Interview of the newly elected Chairman the Association of Credit Organizations of Armenia (ACOA), Director of “Nor Horizon” UCO Khoren Kerobyan to Mediamax Agency and Banks.am portal

- What was the necessity to create ACOA given existence of the Union of Armenian Banks conditioned by?

- In 2007, at the initial stage of ACOA formation, we received an invitation from the Union of Armenian Banks (UAB) to enter the already existing organization and defend the interests of credit organizations within the framework of UAB. However, during further discussions, we came to a conclusion that the role of credit organizations in UAB would be somewhat secondary. Besides, there was that conflict of interests, since we are competing organizations in the market of crediting. We came to conclusion that credit organizations would be “lost” within UAB, at least because the very name of UAB lacked a mention on credit organizations.

As a result, a decision was made to create an independent structure and UAB was offered to conclude a cooperation agreement with us. We hope that our cooperation with UAB will be productive and we will manage to agree upon a single stance as to a number of issues.

- However, only 6 from among 28 credit organizations, which function, have registered membership in ACOA.

- According to our assessments, there are 4 more credit organizations today, which are really interested in entering ACOA. I believe that credit organizations should be interested in ACOA membership. Today there are quite a few credit organizations functioning in the market, founded by individuals and ones working in autonomous order: the range of their main tasks includes solution of their own financial and economic issues. Roughly speaking, such companies do not “make a big change” in the market of credit organizations and, nevertheless, our doors are open for all. 

From among our six members, 4 credit organizations (“Aregak”, “SEF International”, “Finca” and “Nor Horizon”) previously functioned as micro-credit funds, the main goal of which was reduction of poverty, provision of credits to layers of population, for which bank services were unavailable. To put it short, the wish to solve social issues also entered the framework of their activity, besides purely business interests.

There are quite large credit organizations among today’s members of our organization, in particular, “Aregak”, “Finca”, which, along with other participants of ACOA (“Farm Credit Armenia”, “SEF International”, “New Horizon” and GFC) cover about 40-45% of the market of credit organizations both as to the number of customers and as to the volume of the credit portfolio and assets.

- Do you think the process of merger between credit organizations is possible in the view of the existing opportunity to increase the standard for minimum authorized capital stock of credit organizations by CB?

- The draft decision on increasing the standard for the minimum authorized capital from 150mln to 1bln AMD is related exclusively to universal credit organizations, which make 90% of all credit organizations, functioning in the country. Concerning leasing companies and one credit union, existing in the country, increase of authorized capital stock is meant for them as well, but not in such huge volumes, as suggested for universal credit organizations. 

Today, this issue is on the agenda of the Association. We hold active discussions with representatives of the Central Bank administration and I can state that there are definite mechanisms to find a compromise variant to solve this problem.

Increase of the standard for minimum authorized capital stock may lead either to closing or merger of credit organizations. In both cases, this is fraught with reduction of workplaces. Concerning the process of merger, this variant is not that likely, taking into account the Armenian mentality.

- A few days ago, European Bank for Reconstruction and Development (EBRD) presented a synthetic loan in the amount of $4mln to “Finca” UCO. Does the Association intend to assist credit organization as to involvement into international loan programs?

- The example with “Finca” became a good precedent, when international organizations start working with credit organizations. From the moment of the Association formation, we faced the task of integration into international loan programs. In particular, we expressed extreme discontent concerning the decision of providing the World Bank’s loan of $50mln exclusively to banks. We held a number of meetings with WB, government and Central Bank representatives concerning this.

Concerning the Russian stabilization loan, we managed to reach participation of credit organizations with the capital of over 500mln AMD in this program. Although, many of them are not members of our organization, nevertheless, the Association opened a door for them to receive loan resources within the framework of the Russian stabilization loan. Today, our task is to involve not only large, but also medium credit organizations into credit programs.

Loans, received from the Central Bank, the government, are very convenient for us, since they are provided in national currency and there is no need of hedging. And, as it is known, there are absolutely no hedging instruments in Armenia today. 

Continuing the topic of international cooperation, I would like to single out a quite interesting format of cooperation with Kiva.org social micro-crediting network. The first organization in Armenia, which developed cooperation with Kiva.org, was “Nor Horizon” UCO.

The cooperation mechanism is that the partner organization provides Kiva.org with history and the photo of the borrower, which is placed at www.kiva.org websites. The visitors of the website make their contribution in the form of small inpayments ($25-30) to forming the loan, which all in all should not exceed $3000. The collected means are transferred to the partner credit organization, which in its turn provides it to a particular borrower. 

