EFSE TO EXTEND MICROCREDIT TO ARMENIAN SMALL BUSINESSES
Lilit Gevorgyan
World Markets Research Centre
Global Insight
February 11, 2010
On 9 February the representative of the German KfW Bank in Armenia,
Karapet Gevorkian, stated that Armenia will join the European Fund
for Southeast Europe (EFSE). The preliminary decision was taken
during Central Bank governor Arthur Javadian’s December 2009 visit to
Germany, where KfW, the initiator and promoter of EFSE, is based. The
EFSE public-private partnership intends to include Armenia as well
as Azerbaijan, Georgia and Belarus, all members of the European
Neighbourhood Programme sponsored by the European Union (EU). The
Fund, according to Gevorkian, will provide much-needed microcredit to
Armenian micro, small and medium businesses. Over the next five years
an estimated 300 million euro (US$413 million) will be allocated to
the new member countries in the shape of some 70,000 micro loans. The
EFSE is the largest microfinance investment fund in the world, with
a 700-million-euro portfolio, and it currently operates in Bosnia and
Herzegovina, Romania, Serbia, Kosovo, Montenegro, Moldova, the Former
Yugoslav Republic (FYR) Macedonia, Albania, Bulgaria, and in Ukraine.
Significance:Armenian small and medium business desperately needs
credit, which has become very scarce in the wake of the global
economic crisis. The Armenian economy has seen a dramatic 18% drop
in its GDP, one of the worst among the former Soviet republics, and
small and medium businesses have suffered most from the crisis. The
EFSE membership is good news for many small business owners as well
as low income households; however it will take some time for judging
the outcome of the microcredit lending. A lot depends how the national
credit lenders will carry out their task; if it would be without undue
delays and based on proper creditworthiness assessment. Furthermore
the repayment of the loans will be another factor determining the
success of the EFSE plans. The Armenian government has a major role to
play–if it fails to change the oligarchic structure of the economy,
and root out the corruption that is widespread amongst tax and customs
agencies, small and medium businesses may find it difficult to make
good use of the EFSE extended credit and repay it.