After
the recognition, reorganisation or formation of a National
ECLOF Committee (NEC), a workshop is held to familiarise
the new NEC board and staff with ECLOF policy and guidelines,
as well as micro finance issues. It is a time of intense
learning for participants, as a recent workshop in Armenia
proved.
ECLOF
Armenia was recognised in November 1998 and became operational
in mid-1999. The Armenia national workshop took place from
29 May to 2 June 2000 at the Writers’ House of Creativity
in Tsaghkadzor, Armenia. The workshop was attended by ECLOF
Armenia board members and staff, Armenian NGOs, clients,
partner agencies, specialists from other NECs, and ECLOF
Geneva staff.
The
reality
A
series of field trips gave participants an opportunity to
see a good deal of the country and the current socio-economic
conditions. As reported in the last edition of New Horizons,
while the infrastructure is relatively good for a low-income
country, people live on minimal salaries and depend to a
large degree on remittances from relatives abroad.
At
the beginning of ECLOF Armenia’s activities, there
was concern about who should be the target group for micro
finance products. The population is well educated and has
full housing. However, there is also a high level of poverty.
Homes date from the Soviet era and monthly incomes average
US$25. ECLOF Armenia works in rural areas, and predominantly
with those in the agricultural sector.
Workshop
participants met farmers who explained the positive difference
that ECLOF loans have made to their livelihoods. The farmers
said banks would only take homes in the capital, Yerevan,
and new foreign cars as collateral. ECLOF, on the other
hand, accepts older, rural homes and land.
Because
of the poor state of the economy, there is a lack of an
adequate market for all products within Armenia. In the
agricultural sector, with its massive layoffs and the return
to the land since Soviet times, the problem is particularly
acute. The farmers said it was difficult to get a good price
for their produce; they sold through intermediaries who
paid the farmers little. Exporting to neighbouring Georgia
was prohibitively expensive because of customs duties, and
embargoes made it impossible to find markets in or through
Azerbaijan and Turkey.
Bible
Reflections
The
morning worship sessions during the workshop were truly
ecumenical. On the first day, Archbishop Datev Sarkissian,
President of ECLOF Armenia, reflected on the Lord’s
Prayer and stressed that Christ’s main theme was the
world. Jesus presented the world both as belonging to God
and to us. We are responsible for its development and evolution.
God has given us choices and we must make the right ones
in order to help one another in times of need. Only by assisting
one another can we sanctify ourselves in this world.
On
the second day, Mr Harout Nercessian from the Armenian Evangelical
Church, pointed out that hypocrites always make sure they
are noticed when they give so that people will see their
goodness. We, however, must do good not to look good but
because of a hidden, inner virtue.
On
the third day, Rev. Father Michael Mouradian of the Armenian
Catholic Church reflected on the parable of the Good Samaritan.
Father Michael pointed out that the Samaritan did not just
tend the injured traveller by the roadside but took him
to the inn and therefore offered him long term care. Today,
ECLOF clients also need long-term help rather than short-term
solutions.
Shortcomings
In
a workshop session, Rshtoun Martirossyan, Head of the Department
of Small and Medium Enterprises within the Ministry of Industry
and Trade spoke on economic challenges and the role of micro
finance for countries with transition economies. He said
that although there have been a number of achievements,
micro finance projects in Armenia also have certain shortcomings;
overcoming them would help the projects to be more effective.
He listed the problems:
More
than 50% of loans have been provided to the trade sector.
The
interest rate for all types of activities is the same.
The
available data suggest that borrowers immediately use the
loans, partially or wholly, to satisfy their own needs,
and although they repay the loans on schedule, it is impossible
to speak about the creation of a real business. Borrowers
again apply to the lender and receive a second micro-loan,
mainly because the previous loan had been repaid on time.
The
mechanism for co-ordinating the co-operation between implementing
organisations and governmental bodies responsible for the
development of small enterprises is still not regulated.
Khachatur
Kazazyan, from the International Organisation for Migration,
advocated micro finance legislation. As an example, he pointed
out that in some businesses a fixed tax is charged irrespective
of the income. This can adversely affect those who have
micro enterprises.
Investment
The
Director of the VISTAA Expert Centre, Artak Harutyunyan,
said that the most important issue in Armenia is the lack
of investment in the agricultural sector. The credit resources
flowing to the rural sector are well below the levels that
the current estimated credit worthiness of the sector would
justify. Besides this, there are also many obstacles to
overcome, such as:
High
collateral requirements. No real estate or land is accepted
as collateral in rural areas. In some cases agricultural
machinery accepted as collateral has to be put into storage!
Short
term loans. Agriculture requires loans over three to five
years. The maximum period for loans in Armenia is three
years, and usually it is no more than twelve months.
Lack
of an agricultural insurance system.
Lack
of an information dissemination structure. Many entrepreneurs,
especially in rural areas, have no information about existing
government development programmes, and some of them work
only in selected regions.
