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Microfinance Sector in Armenia: Challenges and Opportunities
Yerevan, Armenia - The microfinance sector in Armenia is poised for significant growth, driven by the country’s efforts to establish a digital financial system and promote economic development. However, Universal Credit Organizations (UCOs) face numerous challenges, including competition from commercial banks, regulatory compliance, and funding constraints.
Market Size and Competition
According to recent figures, ACBA Leasing Armenia stands out with assets amounting to AMD64.1 million, followed by Aregak UCO CJSC with AMD29.5 million, Global Credit UCO CJSC with AMD24.9 million, Finca UCO CJSC with AMD23.0 million, Development and Investments Corporation of Armenia CJSC with AMD22.6 million, and Kamurj UCO CJSC with AMD15.5 million.
Digital Transformation
The Central Bank of Armenia (CBA) is leading the digital transformation of the financial market, aiming to establish a national electronic identity system, broaden financial inclusion, and create a non-cash economy. To achieve this goal, citizens will need to link their current bank account number or open new ones with chosen partner digital financial services providers.
Operational Challenges
UCOs in Armenia face several operational challenges, including:
- Inflation and exchange rate volatility
- Compliance with financial regulations
- Funding of loan books through external resources
- Need for technology advancements and improved service delivery
- Rise in competition from commercial banks has made it challenging to offer competitive rates and grow at a profitable rate
Response to Challenges
In response to these challenges, some UCOs have explored the prospect of transforming into banks, as exemplified by Fast Credit’s transformation in 2022. However, such transformations remain an exception within the microfinance landscape.
Support from Asian Development Bank
The Asian Development Bank (ADB) is committed to supporting the development of Armenia’s microfinance sector through its Microfinance Program, which aims to promote local currency lending by commercial banks and financial institutions to microfinance institutions. The ADB has committed $1.3 billion to Armenia since 2005, with 70% of the active sovereign lending portfolio focused on transport infrastructure.
Investor Opportunities
The microfinance sector in Armenia presents a unique window of opportunity for investors to play a pivotal role in shaping its future. The dynamic interplay among UCOs, commercial banks, potential sector reforms, and investor involvement will ultimately determine the sector’s ability to meet the diverse financial needs of Armenia’s business landscape.
Contact Information
ADB Armenia Resident Mission Don Lambert, Country Director Narine Avetisyan, Senior Investment Officer
Visit https://www.adb.org/where-we-work/armenia for contact details.
ADB Microfinance Program Anshukant Taneja, Principal Investment Specialist Sabine Spohn, Principal Investment Specialist Private Sector Financial Institutions Division Private Sector Operations Department
Email: mfprogram@adb.org Phone: +63 2 8632 4444