APM visits Armenia

August 2012

Fund Manager: Dr. Arman Vardanyan, Armenia visit Absolute Portfolio Management GmbH (APM) Dr. Arman Vardanyan, fund manager of APM´s two micofinance funds, recently visited Armenia to observe the microfinance sec- tor and to meet with investee Microfinance Institution SEF International and their micro-clients. Dr. Vardanyan summarises his impressions: AV: “Armenia has a successful record of transition by creating a favourable macro-economic environment based on a market economy. The global financial crisis had a major impact on Armenia. Despite this, the country could provide a 4.6% GDP growth in 2011. According to the World Bank, the effect of the financial crisis on rural and urban poverty has been dramatic—the poverty rate increased from 27.6% in 2008 to 35.8% in 2010. The poor have been supported through targeted social expenditures and pension increases, and as growth is picking up the number of people living in poverty is expected to fall. One of the most important conditions for sustaining economic growth is further improvement of the business and investment environment. Currently, Armenia is undertaking some institutional reforms and is committed to fully integrating itself into the world economy. Armenia strives to build closer economic ties with the EU. At present, the EU is Armenia's first trading partner and supports the country in strengthening its political and economic reforms. In the Armenian microfinance sector competition is high. MFIs are working to improve their products and services to adapt to the increasing demands of many micro-clients. During my country visit to Armenia I met with executives and staff of SEF International. I was told that SEF shows sound financial performance and at the same time adhers strongly to its social mission. SEF plans to extend its network of branches and to offer new loan products to satisfy the needs of micro-borrowers, particularly in the agricultu- ral sector. I also had the opportunity to visit several MFI branches and to meet micro-entrepreneurs face to face“.

Vision Microfinance The two Vision Microfinance Funds (“Dual Return Fund – Vision Microfinance” and “Dual Return Fund – Vision Microfinance Local Currency”) managed by Absolute Portfolio Management offer investors access to impact investments such as microfinance. The funds have a double bottom line strategy, on the one hand maximizing its risk return profile for the benefit of the investor, and on the other hand maximizing the social outreach in breadth and depth to micro, small and medium enterprises in emerging and least developed economies. Through an investment in the Vision Microfinance Funds, loans to carefully selected microfinance institutions (MFIs) are financed, the MFI„s in turn lend it on in the form of small credits (microcredits) to poor but economically active people locally. To date over 274 m USD have been handed out in the form of 293 promissory notes to 144 different MFIs in 40 countries. This meaningful and sustainable help for self-help permits families access to food, medical care and education for their children. Until today the lives of approx. one million people have been transformed with the help of the Vision Microfinance Funds.

Client stories

Arman Begijanyan Aram Begijanyan is 32 years old. He lives in Dimitrov village in the Ararat region with his wife and 2 children, a 4 year old daughter and a 6 year old son.

Aram runs a farm where he breeds hens and ducks and keeps 2 green houses, where he grows peppers. He also keeps an orchard, where he grows apricot-, peach- and cherry trees. Aram‟s wife, Serine, 26 years old, manages the household and helps her husband in running the farm. As the breadwinner in the family, Aram also sometimes repairs electrical equipment to improve his income.

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After borrowing USD 1,500 from SEF International, Aram was able to improve his farm and to expand it. In particular, he increased the number of hens by purchasing 50 more. Aram also purchased a special incubator to hatch the eggs in just a few days. This allows Aram to gain income not only by selling eggs but also chickens. Besides this, the microcredit helped Aram to improve his farm. He purchased fertilizer to cultivate the land and trees. Aram also renovated the green houses and bought polyethylene covers for them. These improvements had a positive impact on the harvest of the green houses and the orchard. Aram‟s income from his farm increased by USD 30 and he now earns approx. USD 200 a month. This allows Aram not only to cover his family‟s living costs but also to save for a future renovation of his house, which will further improve the quality of life for this young family.

