By Atom MarkarianThe U.S. Agency for International Development (USAID) has extended $4.5 million worth of guarantees for fresh loans that will be provided to small businesses by three Armenian banks, it was announced on Tuesday.
“This is the first time that the USAID has signed such a loan guarantee program in the Caucasus,” Keith Simmons, head of the government agency’s Yerevan office, said.
The Converse, Ineco and Anelik banks were each given $1.5 million in USAID guarantees for promoting development of small businesses which have long complained that obtaining credit is too difficult in Armenia.
Commercial banks, for their part, complain about a lack of credible business plans submitted by their prospective clients. They require collaterals for virtually every business loan. Many local companies have trouble finding one, though.
Ineco’s chairman, Avetis Baloyan, said his bank will be able to lend to those small businesses that were deemed “risky” until now. “The USAID will compensate us if they fail to repay a loan,” he said.
All of the three banks will be free to set interest rates for the funds to be made available under the scheme. The market-based rates currently hover between 18 percent and 24 percent per annum. Many businesses complain that they are disproportionately high given the low inflation rate in Armenia that was below 3 percent last year.
“This program was not designed for lowering the interest rates,” Baloyan said. “It will simply facilitate borrowing by those businesses that have no decent collaterals.”
The USAID is not the first Western lending agency to support a small-business lending program in Armenia. The World Bank and the German government have already sponsored similar schemes by actually contributing millions of dollars in credit resources.