Interview of Executive Director of “SME Investments” UCO Artur Badalyan to Mediamax Agency and Banks.am portal

-  “SME Investments” was established with the purpose of funding small and medium enterprises in Armenia. The main part of the funding was planned to be realized at the expense of means from the Russian stabilization loan, which the government decided to direct to SME crediting. What was the capital the company was founded with and what results did it achieve in the first months of work?

- “SME Investments” UCO was founded by the decision of the operative staff under the government, and the decision was conditioned by the increase of the flow of business programs to the staff. Those business programs aimed at receiving funding. The decision was also conditioned by the need of professional analysis of the most promising ones out of those programs. The credit organization obtained a license from the Central Bank of Armenia on August 7, 2009. The only founder of the organization is Small and Medium Entrepreneurship National Development Center (SMENDC). 

Within the framework of crisis preventive measures, the operative staff is discussing issues of assisting small and medium business. The business plans, approved by the staff, are sent to the UCO, after which the latter makes a professional decision concerning their funding.

Now, the credit organization applies two funding tools: crediting, which is realized at the expense of means from the Russian stabilization loan, and capital funding, which the credit organization realizes at the expense of its own means. By the way, the own capital of the organization makes 1bln 150mln AMD, and 6.4bln AMD was allocated for the organization from the Russian stabilization loan.

In conditions of financial-economic crisis, commercial banks and credit organizations of Armenia took up more conservative stances as to economy funding, while “SME Investments” UCO expressed readiness to fund relatively risky business programs, of course, within a reasonable limit of risk.

Credits, provided by the organization, are relatively long-term ones (up to 5 years), and the rates are attractive. The latter fluctuate within the range of 10-18% annually, depending on the peculiarities of the business being credited. Besides, our organization credits exclusively in AMD, and the borrowers may use privileges within the first 1-2 months, in particular, they may not pay for the initial sum of the credit in the above-mentioned period.

As of today, the company has taken credit liabilities at the total sum of 1.5bln AMD upon it. We provide a part of credits stage-by-stage, and today the total sum of means, allocated to borrowers, makes about 750mln AMD. The company has funded 5 relatively large business programs and there are 15 more programs at various stages of discussion.

- SMENDC fulfilled the function of company capital funding previously. What progress has “SME Investments” made in this issue?

- At present, we discuss 3-4 such realistic programs. A part of companies, which have turned to us to receive funding this way, renounced the idea of capital funding, understanding the laboriousness, the duration and, in individual cases, the complexity of steps, necessary to receive funding this way. Companies, which want to receive funding of their own capital from us, should undergo due diligence, carry out business evaluation, implement principles of corporate management. Besides, according to our requirements, the company should be reorganized into a closed joint stock company, and our participation in the company’s capital should be temporary and should not exceed 49%.

All this is a laborious and long process, and companies usually avoid it, preferring to receive funding through crediting.

- Nevertheless, there are successful examples of capital funding in SMENDC practice.

- SMENDC has also gone the above-mentioned path of capital funding and has successfully financed the capitals of a number of newly-founded enterprises and companies, which were at the stage of formation. Of course, the capital funding process of companies, which are at the given stage, proceeds relatively smoothly.

At present, companies, which expect capital funding from “SME Investments” UCO, have basically solved technical issues, hindering receiving funding this way, and, most likely, will receive it. All these companies are medium enterprises.

- What are the requirements that companies should meet in order to receive a credit from “SME Investments”?

-Our mission is to assist domestic production and export, as well as stimulate creation of new workplaces.

We have funded enterprises, involved in spheres of foodstuffs industry, machine engineering, production of electrical appliances, stone dressing and pharmaceutics, a part of production of which is exported.

Among companies, which have received our funding, is the leader of Armenia’s pharmaceutics sphere – “Liqvor” company, which needed a credit for constructing the new production building, meeting GMP standards, and expanding production volumes and assortment.

- Why is it more preferable for the leader of the pharmaceutical sector of Armenian economy to cooperate with “SME Investments” UCO than with any of the commercial banks?

- This is because our credit interest rates are lower, the credits are provided for longer terms, are issued in AMD, and we have established a period of grace for repaying the credit. The last condition is especially important for “Liqvor”, since this company directs the credit resources and the operating income to construction and preparatory works on expanding production.

- Can beginner companies receive funding from “SME Investments”?

- Cooperation with the newly-established company usually possesses great risk and this is why beginner businesses are a limited funding direction for us. However, if a company intends to develop strategic direction for Armenia and meets our mission and standards, it can also receive our assistance.

At that, one should understand that we function in the same legislative and regulative field with other financial organizations. Consequently, there are limits of risk, to ignore which will be dangerous.

- Many economists, while speaking about stimulation of small and medium entrepreneurship by the government, note that although the government has attracted a large volume of financial means for developing SME, their consumption remains at a low level because of lack of good business projects. Does “SME Investments” face this problem?

- Yes it does, especially at the initial stage of the UCO’s activity we often received unrealistic business plans, which had nothing in common with the factual state of the entity, presenting them.

Now, the idea that a credit is not a gift, but assistance, which should be properly compensated, already matures in the society. 

- What plans does your organization have for the year of 2010?

-In 2010, we plan to increase our credit and investment portfolios and replenish the staff of the organization with qualified specialists. By the end of the next year, we intend to make our credit and investment portfolios reach the level of 4.5bln and 1bln AMD respectively.