Report and Recommendation of the President to the Board of Directors

Sri Lanka Project Number: 45230 October 2012

Proposed Policy-Based Loan, Loan, and Technical Assistance Grant Armenia: Women’s Entrepreneurship Support Sector Development Program

CURRENCY EQUIVALENTS (as of 21 September 2012)

Currency unit – dram (AMD)

AMD1.00 = $0.0024532 $1.00 = AMD407.62

ABBREVIATIONS ADB – Asian Development Bank BDS – business development services CBA – Central Bank of Armenia ESMS – environmental and social management system FIL Financial intermediation loan GDP – gross domestic product ICT – information and communication technology MOE – Ministry of Economy MOF – Ministry of Finance MSMEs – micro, small, and medium-sized enterprises PAM – project administration manual PFI – participating financial institution PMU GAF – project management unit of the German–Armenian Fund SMEs – small and medium-sized enterprises SME DNC – Small and Medium Entrepreneurship Development National

Center TA – technical assistance UCO – universal credit organization

NOTES

(i) The fiscal year (FY) of the Government of Armenia and its agencies ends on 31 December.

(ii) In this report, "$" refers to US dollars.

Vice-President X. Zhao, Operations 1 Director General K. Gerhaeusser, Central and West Asia Department (CWRD) Director D. Kertzman, Public Management, Financial Sector, and Trade

Division, CWRD Team leaders M. Endelman, Principal Financial Sector Specialist, CWRD L. Schou-Zibell, Senior Economist, CWRD Team members N. Djenchuraev, Environment Specialist, CWRD

G. Gyurjyan, Associate Economics Officer, CWRD M. Hermans, Investment Specialist, Private Sector Operations

Department (PSOD) M. Marcelino, Operations Analyst, CWRD

I. Martinez, Finance Sector Specialist, CWRD C. Png, Senior Counsel, Office of the General Counsel

I. Setyawati, Safeguards Specialist, South Asia Department J. Stickings, Senior Social Development Specialist (Gender and Development), CWRD V. Tyo, Investment Specialist, PSOD

Peer reviewers S. Lee, Principal Social Development Specialist (Gender and Development), Pacific Department S. Schuster, Senior Financial Sector Specialist, Southeast Asia Department

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

PROGRAM AT A GLANCE

I. THE PROPOSAL 1

II. THE PROGRAM 1 A. Rationale 1 B. Impact and Outcome 3 C. Outputs 3 D. Investment and Financing Plan 5 E. Implementation Arrangements 7

III. TECHNICAL ASSISTANCE 8

IV. DUE DILIGENCE 8 A. Economic and Financial 8 B. Governance 8 C. Poverty and Social 8 D. Safeguards 9 E. Risks and Mitigating Measures 9

V. ASSURANCES AND CONDITIONS 9

VI. RECOMMENDATIONS 10

APPENDIXES

1. Design and Monitoring Framework 11 2. List of Linked Documents 14 3. Development Policy letter 15 4. Policy Matrix 20

PROGRAM AT A GLANCE

1. Project Name: Women's Entrepreneurship Support Sector Development Program 2. Project Number: 45230-001

3. Country: Armenia 4. Department/Division: Central and West Asia Department/Public Management, Financial Sector, and Trade Division

5. Sector Classification: Sectors Primary Subsectors Finance √ Small and medium-sized enterprise

finance and leasing Finance Microfinance

Finance Finance Sector Development

6. Thematic Classification: Themes Primary Subthemes Gender equity √ Gender equity in (economic) opportunities Economic growth Promoting economic efficiency and

enabling business environment Private sector development Private sector investment

Capacity Development Institutional development

6a. Climate Change Impact Not applicable

6b. Gender Mainstreaming Gender equity theme (GEN) √ Effective gender mainstreaming (EGM) Some gender elements (SGE) No gender elements (NGE)

7. Targeting Classification:

General Intervention

Targeted Intervention Geographic

dimensions of inclusive growth

Millennium development

goals

Income poverty at household

level √

8. Location Impact: National - High

9. Project Risk Categorization: Low

10. Safeguards Categorization:

Environment FI

Involuntary resettlement FI (treated as C)

Indigenous peoples FI

11. ADB Financing:

Sovereign/Nonsovereign Modality Source Amount ($ Million)

Sovereign SDP – Policy-based Loan

Asian Development Fund 20.0

Sovereign

SDP – FI Loan Asian Development Fund 20.0

Sovereign Capacity development technical assistance

Technical Assistance Special Fund 0.6

Total 40.6

12. Cofinancing: Not applicable

13. Counterpart Financing: Under the FI component, subborrowers will provide $5 million equivalent as equity contribution.

The government will provide counterpart financing of $30,000 (in kind) for the TA.

14. Aid Effectiveness:

Parallel project implementation unit No

Program-based approach Yes

I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on (i) a proposed policy-based loan to Armenia; and (ii) a proposed loan to the Central Bank of Armenia (CBA), with a sovereign guarantee from Armenia—both for the Women’s Entrepreneurship Support Sector Development Program (the program). The report also describes proposed technical assistance (TA) for Capacity Building for Women’s Entrepreneurship Support, and if the Board approves the proposed loans, I, acting under the authority delegated to me by the Board, will approve the TA.1

2. The program comprises an integrated approach to enable women entrepreneurs and micro, small, and medium-sized enterprises (MSMEs) in Armenia to play a greater role in economic development. The program has two components: (i) a policy-based loan to help fund budget allocations to strengthen the business environment and the Small and Medium Entrepreneurship Development National Center (SME DNC) of Armenia2 and its support for women entrepreneurs and MSMEs; and (ii) a financial intermediation loan (FIL) to enable participating financial institutions (PFIs) to provide local currency loans to MSMEs, of which at least 50% are women's MSMEs.3 The program is supported by capacity development TA to improve the entrepreneurial capacity of women and to increase the capacity of the SME DNC, the project management unit of the German–Armenian Fund (PMU GAF),4 and PFIs to provide support for women's entrepreneurship. The implementation period is 2013–2017.

II. THE PROGRAM

A. Rationale

3. Women in Armenia are not reaching their economic potential. While women’s educational achievements in Armenia are on a par with those of men, women’s ownership of enterprises (31%) and share of management positions (13.5%) are below regional averages. Women’s formal labor force participation rate is declining (from 65% in 2001 to 54% in 2012). In addition to public sector jobs, self-employment is a core occupation for women. Most women engage in small subsistence-based business activities in trade and retail services. While women are increasingly engaged in growth sectors including agro processing and tourism, their participation in these sectors remains small. Mutually reinforcing social, market, and institutional constraints limit women’s access to economic opportunities and productive resources, and to the development of entrepreneurial attitudes. Small business is a crucial option for women to gain a livelihood. Yet women often lack the business skills, knowledge, confidence, and access to networks to increase their entrepreneurial capacity, and have less access to credit and other financial services than men.