Existence
of loan programmes which are not adjusted to agricultural
needs. For example, there are agricultural seasonal loans
that require repayment from the first month, long before
the farmer has been able to produce a harvest.
Stringent
standards for business plans. Most loan applicants produce
a business plan just to satisfy the lender and see no additional
purpose for it!
Mr
Harutyunyan suggested leasing could be one way of dealing
with these problems.
Rod
Snider, technical specialist with Aregak, a micro finance
programme, gave an overview of micro finance activities
in Armenia. He said that farm family household incomes are
extremely low because of the disappearance of off-farm income
and the loss of profitable opportunities in agricultural
production. An even more serious problem was underemployment;
the vast majority of those officially employed earn only
between US$5–US$20 per month.
Ben
Steinberg, Director FINCA Armenia spoke on the legal and
regulatory environment for MFIs in Armenia. It was a challenge
for any foreign organisation working in the country.
Mr
Steinberg explained that a new Civil Code had come into
effect in February 1999. While it is comprehensive, the
Civil Code deals only with basic civil issues. The authors
of the code never anticipated the existence of organisations
like micro finance institutions, which are groups with a
social mission but also ones that generate revenues through
interest income.
He
said that MFIs are not subject to banking law and strict
bank requirements so long as they do not accept public money
as deposits. There was a need for changes in the law to
regularise current unofficial understanding about the status
and operation of MFIs in Armenia.
Women
and micro finance
Gagik
Vardanyan, Executive Director of MDF Kamurj, a joint venture
by Save the Children and Catholic Relief Services in Armenia,
shared the findings of a survey on the needs and market
for micro finance in Armenia.
He
said that the income women clients earned through their
micro businesses often forms the bulk of a family’s
overall income; in a majority of cases, average monthly
family incomes only slightly exceed the income earned from
the women’s micro-businesses.
Women
also appear more able than men to adapt to the realities
of a transitional economy. Many men still harbour the hope
that the former Soviet factories will reopen at full capacity.
Women have become an income generator in many families and
are the main breadwinners, even in cases where there are
working men in the family.
The
drop out rate for women in micro enterprises is reportedly
higher than for men. This may be because women still have
to balance their business activities with household demands.
Tradition
On this subject, Tsovinar Ghazarayan, a member of the
ECLOF Armenia board, told the workshop that in Armenia the
role of women had traditionally been to deal with family
life. Armenian women used to sacrifice their career for
the sake of family and children. However, during the transitional
period after the end of the Soviet period, they became more
economically active. They were the first to take lower paid
jobs such as house-cleaners and street traders in order
to support their families. The idea of ‘family keeper’
became an inseparable part of the ‘feminine’ identity
of Armenian women. As a result, a subtle shift in gender
roles occurred. It created an opportunity for women to begin
their own businesses and extend their involvement in them.
Micro finance programs can enhance this process. Nevertheless,
traditional Armenian gender roles still drive the society,
and men and many women still see the husband’s role
to be that of the breadwinner. An overwhelming majority
of Armenian women would prefer their husbands to earn less
but remain with them, rather than for the men to leave the
country in search of work abroad.
Ms
Ghazarayan said micro finance programmes could have a positive
impact. It would also enhance the opportunity for women
to pursue their goals and for men to be able to fulfil their
roles; the result would be lasting social stability and
family unity.
Ms
Anahit Simonian, another ECLOF Armenia board member, shared
a paper on the gender analysis of the labour market in Armenia.
She emphasised that conditions in Armenia regarding unemployment,
poverty and the overall economic situation had to be taken
into account when devising strategies that included women-centred
micro finance products.
NEC
input
José
Luis Pereira Ossio, Executive Director, ECLOF Bolivia, drew
on his organisation’s experience as he explored priorities
and strategies for developing an effective rural micro finance
programme. He said that simple and effective systems for
the planning, monitoring and evaluation of institutional
objectives and goals are necessary for the development of
micro finance. These systems should not only include financial
parameters but economic and social indicators as well.
John
Ssemakalu, a board member from ECLOF Uganda, spoke about
strategies for developing a sustainable lending programme.
He said sustainability could be defined as the ability to
continue to serve people today, tomorrow and beyond the
lifetime of the micro credit programme. Sustainability should
be considered at three levels: that of the institution,
the programme and, most importantly, the client.
At
the institutional level, the emphasis must be to ensure
that the organization as a unit has the financial as well
as appropriate human resources to continue functioning even
after the end of donor support.
The
programme level requires the employment of quality managers
with relevant skills, dedication and commitment. Programmes
with accounts personnel who submit timely and accurate information
will enable managers to take informed and sound decisions
for the benefit of the company.
At
the client level, it is important that clients are able
to stay in business after paying off their loans. It would
be a failure on the part of credit institutions to leave
a client worse off after a loan than before the loan was
granted. Credit facilities ought to be people-centred, where
the active poor are the object, and the major focus is their
development and economic well being.
