW
EBRD
Eurasia Foundation
USDA