4. Access to affordable finance and financial services remains an obstacle for many enterprises in Armenia. Historically, banks have been disinclined to lend to non-top-tier

1 The design and monitoring framework is in Appendix 1.

2 The SME DNC was established by the government of Armenia in 2002 to provide support to entrepreneurs from

annual small and medium-sized enterprise state support programs with resources allocated from the state budget. 3 Under the program, women's MSMEs are defined as being one of the following: (i) at least 50% of enterprise

ownership is controlled by women, (ii) at least 60% of senior managers are women, or (iii) at least 50% of the registered employees of the enterprise are women (which is also to contribute to the program target of women to benefit from increased economic opportunities. (see Appendix 1).

4 The PMU GAF was established by order N 518 of 14 September 2001 of the president of the CBA, as part of the

CBA. The PMU GAF administers liquidity support programs to the finance sector provided by German Development Cooperation through KfW, the World Bank, the Russian Federation, and other sources targeted at SMEs and other defined sectors of the economy.

2

enterprises, citing inadequate collateral, poor business plans, and lack of transparency. Financial institutions (i) have limited experience in providing financial products and services to women entrepreneurs and MSMEs; and (ii) because of the nascent local capital market, face difficulties in structuring such products in ways which can help protect customers against currency, interest rate, and tenor mismatch risks.

5. MSME financing remains inadequate. In 2011, there were about 150,000 registered MSMEs in Armenia, of which about 60.0%, or 90,000, were active. 5 Women's MSMEs 6 represented about 11.0%, or 9,900, of active MSMEs. In 2010, about 13,600 new MSMEs were registered, of which about 3.0%, or 400, were registered by women.7 The total MSME sector accounted for 98.5% of all registered enterprises and contributed 43.0% of GDP and 42.5% of employment, representing a doubling of the MSME contribution to the economy since 1999. The MSME share of Armenia’s export volume was 18.0% in 2011, an increase from 14.3% in 2003,8 and about 33.0% of banks total lending portfolio went to MSMEs.

6. Facilitating women’s entrepreneurship can contribute to economic growth. Enhancing business skills, financial literacy, and confidence in their entrepreneurial abilities will enable women to build productive businesses in profitable sectors, operate to scale, access finance, and benefit from economic opportunities. Providing financial support in the form of start-up support, loan guarantees, and local currency loans is essential for women to invest in new technology, equipment, and other fixed assets needed to increase their productivity and competitiveness. Supporting PFIs through the local-currency-denominated FIL can help make the finance sector more broadly based, competitive, and efficient. It will allow PFIs to provide local currency loans to MSMEs; contribute to the government’s de-dollarization efforts;9 as well as mitigate currency, interest rate, and tenor mismatch risks. By focusing on MSMEs, and women entrepreneurs in particular, the loan will help spread financial intermediation to outlying areas by developing financial services.

7. MSME development has been recognized as one of the key development priorities for the government. It has set out its commitment to development of women entrepreneurs and MSMEs through the Concept for SME Development Policy and Strategy in Armenia, and the Law on State Support to Small and Medium Enterprises, both adopted in 2000. 10 Annual programs for state support of MSMEs have been implemented since 2001. In 2012, a national strategy for small and medium entrepreneurship development11 was drafted, which specifically promotes entrepreneurship among women and is in line with the government’s On the Approval of the Gender Policy Concept Paper,12 the Gender Policy Strategic Action Plan,13 and the Gender Policy Action Plan for 2012. 14 In 2002, the SME DNC was established by the government to implement the annual SME state support programs (footnote 2). The Law On State Support to Small and Medium Enterprises requires funding for implementation of the annual program to be allocated in the state budget. However, while the budget allocated to the Ministry of Economy (MOE) increased 8.1% from 2009 to 2012, the budget allocation to the

5 SME DNC. http://www.marketplace.smednc.am (accessed August 2012).

6 There is no legal definition for women’s MSMEs. See Sector Assessment Summary (accessible from the list of

linked documents in Appendix 2). 7 Government of Armenia. 2012. National Strategy of Small and Medium Entrepreneurship Development. Yerevan

(draft). 8 Ministry of Economy (MOE). http:// www.mineconomy.am/ (accessed August 2012).

9 The current dollarization of bank loans is 64% and deposit portfolios 70%.

10 Ministry of Justice. http://www.arlis.am/DocumentView.aspx?docid=64617 (accessed August 2012).

11 Government of Armenia. 2012. SME State Support Strategy 2012–2015. Yerevan (draft).

12 Government of Armenia. 2010. On the Approval of the Gender Policy Concept Paper. Yerevan.

13 Republic of Armenia. 2011. Gender Policy Strategic Action Plan for 2011–2015. Yerevan (items 19 and 21).

14 Republic of Armenia. 2012. Gender Policy Action Plan for 2012. Yerevan (items 11 and 12).

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SME DNC was reduced by nearly 74%, from AMD573 million ($1.35 million) in 2009 to AMD150 million ($0.4 million) in 2012. 15 The MOE has requested Asian Development Bank (ADB) support to (i) develop women’s entrepreneurship and MSMEs through improved access to business knowledge, training, information, and finance; (ii) help the establishment of start-up enterprises; (iii) promote entrepreneurs and MSMEs in remote and rural areas; and (iv) improve the business environment for MSMEs.

8. The program is consistent with ADB’s country operations business plan, 2012–2013 for Armenia, which aims to increase the role of women entrepreneurs and SMEs.16 In developing the program, consultations were held with the government, donors, potential PFIs, women’s associations, women business leaders, and academe. The program will complement ADB’s $65 million Small and Medium-Sized Enterprise Finance Program approved in 201117 to promote broad-based growth, but differs by (i) offering an integrated approach to support women entrepreneurs; (ii) using Asian Development Fund resources through a sovereign operation, allowing longer and more favorable terms for lending to MSMEs; and (iii) mitigating currency, interest rate, and tenor mismatch risks.

B. Impact and Outcome

9. The impact of the program will be that women benefit from increased economic opportunities. The outcome will be an improved enabling environment for women entrepreneurs.

C. Outputs

10. The program will have two components: (i) a policy-based loan, and (ii) a FIL. The policy-based loan will have four outputs: (i) improved institutional framework supports women entrepreneurs and MSMEs, (ii) improved capacity of women entrepreneurs and MSMEs, (iii) improved access to finance by women entrepreneurs and MSMEs, and (iv) improved business environment supports MSMEs. The FIL will help achieve output 3.

