YEREVAN, ARMENIA – The Asian Development Bank (ADB) has approved loans of up to $65 million to help Armenia expand its small and medium-sized business sector which is crucial for driving inclusive growth, increasing employment, and reducing poverty.
The five-year loans will be made to four Armenian banks for onlending to small- and medium-sized enterprises (SMEs) which make up almost 98% of all businesses and provide more than 40% of the country’s gross domestic product and employment.
The four banks earmarked to receive loans―ACBA Credit Agricole Bank, Ardshininvestbank, Ameriabank, and Inecobank―all have strong financial credentials and are committed to expanding their lending to SMEs.
“This is the first ADB initiative to promote SMEs in Armenia, and its largest initiative to-date in support of Armenia’s financial sector. The program will provide the four banks with vital medium-term funds needed to reach more SMEs,” said David Dole, Resident Representative in Armenia. “Helping smaller firms to grow will create jobs and boost incomes as well as help Armenia diversify its economy.”
Bank finance is available to SMEs in Armenia but not enough to meet firms’ needs. Funding to smaller businesses has been constrained by a slowdown in remittances in the wake of the 2009 economic crisis and an historical reluctance by banks to lend to smaller companies. At the same time, banks face difficulties in sourcing medium-term finance to offer longer-term loans to SMEs needed for capital investment to boost productivity.
The loan program has a number of innovative features, including requiring a minimum amount of loans to be provided to businesses outside the capital, Yerevan. Poverty rates are higher and access to finance more limited outside of the capital city. Banks in the program have also voluntarily agreed to provide data on the gender attributes of SME borrowers to get a clearer picture of lending practices to SMEs owned or managed by women, with a view to improving gender equity.
At the same time, ADB will provide expertise to help the banks improve their capacity for expanding services to SMEs in a prudent and sustainable manner.
The Armenian government has been working to develop the SME sector for more than a decade and is now working on a SME national strategy that will shape the way forward for the sector’s development. The leadership from government will help build stronger SMEs, and will complement private sector initiatives like ADB’s program by giving banks better lending opportunities in the SME sector.