In 2002 the government established the national center for development of small and medium businesses. This institution was in charge of providing support to small and medium businesses, as well as providing projects to develop this sector.
It is hard to say what this center has been doing within the past 8 years. The problem is that all businesses that have dealt with this institution are complaining. These complaints mostly concern the failure to fulfill their contractual responsibilities or ignoring the business projects submitted to them. Businesses that need money have to stay without any work for a long time and wait until this institution makes a decision to provide money or support partially. As for those rare businesses which have been lucky to get support from this institution, they have appeared in a very difficult situation. The problem is the fact that these credits are provided for short terms and the interest rates are very high. Businessmen assure that these credits do not support their businesses but push them to bankruptcy. Even many trade banks can provide credits for the same interest rates, and very often trade banks can offer longer terms of coverage. Businesses prefer to ask this institution for credit due to the fact that they have privileges during the first year. During last year several hundred companies have applied to this institution to ask for money.
Only 20 companies out of these businesses received credit guarantees. The requirements for applying for credit are so strange and exaggerated that in general it is very surprising that there are any companies that could comply with those requirements. For example, a business which needs money must convince this institution that it has a very good prospect of development, this business is very important for the economy of Armenia, it will encourage the poor export of the country, will attract financially, will be innovative, etc. Even the most successful and biggest companies don’t have these priorities, thus small businesses can’t do it either.
We talked to some companies which have been able to meet these requirements. Gagik Abrahamyan, the owner of Daykalat company, which is occupied in milk processing, said the following to us: “I had already built my factory and it was ready to work, and I applied for getting 200k dollars to operate my company. They came and saw my factory, valued it at 410k dollars and gave me only 110k dollars with 16% interest rate and for 5 years term of coverage. Of course my company costs much more than they valued. In their advertisements they say that they provide credits equal to 70% of the value of companies. Thus, they had to give me minimum 300k dollars but they did not. The interest rate is very high too. It can be profitable for big trade companies who can easily and rapidly turn their product into money. But I am producing milk powder. Now I have to collect the milk, process it and store from December till March to sell it when there is demand. I have to pay interest rates every month; it is not profitable at all.”
The businessman assures that the domestic economic policy does not protect the domestic producers. “Last year low quality milk powder was imported and thrown into the market, as a result of which the domestic product was not sold. It is a free market and everyone does whatever they want. When I delay the payment of the interest rates for a couple of days, I tell them here is my product, if you can come help me to sell it.” Mr. Abrahamyan says that he has found out that nowhere in the world agriculture businesses can get so high interest rates for credits. “For example, in Russia it is 6%, which is normal. 16% for five years is embezzling our money. If I don’t get profits during this season, I will meet bankruptcy and they will come to take my factory.” The director of this company says now he is thinking of covering the credit as soon as possible. “I am thinking of saving some money and covering this debt till January, after which I will be free to go and get normal credits from trade banks. I have no choice,” he said. “In the beginning they told me the interest rate would be 12%, but later they told me it was 16% and told me it was up to me to take it or no. I had no choice. They gave me an answer in six months, and they say it is a fast credit and they have helped me.”
Another company which has borrowed money too, Conser company has appeared in a difficult situation too. This company produces cannery and they applied for 582 million dram but received 395 million with 12% annual interest rate. “It is a very high interest rate for the development of small businesses. We took this money because we thought it would help us work and be occupied in our business. Now we are faced with a big problem. We used to have good contracts to export our products to Europe but as a result of currency exchange rate changes export is not profitable and we cannot sell our products in the domestic market either. Generally the companies that work with Euro have appeared in a difficult situation. At the time when we made contracts with foreign companies the exchange rate of Euro was 560 dram, but now it is 460 dram. There can be no profit in such conditions. The state monetary policy does not support the businesses,” says the director of the company, Mr. Avagyan.
There were companies which took borrowings from this institution, but there were other companies that refused to take this support. For example, Mega Ararat and Agrar Armavir companies refused to take loans with such conditions. We were informed by Mega Ararat company that they refused to take the loan as in the future they were offered totally different conditions other than the ones they had been told about in advance.
We were informed that recently the director if this institution Ishkhan Karapetyan was dismissed from his position. According to our information, the reason why the director was fired is the fact that the controller commission has found a lot of violations and embezzlement in his activities. He was given some time to overcome those shortcomings and correct the mistakes. But he failed to correct the situation, even they found more violations later too, as a result of which he was fired. Of course Mr. Karapetyan told us it was not true and said he had got another job with higher salary. The controller commission has found out that in some cases loans have been given in the names of companies which did not exist generally. Also, they have found out that loans have been provided to private persons as well to reconstruct the roof of their building or other personal purposes. In a word, the controller commission has come to the conclusion that the management of this institution was not effective and it did not support the development of small and medium businesses. It is worth mentioning that this institution has received financial support from international organizations as well to support small and medium businesses. We will write about the details of Ishkhan Karapetyan’s dismissal in the future.