11. Output 1: Improved institutional framework supports women entrepreneurs and MSMEs. A stronger institutional framework will improve the enabling environment for women entrepreneurs and MSMEs through enhanced policy coordination. Under tranche 1, information on MSMEs has been improved through (i) defining target groups through implementation of Participatory Appraisal of Competitive Advantages (PACA) exercises to assess the role of women entrepreneurs in growth sectors of the economy, and (ii) establishing an internal strategic planning committee to improve coordination and support to women entrepreneurs and MSMEs. As an integral implementing agency in government efforts to strengthen MSMEs, corporate governance in the SME DNC has been strengthened through establishment of an audit committee to monitor financial and economic activities and ensure adequate systems for internal control and risk management, and a strengthened approach to support start-ups. Under tranche 2, the SME DNC will (i) develop a database to include at least 10,000 entrepreneurs and MSMEs, (ii) undertake annual surveys of MSMEs, and (iii) implement an action plan with targets and indicators for developing women entrepreneurs in sectors identified in the PACA exercise. The MOE will (i) adopt and implement the national strategy for small and medium entrepreneurship development; and (ii) implement an interagency coordination working group

15

The budget deficit increased from 1.2% of GDP in 2008 to 7.9% of GDP in 2009. With restrained spending, the budget deficit decreased to 2.8% of GDP in 2011. The budget allocation to the SME DNC was AMD400 million in 2008. In 2009, it was increased as part of government anticrisis measures.

16 ADB. 2011. Country Operations Business Plan: Armenia, 2012–2013. Manila.

17 ADB. 2011. Report and Recommendation of the President: Proposed Senior Loans to the ACBA-Crédit Agricole Bank, Ameriabank, Ardshininvestbank, Inecobank. Small and Medium-Sized Enterprise Finance Program. Manila.

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on promoting women’s entrepreneurship. 18 Corporate governance will continue to be strengthened in the SME DNC by (i) appointing new independent members of the board of trustees, of which at least 50% will be women, and requiring board members to undergo training on good corporate governance practices; (ii) strengthening the risk management committee to enable it to assist with risk monitoring, control and analysis associated with financial products provided by it and by ensuring that the committee comprises at least 50% women; (iii) adopting internal procedures to assess credit risk related to provision of financial products; and (iv) establishing appraisal panels for fund allocations at the regional level involving the SME DNC and stakeholders. In addition, the SME DNC will improve data collection, by registering start-up entrepreneurs according to sector and region, as well as those registered by women; and adopt a tailored approach to support women entrepreneurs and MSME start-ups.

12. Output 2: Improved capacity of women entrepreneurs and MSMEs. Accessible and targeted training and business development services (BDS) inputs will contribute to enterprise creation and development, and enhanced market access for women entrepreneurs and MSMEs. Under tranche 1, partnerships have been developed between the SME DNC and two providers of training and BDS for women entrepreneurs and MSMEs, and eight start-up campaigns have been conducted using specialized education strategies to promote entrepreneurship. A pilot annual awards program has been launched by the MOE where 11 awards were presented to women entrepreneurs and MSMEs. Under tranche 2, women entrepreneurs and MSMEs will be supported through (i) delivery of at least 20 trainings for start-ups; (ii) implementation of at least 4 awareness campaigns about BDS resources; (iii) improvement of SME DNC’s website and online market place to meet the specific needs of women entrepreneurs; and (iv) use of information and communication technology (ICT) to increase the reach of start-up campaigns to serve at least 2,400 people annually, of which at least 50% will be women. Capacity building for women entrepreneurs and MSMEs will be strengthened through piloting a mentorship network for women entrepreneurs, and leveraging ICTs to make the mentorship network easily accessible to women. In addition, the MOE awards program will be established as an annual campaign to promote women's entrepreneurship.

13. Output 3: Improved access to finance by women entrepreneurs and MSMEs. Improved access to financial services by women entrepreneurs and MSMEs will enable them to increasingly build productive, profitable, and sustainable businesses in existing and emerging growth sectors. Under tranche 1, the SME DNC adopted a revised loan guarantee scheme, and issued loan guarantees to MSMEs as well as start-ups to an aggregate value of $0.6 million; 33% was provided to women entrepreneurs. Under tranche 2, the SME DNC will issue at least 300 loan guarantees or new financial products to active MSMEs and start-ups for an aggregate value of $1.5 million; at least 50% of the guarantees will be to women entrepreneurs and MSMEs. Under the FIL, loans will be made by PFIs to MSMEs, with at least 50% of the loans going to women's MSMEs.

14. Output 4: Improved business environment supports MSMEs. An improved business environment will enable MSMEs, including women entrepreneurs and MSMEs, to optimize their potential and contribute to economic growth. Under tranche 1, (i) the cost of registering businesses has been reduced through the elimination of a business registration fee; (ii) procedures for paying patent fees (income tax plus value-added tax) have been simplified by enabling businesses to pay such fees on flexible terms; (iii) tax reporting has been simplified by eliminating requirements for maintaining special tax books, 19 which is expected to reduce

18

Agencies will include the SME DNC, the Armenian Development Agency, and the SME Council. 19

Special tax books are the book of registration of revenues and the book of shipment of inventory holdings.

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compliance costs for businesses by one-third;20 and (iv) the Accounting Center provided tax counseling services to MSMEs. To support government efforts to improve the business environment, the (i) establishment of a virtual one-stop shop to include efficient and up-to-date access to information, products, and services for starting and growing businesses (micro, small, medium-sized, and large) to scale, including for women entrepreneurs and MSMEs, has been initiated; and (ii) a working group for increasing cooperation between the SME DNC, the Armenian Development Agency to promote micro, small, medium-sized, and large enterprise development, including women entrepreneurs and MSMEs, has been established. Under tranche 2, the business environment will be further improved as follows: (i) a virtual one-stop shop will be implemented to provide businesses with efficient access to information, products, and services for starting and growing through utilization of ICTs and consolidate existing databases into one database on micro, small, medium-sized, and large enterprises in Armenia; and (ii) the MOE will adopt an action plan to ensure collaboration between the SME DNC and the Armenian Development Agency in their support to micro, small, medium-sized, and large enterprise development. In addition, a platform for paying taxes via point-of-sale terminals and through the official website of the State Revenue Committee will be piloted to further broaden the base for electronic tax reporting. The Accounting Center will also adopt a strategy to ensure ongoing services to MSMEs, including the needs of women's MSMEs.

D. Investment and Financing Plan

15. Volatile global economic conditions may result in reduced flows from remittances, export earnings, foreign direct investment, and/or official sources into Armenia. As a result, the government faces tough socioeconomic challenges and is committed to addressing them with well-designed initiatives. The government has laid out its medium-term reform priorities in several documents. The government program for 2012–2017 outlines key directions of government activities, which include developing the business and investment environment and improving financial intermediation, including introducing electronic systems for business registration, reducing and simplifying the range of permits for doing business and entrepreneurship, and simplifying the taxation framework for MSMEs. The government gender policy action plan for 2012 outlines start-up support to women entrepreneurs as well as creation of new jobs for women in industry sectors. In addition, activities under the national strategy for small and medium entrepreneurship development outlines key activities, including supporting start-up entrepreneurs; providing business information, counseling, and training; and ensuring the operation of the Accounting Center. To effectively support reform priorities which will help development of women entrepreneurs and MSMEs, the government has requested two loans totaling the equivalent of $40 million in special drawing rights from Asian Development Fund resources. Investment components include (i) a $20 million policy-based loan for budget allocations aimed at implementing state support, including government action plans and measures to further improve the enabling business environment for MSMEs and in particular women entrepreneurs and MSMEs;21 and (ii) a $20 million equivalent FIL for MSMEs, of which at least 50% will be women's MSMEs. The project (FIL) investment and financing plan is in Table 1.

