|Project Rationale and Linkage to Country/Regional Strategy
Women in Armenia are not reaching their economic potential. While women's educational achievements in Armenia are on a par with those of men, women's ownership of enterprises (31%) and share of management positions (13.5%) are below regional averages. Women's formal labor force participation rate is declining (from 65% in 2001 to 54% in 2012). In addition to public sector jobs, self-employment is a core occupation for women. Most women engage in small subsistence-based business activities in trade and retail services. While women are increasingly engaged in growth sectors including agro processing and tourism, their participation in these sectors remains small. Mutually reinforcing social, market, and institutional constraints limit women's access to economic opportunities and productive resources, and to the development of entrepreneurial attitudes. Small business is a crucial option for women to gain a livelihood. Yet women often lack the business skills, knowledge, confidence, and access to networks to increase their entrepreneurial capacity, and have less access to credit and other financial services than men.
Access to affordable finance and financial services remains an obstacle for many enterprises in Armenia. Historically, banks have been disinclined to lend to non-top-tier enterprises, citing inadequate collateral, poor business plans, and lack of transparency. Financial institutions (i) have limited experience in providing financial products and services to women entrepreneurs and MSMEs; and (ii) because of the nascent local capital market, face difficulties in structuring such products in ways which can help protect customers against currency, interest rate, and tenor mismatch risks.
MSME financing remains inadequate. In 2011, there were about 150,000 registered MSMEs in Armenia, of which about 60.0%, or 90,000, were active. Women's MSMEs represented about 11.0%, or 9,900, of active MSMEs. In 2010, about 13,600 new MSMEs were registered, of which about 3.0%, or 400, were registered by women. The total MSME sector accounted for 98.5% of all registered enterprises and contributed 43.0% of GDP and 42.5% of employment, representing a doubling of the MSME contribution to the economy since 1999. The MSME share of Armenia's export volume was 18.0% in 2011, an increase from 14.3% in 2003, and about 33.0% of banks total lending portfolio went to MSMEs.
Facilitating women's entrepreneurship can contribute to economic growth. Enhancing business skills, financial literacy, and confidence in their entrepreneurial abilities will enable women to build productive businesses in profitable sectors, operate to scale, access finance, and benefit from economic opportunities. Providing financial support in the form of start-up support, loan guarantees, and local currency loans is essential for women to invest in new technology, equipment, and other fixed assets needed to increase their productivity and competitiveness. Supporting PFIs through the local-currency-denominated FIL can help make the finance sector more broadly based, competitive, and efficient. It will allow PFIs to provide local currency loans to MSMEs; contribute to the government's de-dollarization efforts; as well as mitigate currency, interest rate, and tenor mismatch risks. By focusing on MSMEs, and women entrepreneurs in particular, the loan will help spread financial intermediation to outlying areas by developing financial services.
MSME development has been recognized as one of the key development priorities for the government. It has set out its commitment to development of women entrepreneurs and MSMEs through the Concept for SME Development Policy and Strategy in Armenia, and the Law on State Support to Small and Medium Enterprises, both adopted in 2000. Annual programs for state support of MSMEs have been implemented since 2001. In 2012, a national strategy for small and medium entrepreneurship development was drafted, which specifically promotes entrepreneurship among women and is in line with the government's On the Approval of the Gender Policy Concept Paper, the Gender Policy Strategic Action Plan, and the Gender Policy Action Plan for 2012. In 2002, the SME DNC was established by the government to implement the annual SME state support programs (footnote 2). The Law On State Support to Small and Medium Enterprises requires funding for implementation of the annual program to be allocated in the state budget. However, while the budget allocated to the Ministry of Economy (MOE) increased 8.1% from 2009 to 2012, the budget allocation to the SME DNC was reduced by nearly 74%, from AMD573 million ($1.35 million) in 2009 to AMD150 million ($0.4 million) in 2012. The MOE has requested Asian Development Bank (ADB) support to (i) develop women's entrepreneurship and MSMEs through improved access to business knowledge, training, information, and finance; (ii) help the establishment of start-up enterprises; (iii) promote entrepreneurs and MSMEs in remote and rural areas; and (iv) improve the business environment for MSMEs.
The program is consistent with ADB's country operations business plan, 2012-2013 for Armenia, which aims to increase the role of women entrepreneurs and SMEs. In developing the program, consultations were held with the government, donors, potential PFIs, women's associations, women business leaders, and academe. The program will complement ADB's $65 million Small and Medium-Sized Enterprise Finance Program approved in 2011 to promote broad-based growth, but differs by (i) offering an integrated approach to support women entrepreneurs; (ii) using Asian Development Fund resources through a sovereign operation, allowing longer and more favorable terms for lending to MSMEs; and (iii) mitigating currency, interest rate, and tenor mismatch risks.