The
purpose of micro credit is for it to be an empowerment tool
for the active poor. Credit institutions without sustainable
strategies cannot provide this ingredient, which is the
essence of the whole enterprise.
ECLOF
Armenia
In
a paper by Hayk Minassyan, a member of the ECLOF Armenia
board, but presented on his behalf, policy, potential, strategies
and constraints of ECLOF Armenia were discussed. Mr Minassyan
explained ECLOF Armenia was only one year old and did not
have extensive experience of operation and activity. As
of June 2000, it had made only 30 loans for a total value
of about US$280.000, but has made many more since then.
All the projects are still in their initial stage, so the
trends; results and impact will be assessed at a later date.
“We
target rural groups and small enterprises whose access to
traditional financing is limited because of high interest
and tough collateral requirements. The majority of our loans
are aimed at agricultural development: cattle breeding,
feed production, or agricultural product processing. Our
methodology is based on group lending (the average group
size being 3–4 families) secured by collateral, and
phase-by-phase project design with further funding dependant
on the successful completion of the previous phase. Projects
are monitored on a regular basis and evaluated annually
to detect and solve potential problems before they become
irresolvable, as well as to ensure effectiveness and sustainability.”
“Another
important issue is the need to focus on outreach. The need
is still very dire in our country and we certainly need
to expand our services, which are today concentrated mostly
in the Armavir region.”
Mr
Minassyan’s paper highlighted that, as a young member
of the ECLOF family, ECLOF Armenia adheres to the policies
and standards of ECLOF. However, there is a need to work
out guidelines and regulations acceptable to the whole ECLOF
constituency but adjusted to fit local circumstances. Plans
existed for the production of a policy handbook, or an operations
manual. “We are planning to do this in close co-operation
with our clients after studying their experience and opinions
based on their implementation history. Synergy with our
clients will help us to work out optimal ways for overcoming
the constraints.”
Clients’
stories
Clients also participated in the workshop and two of
them made presentations. Mr Ferdinand Grigoryan of the Spitak-Farmers’
Agricultural Association said that the Association had borrowed
from ECLOF so that poor families could own cows. He said
that by the final stages of the programme, all debts to
ECLOF Armenia will be paid off and the Association would
be able to reach sustainability and include more and more
farmers in the future.
There
was an obstacle still to be overcome. With the US$50,000
borrowed having a flat interest rate, in 2001, after paying
off the $30,000 capital, there will be $20,000 outstanding,
which will incur interest of $5,000.00. To the farmer this
seems to be an interest rate of 25% rather that the 10%
rate of the original sum borrowed. The flat interest rate
is impossible to explain to the poor farmers. The NEC is
currently reviewing its interest rate policy.
Another
client, Ms Angin Minasyan, told the workshop, “With
the money we have borrowed from ECLOF Armenia we are busy
working in our fields to make a livelihood and repay our
loan. Five families are participating in this project bringing
with them five areas of land and a hardworking labour force.
We are farming 20 hectares of grain, 7 hectares of potatoes,
7–10 hectares of watermelons and melons, 3–4 hectares
of vegetables, 10 hectares of fodder and 3 hectares of fruit.
With these figures, it might seem that we are doing well
for ourselves, but the truth of the matter is that, because
of the current economic crisis in Armenia, we are having
a difficult time selling our products.
“With
today’s unstable market and the problem of migration
from our towns and cities, we are losing our market for
our produce. This is causing the price of our products to
plummet and therefore we are either only covering our costs
or going into the red.”
Because
of these problems, Ms Minasyan called on ECLOF to lower
its interest rate and allow repayments to be made according
to appropriate seasons instead of the current month by month
requirement.
This
session was followed by very lively discussion. It was explained
to the clients that ECLOF Armenia’s rate of 12% flat
per annum is among the lowest both nationally and internationally.
When an MFI wishes to run a sustainable programme, it has
to plan its income and expenditure, protect its capital
from erosion and make loan loss provision for unavoidable
circumstances. Thus, the interest rate is based on the financial
planning needed to meet these criteria, rather than an arbitrary
percentage based on external factors.
So,
ECLOF Armenia has decided that it requires 12 Drams per
year for every 100 Drams it lends. If this is collected
on a flat basis it would be a 12% flat rate. If the interest
is collected on the diminishing balance it would be calculated
at 22%, and the client has to pay even larger instalments
when his business is in the early stages. Whether it is
12% flat or 22% diminishing per annum, the net result for
the NEC is that it would get only 12 Drams per year. This
is a great challenge which the NEC has accepted in order
to keep the interest rate low and at the same time to become
financially sustainable. The NEC hopes to achieve this by
running a professionally efficient programme and increasing
the scale of its activities.
The
participants encouraged the clients to look for alternative
ways of marketing their produce. For example, it was suggested
some people from their own villages could take up economic
activities relating to marketing. The clients were also
encouraged to save.
At
one point, workshop participants wanted to know whether
Armenian women were allowed to take decisions. Ms. Minasyan
smiled and replied that women take the decisions and their
husbands implement them!