20

International Finance Corporation. 2011. The Costs of Tax Compliance in Armenia. Yerevan. 21

The governments planned annual budget allocation 2012 to 2015 to the MOE is about $8 million equivalent or 0.3% of the total state budget.

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Table 1: Project Investment and Financing Plan ($ million equivalent in dram)

Item Amount Share of Total (%)

A. Financial intermediary loana

Subloans from participating financial institutions 20.00 80.00

B. Sub-borrowers (through equity) 5.00 20.00 Total

b 25.00 100.00

a Using proceeds of the Asian Development Bank’s financial intermediation loan.

b Estimated total investment made and working capital used by micro, small, and medium-sized enterprises to

finance subproject cost Sources: Asian Development Bank and Ministry of Finance estimates.

16. The government has requested the policy-based loan in various currencies equivalent to SDR13,035,000 from ADB’s Special Funds resources to help finance the program. The loan will have a 24-year term, including a grace period of 8 years; an interest rate of 1.0% per annum during the grace period and 1.5% per annum thereafter; and such other terms and conditions set forth in the draft loan agreement. It will be disbursed in two tranches of equal amounts upon completion of policy actions for the respective tranches. Budget allocations will be made from the MOF to help strengthen the business environment to efficiently provide financial, information, advisory, and training support to start-up entrepreneurs and operating MSMEs. The government and the CBA have requested the sovereign-guaranteed loan in various currencies equivalent to SDR13,035,000 from ADB’s Special Funds resources. The loan will have a 32-year term, including a grace period of 8 years; an interest rate of 1.0% per annum during the grace period and 1.5% per annum thereafter; and such other terms and conditions set forth in the draft loan, guarantee, and project agreements. The CBA will relend the loan proceeds (in local currency equivalent) to PFIs22 that meet ADB’s eligibility criteria and have demonstrated a willingness and ability to design and offer loans to women's MSMEs.23 Relending to these PFIs will be based on a 5-year repayment term and a fixed interest rate.24 The CBA will bear the foreign exchange risk. PFIs will onlend these funds by making loans to MSMEs to finance subprojects that meet ADB’s eligibility and safeguards criteria. Each of these loans will (i) have a repayment term of up to 7 years, (ii) have a market-based interest rate, and (iii) cover at least 80% of the subproject costs. Among the PFIs, (i) loans from the commercial banks will have a ceiling of $250,000 equivalent and a free limit of $150,000 equivalent, and (ii) loans from universal credit organizations (UCOs) will have a ceiling of $50,000 equivalent.25 At least 50% of the total number of loans to the MSMEs should be to women's MSMEs. The aggregate amount of loans available to each MSME from all PFIs is $250,000 equivalent. PFIs will independently assess creditworthiness of borrowers and determine commercial terms and conditions of loans.

22

Following discussions with the CBA, ADB has carried out due diligence on four applicant PFIs. Due diligence has been completed for ACBA-Credit Agricole Bank, and CARD AgroCredit Universal Credit Organization and is expected to be completed for Armeconombank and Araratbank by October 2012. Final selection of PFIs will be agreed between the CBA and ADB. It is anticipated that one or more additional PFIs may be added to the program, provided eligibility requirements as stipulated under the program have been met.

23 Financial intermediation loan allocations will be made to at least four PFIs to an aggregate amount of $14 million. The remaining $6 million equivalent will be allocated among additional PFIs that meet eligibility criteria during implementation. If there is any change to the composition of the PFIs, and/or if there is a need to reallocate the proceeds of the FIL for more effective project implementation, the CBA shall reallocate the FIL proceeds among the PFIs in a manner acceptable to ADB.

24 This interest rate will be based on the average of the prevailing CBA refinancing rate and the 5-year government bond yield. It will be determined at the time of the relending to the PFIs.

25 Loans from banks that are above the free limit are subject to ADB prior concurrence. Loans from the banks that are below the free limit and loans from the UCO are not subject to ADB prior concurrence, with the exception of the first five loans from each of the banks and the UCO.

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E. Implementation Arrangements

17. The Ministry of Finance (MOF) will be the program’s executing agency. The MOE (through the SME DNC) will be the implementing agency for the policy-based component. The CBA (through the PMU GAF) and PFIs will be implementing agencies for the financial intermediation component. Each PFI will establish a project management unit for monitoring and reporting of FIL proceeds. Implementation arrangements are summarized in Table 2 and described in detail in the project administration manual (PAM).26 The proceeds of the policy-based loan will be disbursed in accordance with ADB’s disbursement procedures and related requirements for program loans.27 ADB will have the right to audit the use of the loan proceeds, and to verify the accuracy of the government’s certification.

Table 2: Implementation Arrangements Aspects Arrangements

Implementation period January 2013–June 2017

Estimated program completion date 30 June 2017

Estimated loan closing date 31 December 2017

Program management

(i) Oversight body CBA

(ii) Executing agency Ministry of Finance

(iii) Key implementing agencies Policy-based loan: Ministry of Economy through SME DNC FIL: CBA through PMU GAF; PFIs Technical assistance: Ministry of Economy through SME DNC

(iv) Implementation units Each PFI to establish a PMU within its organization, as detailed in PAM.

Disbursement The FIL proceeds will be disbursed in accordance with ADB’s Loan Disbursement Handbook (2012, as amended from time to time) and

detailed arrangements agreed upon between the government and ADB.

ADB = Asian Development Bank, CBA = Central Bank of Armenia, PAM = project administration manual, PFI = participating financial institution, PMU GAF = project management unit of the German–Armenian Fund, SME DNC = Small and Medium Enterprise Development National Center. Sources: Asian Development Bank, Ministry of Finance, and Ministry of Economy.

