Can a Government Loan Work for Microfinance? IFAD's Funding of the Agricultural Cooperative Bank of Armenia

This report is a case study on the International Fund for Agricultural Development (IFAD), which used a government loan to promote the Agricultural Cooperative Bank of Armenia.

Through IFAD's support, the Agricultural Cooperative Bank of Armenia was able to expand to a greater number of rural provinces, enhance its capital base, and become Armenia's biggest bank. The report presents the following background information:

• ACBA was established in 1995 as a cooperative bank to service rural customers;
• In 1996, IFAD initiated a microfinance intervention with Northwest Agricultural Services Project, while ACBA was becoming established;
• When IFAD and ACBA came into contact, they found a way to use a US $4.5 million credit line, which was extended to ACBA, allowing it to become self sustainable and expand its service offerings;
• By December 2003, ACBA had 32,640 customers and eight branches;
• The institution achieved a US $21 million outstanding portfolio, of which $8.8 million was used for agricultural loans;
• IFAD found ACBA to be compatible because of its successful track-record with small loans;
• ACBA found IFAD compatible because IFAD understood its financing needs.

With the credit line from IFAD, ACBA created numerous village associations. IFAD found that ACBA was successful for the following reasons:

• ACBA was able to utilize IFAD's loan for sustainable microfinance and the Armenian Government;
• IFAD and ACBA's priorities were aligned;
• ACBA used a commercial approach;
• ACBA's cooperative structure ensured a high portfolio quality.