Gegham Grigoryan (Yerevan) Gegham Grigoryan is 48. He lives in Yerevan with his wife, a nurse, and 2 school-age children. Gegham operates a sewing workshop, where he produces medical uniforms. Gegham‟s workshop is located at a rented premise in one of the hospitals in Yerevan. Prior to starting his business, Gegham worked as a tailor in a sewing company. At the beginning of the 90s, when Armenia underwent an economic crisis, it was very difficult to earn a sufficient income for the family. Gegham decided to found his own business to gain financial stability and ensure his family‟s livelihood. Gegham started up his business in 1993, when running a private business had just been legalised in Armenia. He was one of the pioneers of private production of medical uniforms in Yerevan. When almost all production in Armenia collapsed due to an energy crisis, Gegham continued running his business using generators. Due to his sense of purpose, Gegham developed his business further and gained a loyal and continually growing customer base. Gegham delivers his products not only to clients in Yerevan, but to all areas of Armenia. Gegham currently employs 4 tailors. When demand is high, he hires 2 additional tailors. The expansion of his business required an increase in production and more material. To meet this challenge, Gegham applied to SEF International for a loan of USD 3,000, which he invested in purchasing textiles in bulk at a lower price. This allowed Gegham to complete all orders in time to and keep the development of his business stable.

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Microfinance Institution - SEF International

SEF International Universal Credit Organization was founded in 1997 by World Vision International. Since 2009 SEF is governed and owned by Vision Fund International, a microfinance subsidiary of World Vision. SEF provides loans for farmers, sole proprietors and small enterprises as well as renovation and consumer loans. The majority of their microcredits is used for retail businesses and agriculture. SEF´s free financial consultancy, quick loan application processing and flexible loan conditions are aimed to guide the client towards responsible borrowing, developing the business, improving household economy, creating healthy and sustainable lives for families and children

SEF has a team of 129 employees (which doubled since 2009) and serves over 13.000 clients in 8 regions CEO, of Armenia: two branches in Yerevan, branches in Armavir, Gyumri, Sisian, Talin, Kapan, Artashat, and re- Gargin Gevorgyan presentative offices in Stepanavan, Yeghegnadzor, Goris and Meghri. SEF finances their lending through equity capital, loans from different Microfinance Investment Vehicles such as the „Dual Return –Vision Microfinance Funds“, and through a partnership with kiva.org. They are planning to open another 2 branches this year and to cover the whole country by 2015. SEF will also launch new products in the near future such as educationa loan packages.

Social Impact In order to measure the social impact, SEF uses three major indicators: number of jobs created, number of children`s lives impac- ted and number of female borrowers. The data for these three indicators is collected through the management information system, and available on a monthly basis. SEF has been delivering visible results throughout its history. In total, SEF has extended over 49 million USD in loans to more than 47 clients, created and sustained more than 40,000 jobs and affected around 78,000 children.

Headquarter of SEF International SEF branch visit in Artashat

SEF International Universal Credit Organization Ltd.

19/19 Yervand Kochar Street Yerevan, Armenia Tel:, Fax. (374 10) 55 25 22 Email: [email protected]

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Armenian highlights The city of Yerevan (Armenia) was named as the World Book Capital 2012 at the conclusion of the meeting of the selection committee, which was held at UNESCO Headquarters on 2 July. The committee consists of representatives from the three main international professional associations in the book industry and UNESCO. Yerevan is the twelfth city to be designated World Book Capital after Madrid (2001), Alexandria (2002), New Delhi (2003), Antwerp (2004), Montreal (2005), Turin (2006), Bogota (2007), Amsterdam (2008), Beirut (2009), Ljubljana (2010) and Buenos Aires (2011). The city of Yerevan was chosen for the quality and variety of its programme, which is “very detailed, realistic and rooted in the social fabric of the city, focused on the universal and involving all the stakeholders involved in the book industry”, according to the members of the selection committee. “I congratulate the city of Yerevan, which has presented a particularly interesting programme with many different themes, including the freedom of expression, as well as several activities for children, who will be the readers and authors of tomorrow”, said Irina Bokova, Director-General of UNESCO. “Mobilizing the entire world of books and reading, from authors to printers and publishers, will undoubtedly help to make the Yerevan programme a major success, with a sustainable impact,” she added. Every year, UNESCO and the three major international professional organizations from the world of books - the International Publishers Association (IPA), the International Booksellers Federation (IBF) and the International Federation of Library Associations and Institutions (IFLA) - designate a city as World Book Capital for one year, between two consecutive celebrations of World Book and Copyright Day (23 April). This initiative is a collaborative effort between representatives of the main stakeholders in the book industry, as well as a commitment by cities to promote books and reading. http://www.unesco.org/new/en/media-services/single-view/news/world_capital_book/

The Mesrop Mashtots Institute of Ancient Manuscripts, commonly referred to as the Matenadaran, is an ancient manuscript repository located in Yerevan, Armenia. The Matenadaran is in possession of a collection of nearly 17,000 manuscripts and 30,000 other documents which cover a wide array of subjects including history, philosophy, medicine, literature, art history and cosmography in Armenian and many other languages.

