Armenia: Healthy Businesses for a Healthy Armenian Economy

Printing has a long tradition in Yerevan, one the Samark Company has been proud to keep alive, printing books, newspapers and magazines with forty employees. But maintaining an edge in a competitive market is tough, and Samark needed to find another market niche.

So Samark took the plunge and borrowed US$92,000 in the midst of a global financial crisis to buy equipment to print cardboard boxes and containers.

Small and medium enterprises (SMEs) like Samark are key producers, employers and taxpayers in Armenia's economy. They do business where big businesses often can't or won't. SMEs provide 43% of the country's gross domestic product 42% of jobs, and 60% of social payments to the state budget. Their sustainability is critical for the health of Armenia's economy.

But the economic downturn exposed these businesses' financial vulnerabilities. Many found themselves in serious need of cash to sustain production or to expand. Money was in short supply and commercial banks became much more cautious. To help close the financing gap and keep businesses afloat and able to expand, the Armenian government launched the Access to Finance for Small and Medium Enterprises (AFSME) project in 2009 with US$50 million in World Bank support.

Under the project, loans ranged from short to long term, and from US$2,500 to 300,000. Interest and repayment terms were better than what banks were otherwise able to offer. From 2009 to 2012, more than 7,500 SMEs took out credit lines from 15 commercial banks and credit organizations.

Loans allowed companies like Samark to survive. They allowed others like the fish farm Arkadi Grigoryan started in 2009 to expand in the midst of the crisis. Grigoryan, who employs seven people in the Armavir region, boosted daily production from 300 kg to over a ton.

Under the AFSME program, credit was lent in Armenian drams. This staved off the risk of foreign currency exchange rate fluctuations. And lending was not limited to Yerevan and surroundings; it spanned the whole country and targeted agricultural activities in rural areas as a priority sector of the country's economy. Two thirds of lending was extended in regions outside Yerevan, while 17% was invested in agricultural enterprises, like cheese producer Borisovka, in Svunik region. A loan helped the company increase to five the kinds of cheeses it produces. The amount of milk processed has risen from 40 liters a day in 2006 to 4,000. Borisovka expanded because its loan was tailor made.

"We take credit in summer and repay it in winter. This is how we manage the seasonality of the business. It allows us to use more milk when it is available and to work with more farmers. We could not have had reserve stocks of cheese without this credit", says Myasnik Grigoryan, Borisovka's manager.

The interest paid by SMEs like Borisovka is creating a revolving fund for lines of credit to other businesses that need it. Given that small and medium enterprises are one of the key pillars of the Armenian economy, they will continue to boost the economy. And to insure their sustainability and growth SMEs should continue to be a focal point of government and donor programs.