Wednesday, May 28, 2008

Micro lending.

A couple years ago I started expanding my finance skills. The ultimate goal was to set up two ventures in Armenia - a micro lending enterprise that would lend small infrastructure loans to the rural farmers in Armenia, and a brokerage service in Yerevan that would advise clients who wanted to invest in the capital markets abroad. The second enterprise would donate a portion of its retained earnings to the first project.

Well, now that I'm a persona non grata there, these plans have been postponed indefinitely. What reminded me of these plans was a Google non-profit ad for the Grameen Foundation. I still believe that it's programs like these that will enable the rural poor to lift themselves from the dire situation they are in. Micro lending will not make anyone rich but it will alleviate the desperate poverty some of the farmers I've met in Armenia are in.

12 comments:

Anonymous said...

Nazarian,it's a Tigran.
Can I help you in establishing the ventures here in Armenia. Ihave a lot of traveling through the villages in Armenia and familiar with quite a lot of experienced people who can help you to establish the ventures here.
Hope,you are not a persona non grata in Armenia-it was an exageration.
Waiting for your answer.
Cheers
pigh

Ani said...

FINCA International is another microfinancing group that works in Armenia; I've given to it for years so I can vouch it does a good job--Charity Navigator 4-star rating.
http://www.villagebanking.org/

Heifer International's also been in Armenia for years:
http://www.heifer.org

antifa said...

Till the banditocracy is in power it is pointless to even consider it.
As soon as something starts working they will force you out of it.

The piracy works at all levels. from multimillion projects to importing 2-3 mobile phones.

Keeping 100s of people in jails unlawfully is the best example.
I can bring many, many real life and busness specific examples if you need advise.

Anna said...

I heard about FINCA when I was living in Yerevan last year and was originally very impressed with the work they were doing, however after speaking to a couple of people who worked for them and a couple who had borrowed from them it became quite obvious that far from "lending a helping hand to the underdog" it made exorbitant profits by exploiting a group of people that had no where else to turn and were forced to borrow from FINCA.
The highest interest rate charged by any other bank in Armenia is approx. 23% all of whom require extensive backup paperwork and documentation, which naturally small farmers do not have. Having no other choice they turn to FINCA, which I was amazed to learn charges 36% interest rate (initial rate of 24%, 12% small print additional fees). These are numbers that I got from one of their contracts and was confirmed (unofficially of course) by one of their regional heads.
Now I fully understand the greed of capitalism and the need to make profits but what really bugs me is corps like FINCA using the “we’re helping the little guy” excuse while milking them to the last penny.
Of course until our banking systems can make funds available for people who need them most they are just going to have to bite the bullet and borrow from “extortionists”.

reflective said...

That's great antifa - with an attitude like this, no one should have been interested in helping build Armenia while the Communists were busy destroying our culture, while Levon and Robert were mismanaging the country, etc.

You can wait forever for Armenia to magically transform into Switzerland, or you can encourage the rest of the nation to get involved in improving some aspect that you think you can change. I would argue there are (and always has been) many such aspects.

Ani said...

Sorry to hear it, Anna. When I get some time, I'll read over their literature. I do know that microfinance groups need to charge higher interest rates than banks do because the risks are much higher and the loans are unsecured, but that's really high. Sounds like maybe the Armenian government bribes got built into the loan structure, or is that their rate everywhere?

I guess Nazarian's got to get his own venture going somehow!

Anonymous said...

Microlending is one of those things which sounds very good, but on further inspection has many problems. It started in Bangladesh, with Grameen Bank, and has now been spreading worldwide due to the support of development agencies who see it as a poverty relief measure. It was further popularized when Mohammed Yunus of Grameen was awarded the Nobel Peace Prize in 2006.

But what is less known are the problems of microlending. These include the fact that many borrowers end up in a constant cycle of debt in which they are perpetually borrowing to pay off old loans. The borrowers are also kept out of waged work and pushed into the informal economy. So in what is supposed to help them , actually ends up reinforcing their poverty. Not to mention that these loans are given at non-market and very exorbitant rates.

