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EBRD supports micro-finance development with first local currency loan in Armenia

By Sergiy Grytsenko

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The European Bank for Reconstruction and Development (EBRD) is supporting the expansion of financing services in Armenia with a 750 million Armenian Dram loan (US$ 2 million equivalent) to OJSC Araratbank for on-lending to small and medium enterprises (SMEs).

The Bank’s first local currency loan in Armenia launches the EBRD’s new Local Currency Lending Programme in Early Transition Countries (ETC)* , which aims to support private sector development by ensuring the Armenian borrowers, including local enterprises, banks and microfinance organisations, avoid taking on currency exchange risks. Armenia is the first country to benefit from this new Programme.

With this 5-year senior loan, the EBRD is increasing the availability of local currency lending to entrepreneurs in Armenia. The EBRD’s funds will help Araratbank in expanding its lending portfolio, especially in the country’s remote rural areas.

The new loan to Araratbank is being disbursed in line with a Memorandum of Understanding signed in April this year between the EBRD and Armenian government.

The Armenian authorities confirmed their intention to implement reforms aimed at reducing dollarisation and strengthening the country’s capacity to intermediate savings and investments through the use of local currency – the Armenian Dram.

“With this new investment the EBRD is contributing to private sector development in Armenia. Crucially, the customers of Araratbank will get better services and easier access to much-needed cash for further development of Armenian entrepreneurship. The local currency availability is a key element in the financing, as we want Armenian borrowers without adequate foreign currency revenues to avoid facing exchange rate risk,” said Valeriu Razlog, Head of the EBRD Resident Office in Yerevan.

Speaking during the loan signing, Ashot Osipyan, the Chief Executive Officer of Araratbank, praised the long-standing mutual cooperation between the EBRD and Araratbank.

“I am honoured to say that we are starting a new page of our mutual cooperation with the EBRD. I am confident that by attracting the first local currency loan from the EBRD, we will seek to increase the availability of local currency lending to SME sector in Armenia, which will help our clients avoiding exchange rate risks in the future. This new programme makes a significant contribution to further growth of both our bank and the country’s economy,” he added.

The Local Currency Lending Programme for Armenia forms part of a targeted local currency risk-sharing programme for the Early Transition Countries (ETC), supported by the EBRD and international donor countries to catalyze local currency lending.

The EBRD has been active in Armenia since the country’s independence and to-date has invested over €400 million. The Bank is focused on supporting the development of local enterprises and financial institutions and specifically seeks to promote a competitive, transparent and fair business environment in Armenia. In 2010, the EBRD signed 25 projects worth a total of €53.2 million in Armenia.

* The EBRD’s Early Transition Countries Initiative aims to stimulate economic activity in the Bank’s countries which still face the most significant transition challenges: Armenia, Azerbaijan, Belarus, Georgia, Moldova, Mongolia, Kyrgyz Republic, Tajikistan, Turkmenistan and Uzbekistan.

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