Report

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F A R M C R E D I T A R M E N I A

f i v e y e a r s r e p o r t

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Armen Gabrielyan

(Farm Credit Armenia UCO CC Chief Executive Officer/President)

Mr. Gabrielyan has extensive experience in the agricultural credit investment market.

He was among the founding staff of ACBA Agricole Bank (formerly Agricultural Cooper-

ative Bank of Armenia) that started in 1995. Serving the needs of farmers for financial

resources, Armen Gabrielyan managed and coordinated different regional branches of

ACBA Bank until 2004.

In 1991 after Armenia became independent he was engaged in the land privatization

process. From 1992 to 1995 Mr. Gabrielyan was the head of Yeghegnadzor regional of-

fice of the Ministry of Social Security and Migration of the Republic of Armenia.

In 2005, Armen Gabrieyan joined the Center for Agribusiness and Rural Development

(CARD) NGO as head of its loan department. He had a key role in helping lay the

groundwork in creating a financial institution based on internationally recognized coop-

erative principles and farm credit practices in Armenia.

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Armen Gabrielyan














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Armen Gabrielyan














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Armen Gabrielyan














CHAPTER 2: MARKET OVERVIEWMFI Industry

Microfinance for years has demonstrated potential to assist the poor on a

sustainable basis. Thanks to their scale of operations and cost efficiency

MFIs have efficiently specialized in offering sustainable financial products

to poor. There is an international trend towards MFIs becoming profit ori-

ented, regulated, audited, evaluated and rated, full-scale financial interme-

diaries, which has reformed microfinance from donor-reliant charity to a

separate asset class of financial markets.

Agricultural and related credit market still is a seller market, interest rates

and lending terms are much less favorable for customers in rural locations.

This phenomenon reflects banks’ high concentration in the urbanized loca-

tions – they tend to lend to urban inhabitants and corporate customers, and

UCOs’ week standing in terms of capitalization, access to funding, espe-

cially in local currency, as well as access human resource. In a compara-

tively small market this creates huge regional disparities of economic

development, economic and social exclusion with all their negative conse-

quences. FCA is committed to deliver demanded, affordable and reasonably

priced loan products to rural inhabitants of Armenia, thus alleviating this

disparity and contributing to sustainable development of the country.

Regulatory Framework of Microfinance in Armenia

Microfinance services in Armenia are offered by commercial banks and so-

called “universal credit organizations” – non-bank financial institutions

(NBFI), which do not have rights to take deposits. The Law of the Republic

of Armenia on Credit Organizations adopted in May of 2002, provides the

framework for regulation and supervision of all NBFIs that carry out lending

activities. Since that time a number of NGOs and other institutions who

were involved in micro financing registered as Universal Credit Organiza-

tions and are supervised by the sole financial regulator of Armenia – the

Central Bank of the Republic of Armenia. Official text of The Law of the Re-

public of Armenia on Credit Organizations is available on the web site of

the CB (www.cba.am). The main regulatory requirements from the CB are

minimum capital normative, and maximum exposure to one borrower, …

These requirements are set by the Regulation 14 … , which is available on

the web site of the CB (www.cba.am). The Central bank also regulates li-

censing, reporting, communications, consumer rights, establishing

branches and representative offices, bankruptcy and other issues of UCOs’

activities.

In 2008, the Union of Credit Organizations has been established, its mis-

sion is to represent interests of the forming industry of credit organizations,

initiate and draft legal acts in the field, establish communications with dif-

ferent international microfinance institutions, funds and similar organiza-

tions, organize discussions, trainings and seminars. FCA is an active

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member of the Union from the day of its establishment. Among the other

prominent stakeholders of the agri

cultural credit market segment are:

Committee on agriculture of the National Assembly,

Ministry of Agriculture,

Agricultural committee of the Public Council under the President of the

Republic of Armenia,

Agricultural value chain development council at the Ministry of Economy,

Lending facilities: German-Armenian Fund (GAF, www.gaf.am), Rural Fi-

nance Facility (RFF, www.rff.am), Millennium Challenges Corporation

(MCC) Credit Component of the Water to Market program,

US Department of agriculture office in Armenia

NGOs, associations, Regional agricultural support centers (extension),

etc.

FCA works actively with all of mentioned stakeholders to generate systemic

effects of development work done at different levels.