18. Subloans to MSMEs are expected to range from $2,000–$15,000 equivalent and are likely to be used for procurement of raw materials, agricultural and food processing equipment, machinery and other goods. More than 41.8% of Armenia’s imports in 2011 (43.2% in 2010) were from non-ADB members. Of total imports, 20.0% (10.3% excluding mineral fuels and oils) came from the Russian Federation and 6.9% from Ukraine. In light of Armenia's extensive trade with non-ADB members and relatively small size of individual transactions, it will be difficult and expensive for the PFIs to ensure that all procurement is of raw material, equipment and goods originating in ADB members. In other instances of MSME procurement originating in non-ADB members in Armenia (footnote 17), Kazakhstan 28 and the Kyrgyz Republic 29 , procurement waivers were granted by the Board in connection with similar ADB FILs. With this in view, a request for ADB Board approval is being made pursuant to Article 14(ix) of the Agreement Establishing the Asian Development Bank (the Charter) to approve procurement of goods by MSME borrowers under the FIL from non-ADB members.

26

Project Administration Manual (accessible from the list of linked documents in Appendix 2). 27

ADB. 1998. Simplification of Disbursement Procedures and Related Requirements for Program Loans. Manila. 28

ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche Financing Facility to the Republic of Kazakhstan for the Small and Medium Enterprise Investment Program. Manila

29 ADB. 2011. Report and Recommendation of the President to the Board of Directors: Proposed Senior Unsecured Loan in Kyrgyz Investment and Credit Bank for Small and Medium-sized Enterprise Finance in the Kyrgyz Republic. Manila.

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III. TECHNICAL ASSISTANCE

19. The proposed TA for Capacity Building for Women’s Entrepreneurship Support will support the program. It will have two outputs: (i) increased capacity of the SME DNC, PMU GAF, and PFIs to support women entrepreneurs; and (ii) strengthened awareness and technical capacity of women entrepreneurs and business support organizations to ensure women entrepreneurs can benefit from increased credit resources under the FIL component. The TA is estimated to cost $630,000. ADB will provide $600,000 from its Technical Assistance Special Fund (TASF–IV), and the government will provide counterpart support in the form of counterpart staff, office space, workshop venues, radio and television time for communication campaigns, and other in-kind contributions. The TA will be implemented over 3 years during program implementation. The MOE (through the SME DNC) will be the implementing agency for the TA. ADB and the SME DNC will jointly review implementation progress. The TA will require services of three international consultants (9 person-months total) and eight national consultants (68 person-months total).30 Consultants will be engaged by ADB in accordance with its Guidelines on the Use of Consultants (2010, as amended from time to time). TA resources will be disbursed in accordance with ADB’s Technical Assistance Disbursement Handbook (2010, as amended from time to time).

IV. DUE DILIGENCE

A. Economic and Financial

20. ADB has designed the program in collaboration with the government, PFIs, and other stakeholders. An assessment of the needs of women's MSMEs was prepared. Due diligence confirmed the demand for local-currency-denominated, fixed-rate loans by PFIs, which can fund market-based loans to women's MSMEs. Demand for loan guarantees and other financial services from the SME DNC targeted at start-up businesses, including women entrepreneurs, was also assessed. PFI eligibility criteria were defined and the selection process identified potential PFIs. Financial and integrity due diligence has been completed for two PFIs, for which the results are deemed adequate.31

B. Governance

21. ADB’s requirements and policies on financial management reporting and auditing, procurement, anticorruption, and environmental and social safeguards were discussed and agreed with the MOF and implementing agencies and incorporated into the program design. PFI environmental and social management systems (ESMSs) were assessed and deemed adequate. ADB’s Anticorruption Policy (1998, as amended to date) was explained to, and discussed with, the government and the MOF. The specific policy requirements and supplementary measures are described in the PAM (footnote 26).

C. Poverty and Social

22. Potential poverty reduction and social impacts were reviewed. A gender assessment is reflected in the project documents and is an integral part of the sector development program which is categorized thematically as gender equity. The program addresses women’s empowerment by narrowing gender disparities through access to financial resources and opportunities.32

30

Indicative terms of reference are included in the PAM and the Technical Assistance (accessible from the list of linked documents in Appendix 2).

31 Financial Analysis and Economic Analysis (accessible from the list of linked documents in Appendix 2).

32 Summary Poverty Reduction and Social Strategy (accessible from the list of linked documents in Appendix 2).

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D. Safeguards

23. The policy-based loan will not trigger safeguard policies and is categorized C for environment, involuntary resettlement, and indigenous peoples. The FIL is categorized as financial intermediation for environment and indigenous peoples, and financial intermediation (treated as C) with respect to involuntary resettlement. Subprojects categorized A for environment and indigenous peoples or having involuntary resettlement impacts will not be eligible for financing under this program. Activities included in ADB’s Prohibited Investment Activities List are excluded. Each PFI will implement an ESMS acceptable to ADB to ensure proposals for subprojects are screened for environmental and social impacts and (if applicable) mitigating measures are in place. The program will ensure women entrepreneurs and ethnic minorities have access to training and MSME credit outreach activities of the program. Safeguards due diligence has been carried out according to ADB’s Safeguard Policy Statement (2009) requirements for financial intermediations. Assessed PFIs, except one PFI, have staff capacity and an established Environment and Social Management System Arrangement. This PFI will be required to adopt an appropriate ESMS commensurate with the nature and risks of its likely future portfolio. For all PFIs, improvement is needed on safeguards categorization, screening and review procedures, social inclusion of ethnic minorities, and performance monitoring and reporting to process category B projects (for environmental safeguards). ADB will ensure that ESMSs of PFIs are finalized or established in accordance with ADB requirements before any disbursement of funds from the ADB loan account for subprojects, and provide capacity building workshops to PFI staff. Each PFI is required to designate at least one staff member to be responsible for implementation of its ESMS.

E. Risks and Mitigating Measures

24. Major risks and mitigating measures are summarized in Table 3 and described in detail in the risk assessment and risk management plan.33 The program is classified as low risk since (i) the total loan amount is less than $200 million for the project and less than $50 million for the policy-based loan, (ii) ADB had a good experience previously with a similar FIL in the country,34 and (iii) there is reasonable capacity and experience in the executing and implementing agencies. The benefits and impacts of the program are expected to outweigh its costs.

Table 3: Summary of Risks and Mitigating Measures Risks Mitigating Measures

Weak economic growth impacts business opportunities and business climate

Improving the policy and institutional frameworks that support rural outreach and women entrepreneurs and MSMEs, including their capacity and access to finance, will contribute to greater sector diversification and opportunities in business.

External environment deteriorates, causing delay in reforms to improve the business environment

Effective and coordinated donor support will contribute to ensure consistency in reforms.

ADB = Asian Development Bank; MSMEs = micro, small, and medium-sized enterprises; PFI = participating financial institution. Source: Asian Development Bank.

V. ASSURANCES AND CONDITIONS

25. The government and the CBA have assured ADB that implementation of the program shall conform to all applicable ADB policies including those concerning anticorruption measures,

33

Risk Assessment and Risk Management Plan (accessible from the list of linked documents in Appendix 2). 34

Sector Assessment (Summary): Micro, Small, and Medium-Sized Enterprises (accessible from the list of linked documents in Appendix 2).