Kiva.org leadership was inspired by cooperation with the Armenian side, and today two more micro-finance credit organizations are in process of negotiations with it on cooperation.

It is pleasant that recently international donor organizations have started demonstrating interest towards the Armenian crediting market, focusing at that attention on realization of social programs. In particular, recently “Nor Horizon” UCO signed a loan agreement with American “Habitat” Company for 31mln AMD in order to credit construction works in Spitak. Another loan agreement for $300 thousands is planned to be signed in the nearest future.

- Are there plans on defending interests of credit organizations, involved in the sphere of micro-crediting?

- Main problem in the sphere of micro-crediting is in gradation between consumer and business credits. Often, the consumer micro-credits, issued by credit organizations, are used by borrowers for business purposes.

The association voiced this issue, there were meetings held with the Head of the Central Bank’s Legal Department. Today the task is to clearly define what micro-financing is. We have suggested our variants; the CB suggested its variants. This concerns both the volumes of credits and their purpose.

- At the annual meeting of ACOA, it was suggested to establish equal conditions with banks on paying duties for the activity of branches and paying VAT for provided services. What is the number of branches credit organizations possess today and what aggregate annual sum we are talking about? And one more thing, what is the logic for credit organizations, as opposed to banks, to be subject to paying VAT for the provided services? 

- Since the law on “Credit Organizations” was approved in 2002, and the law on
”Banks and Banking Activity” much later – in 2006, CBA had much more time to lobby the interests of banks, in particular, to carry out negotiations concerning work with tax bodies, payment of duties, etc. And all the privileges, which the banks enjoy today at the level of governmental decisions and legal acts, are related to banks and only banks. There is no mention on credit organizations.

In particular, due to lobbyist activity of CBA, the banks make only a lump payment at the volume of 250 thousand AMD when they open a branch. And we have to pay the same 250 thousand AMD for our branches every year. If we take into account the fact that credit organizations have about 100 branches today, here we talk about an aggregate sum of 25mln AMD annually.

In particular, “New Horizon” UCO has 4 branches, and imagine the sums “Aregak” and “Finca” pay for their branch network. They have about 40 and 30 branches respectively.

Besides, banks are exempted from VAT payment today as to provided services, and the condition is not the same for credit organizations.

A similar situation is there also concerning work with the Financial System Ombudsman, when banks pay 0.01% from their assets, and credit organizations pay 0.07%.

The main task, which our Association faces today, is to create equal conditions for credit organizations and banks. To this end, we have met with the legal FSDP group, which offered us a plan of legal reforms. We presented this plan to the Central Bank, and it was included in the work program of the CB. We carry out consistent work, so that all the raised issues are solved. But this depends not only on the Central Bank, in concrete cases changes are necessary in legislation, and we hope that the Central Bank will put forward the corresponding legislative initiative.

- ACOA suggests having its own representative in the Council of the Financial Ombudsman. Why have you been so far lacking your representative in this organization?

- Representatives of all financial organizations should be there in the Council of the Financial Ombudsman. In our case, the problem is that according to the law, in order to enter the Council of the Financial Ombudsman, the public organization/non-commercial organization should have at least 5 years’ activity history. And our Association exists for only 2 years yet. It is of principle importance for us to have our representative in the Council of the Financial Ombudsman, first of all, in terms of information, in connection with which we support changing this item of the law.

- What is the share of overdue liabilities of credit organizations and are you going to develop cooperation with the collector company?

- As of the data for the end of the year, the volume of overdue credits of credit organizations made about 3-4%. There was a period, when in spring and summer, 2009, the share of overdue credits increased up to 6-7%, however already closer to the end of the year this index reduced almost twofold.

Concerning collector activity, I welcome the appearance of the first collector company in the country and I hope that it will grow fast and will render real assistance to financial organizations in the legal field.

- It is known that ACOA will receive a grant from Dutch “Oxfam-Novib” Company at the volume of 62.5 thousand EUR. What are you going to spend those means on?

- The larger part of the grant has already been transferred to the accounts of our Association. The received means will be spent to solve the problem of the premise, purchase the necessary stock and equipment, issue salaries to ACOA staffers.

Besides, we plan to set up a computer lab, where the directors and accountants of credit organizations will pass exams to receive the corresponding qualification certificate.