The alphabet created by Mesrop Mashtots was so perfect that it has not been changed or reformed since 405 AD. The letters used today look exactly as Mesrop Mashtots created them. The Armenian alphabet played an enormous role in the preserving of the national and cultural identity of the Armenian people, and enjoys a very special love and respect. For the creation of the alpha- bet Mesrop Mashtots was later canonised by the Armenian Apostolic Church.

The Matenadaran Institute Illumination from the Matena- Armenian Alphabet building in Yerevan daran Gospel (1287)

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Facts on Armenia Capital: Yerevan Surface area: 30 thousand sq km Official language Armenian Population 3.3 million (2010) Exchange rate: EUR 1 = 503.72 Dram (Sep 2011) Head of State: President HE Mr Serzh Sargsyan Head of Prime Minister HE Mr Tigran Sargsyan Government: Ethnic groups: Armenian 97.9%; Yezidi 1.3%; Russian, Greek, and other 0.8%. Religion: Armenian Apostolic Church (more than 90% nominally affiliated) Language Armenian (96%), Russian, other

History Economy (2010) Armenia first emerged around 800 BC as part of the Kingdom GDP: $ 9.4 billion of Urartu or Van, which flourished in the Caucasus and east- GDP growth rate: $ 2.6% ern Asia Minor until 600 BC. After the destruction of the Se- Per capita GDP PPP: $ 2,900 leucid Empire, the first Armenian state was founded in 190 BC. At its zenith, from 95 to 65 BC, Armenia extended its rule Inflation: 8.2% over the entire Caucasus and the area that is now eastern Natural resources: Copper, molybdenum, zinc, gold, sil- Turkey, Syria, and Lebanon. For a time, Armenia was the ver, lead, marble, granite, mineral strongest state in the Roman East. It became part of the Ro- spring water man Empire in 64 BC. Agriculture: fruits and vegetables, wines, dairy, some livestock In 301 AD, Armenia became the first nation to adopt Christian- Industry: diamond-processing, metal-cutting ity as a state religion, establishing a church that still exists machine tools, forging-pressing ma- independently of both the Roman Catholic and the Eastern chines, electric motors, tires, knitted Orthodox churches. Since then, the Armenian nation has de- wear, hosiery, shoes, silk fabric, pended on the church to preserve and protect its national chemicals, trucks, instruments, micro- electronics, jewelry manufacturing, identity. From around 1100 to 1350, the focus of the Armenian software development, food pro- nation moved south, as the Armenian Kingdom of Cilicia, cessing, brandy which had close ties to European Crusader states, flourished in southeastern Asia Minor until it was conquered by Muslim Trade (2010) states. Between the 4th and 19th centuries, ethnic Armenians Exports: $1billion: pig iron, unwrought copper, nonferrous

were conquered and ruled by, among others, Persians, Byz- metals, diamonds, mineral products, antines, Arabs, Mongols, and Ottoman Turks. foodstuffs, energy For a brief period from 1918 to 1920, Armenia re-emerged as Export partners: Russia 13%, Germany 16%, Bulgaria an independent republic. In late 1920, local communists came 15.3%, US 9%, Netherlands 9%, to power following an invasion of Armenia by the Soviet Red Georgia 5% Army, and in 1922, Armenia became part of the Trans- Imports: $3.8 billion: Caucasian Soviet Socialist Republic. In 1936, it became the natural gas, petroleum, tobacco prod- Armenian Soviet Socialist Republic. Armenia declared its in- ucts, foodstuffs, diamonds dependence from the Soviet Union on September 21, 1991. Import partners: Russia 16%, UAE 9%, Ukraine 5.4%,

Iran 5.2%.Turkey 4.7% (NationalStatistics Service of Armenia)

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