10

safeguards, gender, procurement, consulting services, and disbursement as described in the PAM and loan documents. The government and the CBA have agreed with ADB on certain covenants for the program, which are set forth in the loan, guarantee, and project agreements. It was also agreed that the loans will not be made effective until the project agreements with at least 2 PFIs are effective. The government and the CBA also agreed that no withdrawal will be made from the ADB loan account for the FIL for any PFI until such PFI has established an ESMS to the satisfaction of ADB and appointed designated staff that are trained in implementing the ESMS for screening prospective subprojects.

VI. RECOMMENDATIONS

26. I am satisfied that the proposed loans would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve

(i) the policy-based loan in various currencies equivalent to SDR13,035,000 to Armenia for the Women’s Entrepreneurship Support Sector Development Program, from ADB’s Special Funds resources, with an interest charge at the rate of 1.0% per annum during the grace period and 1.5% per annum thereafter; for a term of 24 years, including a grace period of 8 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft loan agreement presented to the Board; and

(ii) the loan in various currencies equivalent to SDR13,035,000 to the Central Bank of Armenia, to be guaranteed by Armenia, for the Women’s Entrepreneurship Support Sector Development Project, from ADB’s Special Funds resources, with an interest charge at the rate of 1.0% per annum during the grace period and 1.5% per annum thereafter; for a term of 32 years, including a grace period of 8 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft loan, guarantee, and project agreements presented to the Board.

27. I also recommend that the Board approve the proposal set out in paragraph 18 of this Report that goods procured from nonmember countries of ADB be eligible for financing from the loan provided to the Central Bank of Armenia, to be guaranteed by Armenia, for the Women’s Entrepreneurship Support Sector Development Project.

28. If the requisite affirmative vote of Directors representing not less than two-thirds of the total voting power of ADB's members, pursuant to Article 14(ix) of the Agreement Establishing the Asian Development Bank, is not obtained for this recommendation and the Board approves only the recommendation in paragraph 26, then goods procured only from member countries of ADB will be eligible for financing from the loan.

Haruhiko Kuroda President

2 October 2012

Appendix 1 11

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DESIGN AND MONITORING FRAMEWORK

Design Summary Performance Targets and Indicators with Baselines

Data Sources and Reporting Mechanisms

Assumptions and Risks

Impact Women benefit from increased economic opportunities

MSMEs contribution to gross domestic product increases from 43.0% in 2011 to 47.0% in 2020 (sex-disaggregated data has zero baseline) Unemployment for women decreases from 35% in 2011 to 25% in 2020 Gender gap in labor force participation decreases from 20% in 2011 to 15% in 2020

National Statistics Office Global Gender Gap Report, World Economic Forum Global Gender Gap Report, World Economic Forum

Assumptions Government remains committed to reform the enabling environment for women entrepreneurs and MSMEs Effective donor coordination Risks External environment deteriorates, causing delay in reforms to improve the business environment Social norms take more time to overcome

Outcome Improved enabling environment for women entrepreneurs

By 2017, percentage of new businesses registered by women entrepreneurs reaches 20% from the 2010 level of 3%

State Registry Agency

Assumption Effective interagency coordination Risk Weak economic growth impact business opportunities and business climate

Outputs 1. Improved institutional framework supports women entrepreneurs and MSMEs 2. Improved capacity of women entrepreneurs and MSMEs 3. Improved access to finance by women entrepreneurs and MSMEs

MOE implements at least two action plans linked to the national strategy for small and medium entrepreneurship development targeted at women entrepreneurs and MSMEs by 2017 Women entrepreneurs and MSMEs that receive training and business development services BDS from SME DNC increases from 2,174 in 2011 to 3,500 in 2017 30% of women trained by SME DNC sponsored programs present a business plan to a financial institution within 1 year of graduation At least 2,600 new loans under the program from PFIs to MSMEs, of which at least 50% should be to women

Annual progress report submitted by SME DNC Annual progress report submitted by SME DNC Annual progress report submitted by SME DNC Quarterly reports submitted by PFIs

Assumptions Effective and timely collaboration of relevant stakeholders PFIs are committed to expanding outreach to women entrepreneurs and MSMEs Risks Lack of local currency term deposits and high dollarization of banking sector loan portfolio raises repayment risk for PFIs Banking sector remains small with high concentration of ownership with private entities

12 Appendix 1

Design Summary Performance Targets and Indicators with Baselines

Data Sources and Reporting Mechanisms

Assumptions and Risks

4. Improved business environment supports MSMEs

entrepreneurs and MSMEs, by 2017 World Bank Doing Business ranking improves from rank 55 in 2012 to 50 in 2017 Tax Payment improves from a ranking of 153 in 2012 to at least the average Eastern Europe and Central and West Asia ranking, as measured by the paying taxes index in World Bank Doing Business by 2017

World Bank Doing Business

Activities with Milestones Inputs 1.1 SME DNC establishes an internal strategic planning

committee (by September 2012a)

1.2 MOE implements a national strategy for small and medium entrepreneurship development, including women’s entrepreneurship promotion (by 2014)

1.3 MOE implements an interagency coordination working group promoting women’s entrepreneurship (by 2014)

1.4 SME DNC appoints new independent members of board of trustees (by 2014)

1.5 SME DNC provides training for Board of Trustees (by 2014)

1.6 SME DNC establishes an audit committee and strategic planning committee (by September 2012

a)

and strengthens the risk management committee and credit risk management systems (by 2014)

1.7 SME DNC establishes appraisal panels for fund allocations (by 2014)

1.8 SME DNC adopts approach to support start-ups (by September 2012

a)

1.9 SME DNC undertakes annual surveys identifying needs and effectiveness of support services provided to women entrepreneurs and MSMEs (by 2014)

1.10 SME DNC implements action plan for developing women entrepreneurs (by 2014) SME DNC conducts start-up training programs (by 2014)

2.1 SME DNC conducts start-up training programs (by 2014)

2.2 SME DNC staff and BDS providers are sensitized and trained on women’s entrepreneurship needs (by 2014)

2.3 SME DNC implements awareness campaigns about BDS resources (by 2014)

2.4 SME DNC tailors start-up training programs for women and increases campaign outreach (by 2016)

2.5 SME DNC pilots a mentorship network for women entrepreneurs (by 2014)

3.1 SME DNC ratifies loan guarantee regulation (by September 2012

a)

ADB: $40.00 million MSME equity: $5.0 million

Item Amount ($ million)

ADB: Policy-based loan

20.00

Financial Intermediation Loan

20.00

MSME equity 5.00

Total 45.00

Technical Assistance: ADB: $0.600 million Government: $0.03 million

Item Amount ($ million)

Technical Assistance Special Fund (TASF-IV)

0.60

Government 0.03

Total 0.63

Appendix 1 13

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Activities with Milestones Inputs

