"We initially expected a slow start as we hadn't had these types of clients before. Nothing could be farther from the truth: right from the beginning, we received so many applications, we found ourselves short on loan officers."
Vahan Gharibyan Deputy Head of Corporate Lending Department at AraratBank
Yes, Vahan Gharibyan, the Deputy Head of Corporate Lending Department at AraratBank, one of the leading commercial banks in Armenia, knew of the NASIRA program from 2019, when it started. "But I wasn’t sure about it back then," he admits. "The groups it targeted were too narrow for us."
A few years later, when the program expanded its scope to include (small) businesses affected by the COVID-19 pandemic, next to women-, youth- and migrant-owned companies, there was no hesitation left. "That was exactly what we needed." As a commercial bank with an extensive branch network, AraratBank had already formulated its strategy to expand its MSME portfolio. "But banks are inherently conservative—AraratBank as well. A guarantee program gave us the comfort we needed. So, after the NASIRA groups were enlarged, it was a perfect fit." Laughing, he says, "We signed the contract immediately."
He goes on to explain the lending landscape in Armenia. Due to the country's small size, banks face intense competition, and there are relatively few large companies. Coupled with the significant impact these businesses have on the Armenian economy, targeting SMEs becomes a natural choice for banks looking to grow. In practical terms, this meant AraratBank developed two new products especially catered to MSMEs. The first one offers uncollateralized loans up to USD 25,000 for micro businesses; the latter is geared towards slightly more mature businesses, offering collateralized loans for USD 100,000 with a loan-to-value ratio of 200%. "This means that, for example, a building worth USD 50,000 could be used as collateral for a USD 100,000 loan."
"Although we had three years to disburse the first 10 million under the guarantee, we accomplished it within just 18 months. We might even be able to do this second guarantee within one year."
The next step involved raising awareness among the public about AraratBank's new offerings. Vahan: "We launched an extensive marketing campaign." This campaign included billboards, cold calls, radio and TV advertisements, and seminars aimed specifically towards women entrepreneurs. AraratBank made sure to spread the word, and their efforts proved successful. "We initially expected a slow start as we didn't have these types of clients before. But right from the beginning, we received so many applications that we found ourselves short on loan officers. Fortunately, we were able to address that issue quickly."
Now, after two years, nearly 750 MSME entrepreneurs have received loans under the guarantee, and 30% of them are female-owned businesses. Vahan adds: "Many loans were also extended to businesses located outside of Yerevan, the capital city, which means even more socio-economic impact for the country."
All these loans have given AraratBank quite a good feeling regarding the risk involved in lending to underserved groups. "What the figures tell us is that the behavior of clients without collateral is not much different from other clients. The NASIRA portfolio has 1% non-performing loans, while with our regular SME portfolio it's 0.7%."
As the initial NASIRA guarantee of USD 10 million has been fully utilized, AraratBank has already signed a second facility, becoming the first NASIRA client to enter a second round. Vahan's voice is tinged with pride as he says, "Although we had three years to disburse the first 10 million under the guarantee, we accomplished it within just 18 months. We might even be able to do this second guarantee within one year." Then, in what fully summarizes the vision of NASIRA in just a sentence, he adds: "We are now even ready to design loan products with a flexible approach to collateral ourselves, without the guarantee."
received loans under the guarantee
under the guarantee within 18 months