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Investments in rural SMEs - case study from Armenia (167) #sfrome

Posted by Beate Stalsett Thursday, September 29, 2011

Written by Yamba Mbizule

Tigran Khanikyan (CEO) of The Fund for Rural Economic Development in Armenia (FREDA) introduced the project to a host of participants and proceeded to touch on the key activities and highlighting key lessons learned.

Discussions began, sketching out the scape of Armenia’s business sectors, with particular detail to small-medium SMEs. Highlighted were: 1) The lack of Equity Funds in Armenia, 2) The need for capital investment in businesses, and 3) Organisational change – making business more professional.

Founded with seed capital from IFAD in 2009, the fund has been operational for a year and a half now and has since invested in 7 companies spanning 4 key target sectors, mainly: dairy, fish breeding, winery and canning – with another 10 investment opportunities in the pipeline.
The fund is run by 5 individuals including Mr Khanikyan and is moderated by a board of trustees which includes the Armenian Prime Minister, as well as two external moderators nominated for a year at a time. After receiving proposals and conducting feasibility studies, FREDA not only invests in the various sectors but also in the human capital of each business. FREDA sits on the boards of the companies they invest in and employ a hands-on approach to business, which includes a great deal of corporate restructuring in order to increase the business’ professional and functional standard and thus gear the companies towards expansion.

Lessons Learned:
1. The interest from privately owned companies in small-medium SME investment has been boosted.
2. The size of the company is not important when it comes to investment, what is important is the human capital. The people and the culture in the company are more important than the figures.
3. The long term goal is expansion, but the immediate and pressing issue is that of self-sufficiency. A company must be able to support itself, financially and strategically.
4. The results are not immediate, it may take 1, 2, or even 3 years before the benefits are fully reaped.
5. The real development of financial markets can be seen in the pledge value. If for every $1 put into the business, $1 is reaped, then the growth can be measured as such.
6. A full rehabilitation of a company is required, a hands on approach to this type of poverty reduction is necessary.
7. Keeping private funds out of the initial investment allows for the companies to structure as appropriate to them and not to be usurped by the heavy corporate mode of business until the professional standard of business and the standard of living has been raised.

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