An EU loan improves access to finance for Armenia SMEs

Under 20 hectares of greenhouses in central Armenia’s semi-arid Kotayk province, local agricultural company Green Farmer grows hydroponic cherry tomatoes. Tomatoes are one of Armenia’s top agricultural exports and the company’s site, in the town of Hrazdan, is less than an hour away from the first century Temple of Garni, where another famous Armenian export, Kim Kardashian, stopped to admire the Greco-Roman colonnades in 2019, dressed in black with a large silver necklace.

It may be that proximity to an ancient monument originally dedicated to the Armenian sun god, Mihr, is beneficial to a crop that thrives on sunlight. But the location’s main attraction for Green Farmer was the area’s climate and a nearby gas-fired power station, from which the greenhouses draw heat to help keep the tomatoes warm.

Founded in 2018, Green Farmer today employs around 230 people and its greenhouses, which use the latest Italian and Dutch technologies, produce 8 000 to 9 000 tonnes of tomatoes a year for export, mainly to Russia and the United Arab Emirates. But the start of the project was not easy, because the company initially struggled to find a bank willing to lend it the nearly $12 million it needed.

A game-changing loan

That changed when the company came across Ardshinbank, a local lender that had been working with the Central Bank of Armenia to make use of EU funds to develop the country’s private sector. With support from the European Commission, the European Investment Bank  extended the central bank three €50 million, 10-year financing facilities in 2014, 2016 and 2018 to give small, local businesses cheaper access to financing through the local banking system. In the case of Green Farmer, the money from the European Investment Bank helped cover $4.2 million of the project’s cost and made it easier for the company to borrow more money to equip the firm’s apricot, cherry and apple orchards in Ararat province with an anti-frost system and a high tech anti-hail net, which protects the fruit trees from hail, ultraviolet rays and wind, as well as birds and pests.

“The full amount of money just wasn’t available to the founders at the time,” says Robert Kotsinyan, director, at Green Farmer. “But the idea of taking out a loan for the business was definitely the right decision and things have worked out pretty well.”

The company is experimenting with growing cucumbers in the greenhouses as well, but early plans to add an additional 15 hectares of greenhouses suffered a setback during the COVID-19 pandemic and have been put on hold since the war in Ukraine. “We now see many risks for that kind of expansion,” says Kotsinyan.

The success of companies like Green Farmer and the smooth flow of funds from the European Investment Bank to the central bank – and then on towards local banks and their clients – has encouraged the EU bank to extend further financing. In 2023, a new line of credit is expected to support the economic recovery and resilience of the country by enhancing access to financing for micro, small, medium-sized enterprises, and mid-caps. The facility, which was approved in December 2022, will focus on support for green projects, female entrepreneurs, and small companies outside the capital city, Yerevan.

Close cooperation

Close cooperation with the central bank has been vital for the programme’s success. “Working with the Central Bank of Armenia is a great way for us to provide wide-ranging support with a strong added value for SMEs and mid-sized companies in the country,” says Kirill Stoychev, a loan officer at EIB Global, the European Investment Bank arm that handles operations outside the European Union. “There is no similarly favourable mechanism that could match the central bank’s role in converting the EIB’s loans into [the local currency] Armenian Dram.”

“By working with the central bank, the EU’s support can reach smaller businesses via the distribution channels of virtually the entire banking sector and benefits from a strong policy steer,” Stoychev says.

The relationship between the Central Bank of Armenia and the EU bank goes back to 2014. It has included a significant element of advisory work by the European Investment Bank. 

“Armenia is a country where we are constantly engaged,” says Michael Steidl, who works in the advisory department of EIB Global. “We’ve worked with them in the past to identify opportunities for climate action investment in the agribusiness and tourism sectors and how financial institutions should attend to this demand. With the new loan, we are exploring the digital sector and female entrepreneurs.”

The European Investment Bank’s advisory work with the central bank is financed by the Eastern Partnership Technical Assistance Trust Fund, a trust fund financed by EU governments.