Armen Sarjanyan, Director of the “Healthy Mushroom” Company says that, “Around 8-10 years ago banks used to laugh at us when we went to them for agricultural loans.” The main reason that loans were refused at the time was that agriculture wasn’t seen as a economically solvent sector.

Today, the Director of the Hrazdan firm that produces mushrooms states that it’s because of loans received in the past two years that the company has grown. Presently, the issuance of credit has been partially resolved as international, state and private institutions are involved in the process.

In 2005 an agreement was signed between the Government of Armenia and the International Fund for Agricultural Development. $8.9 million of the $28 million allocated by the Fund was targeted to agricultural credits.

That same year the “Rural Development Program Implementation Office” (RDPIO) was created within the ROA Ministry of Finance. Soon after, the World Bank allocated $5.2 million as its share to the credit issuance program.

As of 2006, eight banks have been issuing agricultural loans with 8-10% annual interest rates with pay-back periods of up to seven years. Taking into account the peculiarities of the agricultural sector, loan recipients can start paying back the interest after 18 months. The maximum loan available is $150,000.

Ara Muradyan, Director of the Rural Development Office, states that, “$9 million of the above mentioned amounts is already in circulation in various agricultural sectors like horticulture, animal husbandry, fish farming, cheese making and poultry. Every month borrowers pay us back $107,000 which gets ploughed back into new loans.”

“Healthy Mushroom” is the only large-scale firm operating in Armenia producing fresh mushrooms and one of the first to receive a loan from the Rural Development Office. With a loan they received two years ago the firm purchased modern machinery with which to maintain necessary humidity and heat levels.

The firm grows the Agarikon (champignon) and Portobello mushroom varieties in its hot houses. Even though the harvest is up 20% over last year, reaching some 60 tons, the market for mushrooms in Armenia is limited to Yerevan. In the regions outside of Yerevan, expect for what is grown on small garden plots, most people use canned varieties of mushrooms. Last year 1000 tons of such produce was imported into Armenia.

The aim of the company is to satisfy the market demand for fresh mushrooms in Armenia. Mr. Sarjanyan is convinced that the most effective way to invest in this sector is through loans. In the last two years the Rural Development Office has come up with a few new credit issuance mechanisms that guarantee the effectiveness of credit allocation. Thus, all three parties to the credit process, loan recipients, the banks and the RDPIO, profit as a result of this cooperation.

The banks are ultimately responsible for the return of these funds in the eyes of the government, not the individual loan recipients. It doesn’t make a difference whether the recipients pay back the loan or not. The banks are obligated to due so within a certain period of time. The banks of course reserve the right to select who is eligible to get loans. During this period loan requests amounting to some $4-5 million has been refused for a variety of reasons. Also, there has not been one case where a loan recipient couldn’t repay due to bankruptcy.

Mr. Muradyan states, “Such a system has been put in place that if the bank has problems we don’t loose anything, on the contrary, we profit. We allocate funds to the bank which in turn tacks on its own interest and loans it out. If the bank goes under the balance and all the interest is immediately transferred to us from the loan recipient. The bank has nothing to worry about, whether it goes belly-up or not.”

“Healthy Mushroom” received a 12% loan. All credit related mattes, including the agreed upon interest rate, was taken care of by the bank. The role of the RDPIO was limited.

Credit institutions in Armenia receive funds from international organizations at fairly low rates, 75%. The International Fund for Agricultural Development (IFAD) permits loans to be allocated by adding only 2-4%. Banks however, by adding on their rates, raise the interest to 10-12%. Presently, the interest scale is only increasing. In the past it was 8-9%.

Ara Muradyan explains that, “The problem is that deposit rates have gone up from 7% to an average of 11%. If interest rates don’t rise there is a danger that people will take out loans at 10% and reinvest the money in banks paying out 11%.”

Loans allocated by the IFAD are only being granted to the Tavush, Gegharkunik, Lori, Shirak, Syunik, Vayots Dzor and Aragatzotn regions in Armenia. The program of the World Bank allows for all regions of Armenia to receive loan financing.

We should briefly mention that in the geographical breakdown of credit issuance there are certain areas that are refused credit. This occurrence has become an accepted working norm. One of the reasons is that residents of such area are viewed as insolvent or credit risks.

Taking this factor into account the Armenian government has established a program according to which 15 village communities in Gegharkunik and 44 in Shirak will pay the government 10% if issued credit. To this end the government has already allocated 100 million drams to the RDPIO. In the coming years new village communities will be included in the program in order to guarantee symmetrical agricultural development within the various regions in Armenia.