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CHAPTER 5: GOALS AND STRATEGY (for 2010-2014)

This strategic business plan is our main vehicle to explicitly demonstrate our long-

term view on the goals, strategies, basic assumptions, scenarios and indicators that

we have envisioned for the period of 2011-2015. The plan is regularly updated, de-

pending on the dynamism of the business environment and realization of the set

indicators. Strategic business plan should be approved by the Board of Directors

and effectively communicated to all organizational levels, which should then elab-

orate their specific action plans and share those with the management team. To

track the performance of all entities, teams and individuals, FCA will design KPI and

reporting (MIS, loan report, financials) systems. At least once in a year management

team should organize a strategic planning retreat to reassess the targets, business

solutions and reshape the strategies if necessary. Below are listed the main goals

and strategies that FCA will go for in the period of 2011-2015.

Goal 1: Insure sustained viability.

Strategies:

a) Secure broad access to the most attractive sources of debt and capital. Attracting

debt capital from national lending facilities has played key role in our growth in 2009

and 2010, and we will increase involvement in these facilities further. Growth of our

capital base as a major element of self-reliance will happen through member equity

participation and attraction of new equity investments. On the current phase of de-

velopment, characterized as aggressive growth, member equity growth is not sig-

nificant source of capitalization, so the second option of attracting investments from

international funds is the priority to solve this task.

b) Raise and develop human capital at the best internationally known standards

(building autonomy, masterity, and common purpose). Investment in human capital

is the basis for our long-term success, and we will continue paying close attention

to improving qualification, training and motivation of our staff through following prin-

ciples of self-learning organization, change management, and by building compet-

itive employee compensation packages.

c) Ensure profitability by applying effective pricing and costing. We will maximize

our profit margin through effective cost (interest and non-interest) management

keeping loan pricing at market levels. Our plan of regional expansion through es-

tablishing branch network, besides reaching other goals, will contribute to the cost-

effectiveness of the operations.

d) Implement risk management framework to enable effective neutralization of risks

during the rapid growth of credit portfolio. As the loan portfolio and balance sheet

grow more sophisticated risk management techniques will be needed. We will use

our best expertise as well as outsource best practices from our international part-

ners.

Goal 2: Increase outreach of services to national level.

Strategies:

a) Secure closeness to customers through establishing regional branch network to

serve them, monitor and control the situation. FC operates in rural Armenia and re-

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gional presence will allow us to significantly cut transportation costs, as well as be

better recognized, improve lending procedures and risk management (branch ex-

pansion plan is available in Appendix 4). Branch expansion strategy should take

into consideration market potential of the specific region, and have clear break-even

vision of the specific branch as well.

b) Provide for rapid membership growth. Expansion of membership is vital for any

cooperative financial institution. It will make Armenian rural community stronger and

provide better access to financial resources. To support continuous customer base

development efforts FCA has established Rural Cooperative Support Foundation,

which will run educational and communicational activities for Armenian farmers, do

networking and analytical work for all stakeholders to promote cooperative model

and solve misinterpretations of this vehicle. One of direct results of RCSF’s activities

is expected to be cutting the costs of member attraction to FCA, but the general im-

pact will be much more significant changes in rural Armenia, where more coopera-

tion between people will occur to solve their everyday problems.

Goal 3: Be market leader in rural finance in Armenia.

Strategies:

a) Build excellent brand and reputation by following the principles of responsible

lending, launching sound international partnerships, and industry level initiatives

with UCO’s union and other prominent stakeholders targeted at market develop-

ment. Besides accomplishing all these activities they should be effectively commu-

nicated to the public to build wide awareness about FCA.

b) Design highly demanded unique (niche) products, which will be difficult to copy

in terms of cost and technology. We should continuously track the market develop-

ments to highlight changes in the demand for financial products and build the best

partnerships and solutions to match those changes.

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Microfinance for years has demonstrated potential to assist the poor on a

sustainable basis. Thanks to their scale of operations and cost efficiency

MFIs have efficiently specialized in offering sustainable financial products

to poor. There is an international trend towards MFIs becoming profit ori-

ented, regulated, audited, evaluated and rated, full-scale financial interme-

diaries, which has reformed microfinance from donor-reliant charity to a

separate asset class of financial markets.

Agricultural and related credit market still is a seller market, interest rates

and lending terms are much less favorable for customers in rural locations.

This phenomenon reflects banks’ high concentration in the urbanized loca-

tions – they tend to lend to urban inhabitants and corporate customers, and

UCOs’ week standing in terms of capitalization, access to funding, espe-

cially in local currency, as well as access human resource. In a compara-

tively small market this creates huge regional disparities of economic

development, economic and social exclusion with all their negative conse-

quences. FCA is committed to deliver demanded, affordable and reasonably

priced loan products to rural inhabitants of Armenia, thus alleviating this

disparity and contributing to sustainable development of the country.

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