Microlending programs that work also invest enormous resources in infrastructure, training and support services. Because, in order to achieve long-term poverty alleviation, funding for education, training, etc are also needed. One-off loans to poor people who lack the skills and connections to make a business work will not succeed. What is needed is a more comprehensive and long term approach.
Armine

Anonymous said...

Reflective
That's the reason that we fight against the current crimial regime.

nazarian said...

Armine, the people who get most taken advantage of by unscrupulous lenders are the poorest classes of the society. In the US we have short term lending outfits like payday loans that charge as much as 600% APR! The loan sharking by the mobsters is a great deal compared to these people. But it goes further. Take the current mortgage fiasco where the poor and financially uneducated folk were lured into sub-prime loans. While Bear Sterns and other fat cats got bailed out by the Federal government in the aftermath, these folks are blamed for being irresponsible.

But it's not the lending that is at fault here. It is the unethical culture among these lenders. I believe that it is possible to be ethical and profitable at the same time. It requires a little bit of different business philosophy than what is common around us. It may sound dreamy eyed but we, after all, live in a society and if that society is better off, we all are better off.

Anonymous said...

http://new.aravot.am/am/articles/society/41957/view

«Ոգելից խմիչքներ արտադրողների նկատմամբ սկսել են դաժան վարվել՝ տուրքերը 25 հազար դրամից դարձնելով 5 միլիոն, մի մոմենտ 6 միլիոն պիտի բանկում ունենայիր, որ թույլ տային աշխատել: Նման բան աշխարհում չկա, որ նոր օրենքները հետադարձ ուժ ունենան: Կոնկրետ մեր ընկերության հետ եղավ այդպիսի դեպք. մեր լիցենզիայի ժամկետը 2 տարով էր, բայց ութ ամիս դեռ չէինք աշխատել, որ մեր գործունեությունը դադարեցրին՝ պատճառաբանելով, թե օրենքի փոփոխություն է եղել, գնա 5 միլիոն մուծի՝ աշխատի: Ես եթե իմանայի, որ Հայաստանի օրենքները նման ձեւով պետք է գործեն՝ բիզնեսով չէի զբաղվի: 200 հազար դոլար չէի ներդնի շենքեր կառուցելու համար, էսօր էդ շենքը տասը հազար դոլար էլ չարժե: Չեմ էլ կարող դադարեցնել, որովհետեւ պետության ձեռն արդեն զալոժնիկ եմ»,- Գյումրիում օրերս կազմակերպված «Գործարար Շիրակ 2008» ցուցահանդեսի ժամանակ մեզ հետ զրույցում ասաց «Տոնոյենց ընկերության» նախագահ Սասուն Տոնոյանը:

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ՀՀ առեւտրաարդյունաբերական պալատի նախագահ, ԱԺ պատգամավոր Մանվել Սարգսյանն էոստացավ օժանդակել փոքր ու միջին բիզնեսի նկատմամբ հարկային դաշտի «փափկեցմանը», այդուհանդերձ, նկատենք, որ թե՛ վերջինիս, թե՛ երկրի նախագահի ու վարչապետի մտահոգությունները անչափ ուշացած են. Գյումրիում արդեն իսկ շատերը սնանկացել ու հարկադրված վաճառքի են հանել իրենց բիզնեսը: http://new.aravot.am/am/articles/society/41957/view

nazarian said...

That is banditocracy, no doubt.

Ani said...

Today I got a mailing from FINCA International with some interesting news: the Microfinance Information Exchange (MIX) Global 100 Composite Ranking of Microfinance Institutions ranked four of their affiliates in its Top 100 Best Performing microfinance providers around the world. And FINCA's very best? Armenia, coming in at #17! Some good news for once, had to share it! :) http://tinyurl.com/ceq2qa