The authorities have started to focus on international organizations and their reports again. We have published information about this in the previous edition, but in this article we will write about one of those reports. This article concerns the recent “Doing business” report and its criteria concerning accessibility to borrowings.
In this report published in 2011 Armenia was in the 48th place among 183 countries with the criteria of easiness of doing business. In terms of accessibility to borrowings Armenia is in the 46th place.
If we believe the information of this institution, it means that it is easier to borrow money in Armenia than, for example, in France, Lithuania and even Sweden. It is very easy to believe the information of this institution if we add also the colorful speeches of the officials of the sector. It is enough to apply for credit for one time only and you will see how complicated it is.
We took the chance to do this experiment and applied for credit. One of our friends, who is private entrepreneur and has a small business (shop), one month ago decided to take a credit of 10k dollars. He selected one of the banks with most favorable conditions and applied for business credit.
The bank charged 10,000 drams for accepting the application. This is the beginning only. Later he took the package of the required documents to the bank, including ownership and registration certificate, tax code, copies of identification documents, etc.
This is where the unforeseen obstacles start. The apartment they were going to bail had two owners – this person and his 75 aged mother. It turns out that banks have internal rule, which is not written anywhere, not to accept a co-owner who is elder than 70. The reason is the fact that if the old person dies during the coverage period and the other borrower fails to pay, the bank will have to wait for six months for the death documents to be ready in order to put the property on auction. This is actually age discrimination. The important thing is that banks try to escape from this problem and they simply advise such applications to register the property as a donation from the mother to the son.
In 90s there was a famous game called Mario, in which the hero had to pass several levels and win the dragon in order to take the queen. In this process it is almost the same and the next “level” is the public notary and cadastre offices.
Donations have to be registered at Public Notaries. However, before going to the Notary they have to take a document which is called United Certificate (to prove that the property is not pledged and is unencumbered). In this situation the property was a house and this person paid 30,000 drams for that service.
In the Public Notary it turns out that the stamp on the son’s birth certificate is not clear and it doesn’t matter if his mother is there, thus they cannot accept the son as a primary person, and he becomes a secondary person and now has to pay 20,000 drams instead of 13,000.
After this phase they go to the Public Notary to take a privatization certificate, which costs 60,000 drams. They took the new certificate in three days.
Now let’s go back to the bank. In parallel with this process the bank asks to bring a document showing the financial report of the past months. As well as they ask for a reference from the tax department on obligations on part of the creditor. He went to the bank, paid the fee and waited for two days till the report would be available in the system.
There is a small detail which is important too. The bank asks to evaluate the property, but the real estate companies do not take the money in advance, which is good for the applicant, but give the preliminary evaluation draft and ask for the money only after the credit is approved. However, after the preliminary approval the bank will not give the money until the applicant pays that fee. In this situation the price of this service was 35,000 drams.
By the way, usually banks demand from applicants to insure the property, but in this situation the bank did not do that.
After waiting for a while the sitting of directors decides to issue the credit, but it is not the end yet because another phase of paperwork is starting with that.
The applicant shall go to that bank and open an account by paying 10-15,000 drams. After this phase he takes the signature sample and applies to the tax department for approval. But this is not complicated compared to the other processes.
The most important thing is the registration of the credit after approval. The applicant goes to the cadastre again and applies for united certificate again (now for the new ownership certificate) and again pays 30,000 drams.
Later the applicant goes to the Public Notary office with a staffer from the bank to form the pledge agreement, for which he has to pay 20-25,000 drams again. Or the certificate the applicant pays 40,000 drams.
Eventually after presenting the pledge certificate to the bank the money is credited with the account.
It is worth mentioning that when crediting the final money with the account usually banks keep 2% with some unclear explanation. After that they ask about 5,000 drams to give a cash book, which is a must in order to be able to cash the money.
In this process we have missed a lot of minor things such as paperwork, signing different documents on part of members of the family, dealing with local community bodies for some papers, etc. In this process the applicant is inspired and after he takes the money he already understands that it was not worth.
We wonder if it is not possible to use modern technologies to cut down this time and resources on this process. The absurd thing is the cadastre and we wonder why they should charge such a big sum from taxpayers for a piece of paper. For example, only 20,000 out of the 60,000 drams paid to the cadastre goes to the budget as tax, the other part is kept by the cadastre. For your information, only in July of this year totally 13,960 transactions were done, for which citizens have knocked at the door of this institution minimum twice. Those who have big calculators can calculate how much money goes to the cadastre annually.