3.2 Effectiveness of SME DNCs financial products reviewed and viability of new financial tools to improve access to finance for women entrepreneurs and MSMEs assessed (by 2015)

3.3 SME DNC provides loan guarantees to women entrepreneurs and MSMEs (by September 2012

a)

3.4 PFIs provide loans to MSMEs (2013-2017) 3.5 PFIs and PMU GAF staff are sensitized on women’s

MSMEs constraints on accessing finance and in good practices on improving access to finance for this group (by 2014)

4.1 Ministry of Justice amends the law on state fees eliminating a registration fee for businesses (by September 2012

a)

4.2 MOF amends the law on patent payments to enable businesses to pay patent fees on flexible terms (by September 2012

a)

4.3 MOF adopts amendments to simplify procedures for paying patent fees (by September 2012

a)

4.4 Government adopts decrees to eliminate the requirement to maintain special tax books (by September 2012

a)

4.5 MOE implements a virtual one-stop-shop for starting and growing micro, small, medium-sized and large enterprises (by 2014)

4.6 MOE establishes a working group with SME DNC and ADA to support business development (by September 2012

a)

4.7 MOE adopts an action plan to ensure collaboration between SME DNC and ADA (by 2014)

ADB = Asian Development Bank; BDS = business development services; MOF = Ministry of Finance, MOE = Ministry of Economy; MSMEs = micro, small, and medium-sized enterprises; PFI = participating financial institution; PMU GAF = project management unit of the German–Armenian Fund, SMEs = small and medium-sized enterprises, SME DNC

= Small and Medium Entrepreneurship Development National Center, ADA = Armenian Development Agency. a Tranche 1 condition that should be met prior to approval by the ADB Board of Directors in October 2012.

Sources: Asian Development Bank.

14 Appendix 2

LIST OF LINKED DOCUMENTS http://www.adb.org/Documents/RRPs/?id=45230-001-3

1. Loan Agreement: Financial Intermediation Loan

2. Loan Agreement: Policy-Based Loan

3. Guarantee Agreement

4. Project Agreement

5. Sector Assessment (Summary): Micro, Small, and Medium-Sized Enterprise Development

6. Project Administration Manual

7. Contribution to the ADB Results Framework

8. Development Coordination

9. Financial Analysis

10. Economic Analysis

11. Country Economic Indicators

12. International Monetary Fund Assessment Letter

13. Summary Poverty Reduction and Social Strategy

14. Gender Action Plan

15. Financial Intermediary: Environmental and Social Management System Arrangement

16. Risk Assessment and Risk Management Plan

17. List of Ineligible Items

Supplementary Documents

18. Matrix of Environmental and Social Impact

19. Technical Assistance: Capacity Building for Women’s Entrepreneurship Support

Appendix 3 15

DEVELOPMENT POLICY LETTER

16 Appendix 3

Appendix 3 17

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18 Appendix 3

Appendix 3 19

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20

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POLICY MATRIX

Program Outputs and Activities

First Tranche Actions (September 2012)

Agency Responsible / Documentary evidence

Second Tranche Actions (September 2014)

Agency Responsible / Documentary evidence

Output 1. Improved Institutional Framework Supports Women Entrepreneurs and MSMEs

1.1.SME DNC to have established an internal strategic planning committee, which makes recommendations in relation to the development of priority sectors and strategic aims in consultation with stakeholders

SME DNC (a) Minutes from committee

meeting

MOE to (a) adopt and implement national

strategy for small and medium entrepreneurship development, including women’s entrepreneurship promotion

(b) implement interagency coordination working group on women’s entrepreneurship promotion

1

MOE (a) Adopted gender

mainstreamed national strategy for small and medium entrepreneurship development

(b) Minutes from meetings of the working group and interagency work plan

1.2. SME DNC to have strengthened governance by establishing an audit committee, which monitors financial and economic activities and ensures that there is an adequate system of internal control and risk management

SME DNC (a) Executive director decision (b) Internal Audit committee

regulation

SME DNC Board of Trustees to strengthen governance by (a) appointing new independent

2

Board of Trustees, of which at least 50% shall be women

(b) requiring Board of Trustees to undergo training by accredited trainer on good corporate governance practices

(c) strengthening risk management committee (of which at least 50% shall be women) for risk monitoring, risk control, and risk analysis associated with financial products provided

(d) adopting internal procedures to assess credit risk related to provision of financial products, which incorporate good practices, and train staff on these procedures

SME DNC Board of Trustees (a) List of Board of Trustees, sex

disaggregated (b) Agenda for board training (c) List of participants in board

training, including personal biography Staff training program

(d) Minutes from meeting on the establishment of risk management committee, sex disaggregated

(e) Staff training program on credit risk

(f) Minutes from meeting on the establishment of appraisal panel

1 Interagencies coordinated include Small and Medium Enterprise Development Center, Armenian Development Agency, and SME Council.

2 Independent board includes business associations, chamber of commerce and participants from the private sector.

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Program Outputs and Activities

First Tranche Actions (September 2012)

Agency Responsible / Documentary evidence

Second Tranche Actions (September 2014)

Agency Responsible / Documentary evidence

(e) establishing appraisal panels for fund allocations at regional level involving SME DNC and relevant stakeholders

1.3. SME DNC Board of Trustee to have ratified improved approach to support start-ups (including 100% loan guarantee and CEFE

3 training

approach)

SME DNC (a) Board minutes ratifying work

plan that contains an integrated approach to start-ups

(b) Work plan

SME DNC to (a) adopt a tailored approach to

support women entrepreneurs and MSME start-ups

a

SME DNC (a) Board minutes confirming

start-up support tailored to women entrepreneurs and MSMEs

1.4.SME DNC to have registered start-up entrepreneurs by sector and region, sex-disaggregateda

SME DNC (a) Report on active start-up

entrepreneurs registered with SME DNC

SME DNC to (a) develop data base to at least

10,000 entrepreneurs and MSMEs, with sex disaggregated data

(b) undertake annual surveys on women entrepreneurs and MSMEs to identify needs and effectiveness of support services provided, including lessons learned and opportunities to be developed for women

SME DNC (a) SME DNC online market

place www.marketplace.smednc.am

(b) Publications on MSMEs and women entrepreneurs on SME DNC website.

1.5 SME DNC to have assessed the role of women entrepreneurs in growth sectors by (a) implementing a PACA

4 exercise

in 3 communities (b) pursuant to result of PACA,

define target groups (by sector and region)

SME DNC (a) PACA Reports

SME DNC to (a) identify suitable opportunities for

women owned businesses in growth sectors

(b) implement action plan, with targets and indicators, for developing women entrepreneurs in identified sectors.

SME DNC (a) Report on suitable

opportunities for women (b) Report on action plan results

Output 2. Improved Capacity of Women Entrepreneurs and MSMEs

2.1. SME DNC to have strengthened its provision of

SME DNC (a) MoU signed between SME

SME DNC to support women entrepreneurs and MSMEs by

SME DNC (a) Usage statistics of SME DNC

3 Competency Based Economies through Formation of Enterprises. CEFE International is a non-profit private sector organization, which coordinates members of

the network to provide competent CEFE services: concept development; training of trainers; course adaptation, preparation and realization; manual preparation; project implementation; monitoring and evaluation.

4 Participating Appraisal of Competitive Advantages.

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Program Outputs and Activities

First Tranche Actions (September 2012)

Agency Responsible / Documentary evidence

Second Tranche Actions (September 2014)

Agency Responsible / Documentary evidence

nonfinancial services (training and Business Development Services (BDS)) by (a) developing partnerships with

private sector providers of training and business development services for women entrepreneurs and MSMEs

(b) conducting 8 start-up campaigns

5 serving more than

100 people of which at least 40% are women

DNC and at least 2 partner BDS providers

(b) Schedule of BDS trainings

(a) providing at least 20 start-up training programs

(b) implementing at least 4 awareness campaigns about BDS resources

(c) improving its website and online market place to meet the specific needs of women entrepreneurs

(d) using information and communication technologies (ICTs)

6 to increase the reach of

start-up campaigns to serve at least 2,400 people annually, of which at least 50% are women

website and online marketplace

(b) Report on the reach of awareness campaigns

(c) Annual report on evaluation of training outcomes

(d) Sex-disaggregated participation data

2.2. MOE to have promoted women entrepreneurship by launching a pilot annual awards program for women entrepreneurs and MSMEs

MOE (a) List of award results for 11

women entrepreneurs (b) Minutes of the Competition

Committee

MOE to (a) establish the awards program as

an annual campaign to promote woman entrepreneurship a

SME DNC to (a) design and pilot a mentorship

network for women entrepreneurs (and feasibility of using ICTs to support it)

MOE (a) Evaluation report of the

awards program (b) List with awardees SME DNC (a) Evaluation report of

mentorship network design and pilot.

(b) Evaluation report on the use of ICTs for women in business leadership program and mentorship network.

Output 3. Improved Access to Finance by Women Entrepreneurs and MSMEs

3.1. SME DNC to have (a) adopted revised loan guarantee

scheme (b) issued at least 80 loan

guarantees under new scheme

SME DNC (a) Ratified loan guarantee

regulations (b) Loan guarantee letter to the

banks and list of approvals,

SME DNC to (a) issue at least 300 (approximate

aggregate value of $1.5 million) loan guarantees and or other financial products to active

SME DNC (a) Documentation on trainings

held, number of male and female participants

(b) End of year report of loan

5 Using Competency based Economies through Formation of Enterprises (CEFE).

6 Information Communication Technology (ICT) refers diverse set of technological tools and resources used to communicate, and to create, disseminate, store,

and manage information. These technologies include computers, the Internet, broadcasting technologies (radio and television), and telephony.

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Program Outputs and Activities

First Tranche Actions (September 2012)

Agency Responsible / Documentary evidence

Second Tranche Actions (September 2014)

Agency Responsible / Documentary evidence

(approximate aggregate value of $0.6 million) to existing and new MSMEs (for the period February – August 2012) of which at least 30% are women entrepreneurs and MSMEs

sex-disaggregated

MSMEs and start-ups of which at least 50% are women entrepreneurs and MSMEs

(b) ensure application of ADB Safeguards policy compliance in the sub-loan processing and implementation.

guarantee application and approvals, sex disaggregated

(c) Biannual report of the PFIs implementation of their ESMS

Output 4: Improved Business Environment Supports MSMEs

4.1 MOJ to have reduced the cost of registering businesses (including MSMEs) by eliminating a registration fee of (AMD17,000)

MOJ (a) Amendments to the RA Law

"On State Duty", approved by the Parliament, on 27 December 1997, NO-186, amended through RA Law "On Amendments and Additions to RA Law "On State Duty", approved by the Parliament on 19 March 2012, NO- 131

4.2 Accounting Center to have provided services of preparing taxation reports, conducting counseling on taxation to at least 470 MSMEs (at least 30% are women) (January – August 2012)

Accounting Center (a) List of beneficiaries

Accounting Center to (a) adopt strategy, including financing

plan, to ensure ongoing services to MSMEs, including the needs of women entrepreneurs and MSMEs a

Accounting Center (a) Copy of adopted strategy

4.3 MOF to have simplified the patent fee

7 system to enable

businesses to pay patent fees on flexible terms including monthly or sequential months (but not more than twelve months)

MOF (a) RA Law on Patent Payments as

of 22.12.2010, amended through the RA Law on Amendments and Additions to RA Law on Patent Payments, Approved by the Parliament on 22 June 2012, NO-166-N

7 The patent payment fee is a compulsory and without-indemnity fee paid to the state budget that comes to replace the income tax and the value added tax for

individuals and private entrepreneurs carrying out activities envisaged by the RA Law on Amendments and Additions to RA Law on Patent Payments, Approved by the Parliament on 22 June, 2012, NO-166-N.

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Program Outputs and Activities

First Tranche Actions (September 2012)

Agency Responsible / Documentary evidence

Second Tranche Actions (September 2014)

Agency Responsible / Documentary evidence

4.4 MOF to have simplified tax reporting by eliminating requirements for maintaining special tax books (book of registration of revenues and book of shipment of inventory holdings)

MOF (a) Government decree NO 183-N

recognized void the Book of Shipment of Inventory Holdings in the Territory of the Republic of Armenia

(b) Government Decree NO 191-N recognized void the Book of Registration of Revenues in the Territory of the Republic of on 23 February 2012

SRC to (a) broaden the base for electronic

tax reporting by piloting a platform for paying taxes via points-of-sale terminals and the official website of SRC a

SRC (a) Number of MSMEs that file

taxes online increase at least 10% per year from 6,100 2011

4.5 Government/MOE to have initiated the establishment of a virtual one-stop shop to include efficient and up-to-date access to information, products and services for starting and growing businesses (micro, small, medium-sized and large)

SME DNC and ADA (a) Memorandum of understanding

on the establishment of a virtual one-stop-shop for micro, small and medium-sized enterprises

Government/MOE to support business development, including women entrepreneurs and MSMEs by (a) implementing a virtual one-stop

shop to enable businesses efficient access to information, products and services for starting and growing businesses through effective utilization of ICT

(b) consolidating existing databases into one database on micro, small, medium-sized and large enterprises in Armenia, sex-disaggregated

Government/MOE (a) Virtual one-stop shop

available online (b) Virtual one-stop shop

awareness raising strategy and action plan

(c) Web analytics report on usage statistics of virtual one-stop shop

4.6 Government/MOE to have broadened the cooperation between the SME DNC and ADA in promoting micro, small, medium-sized and large enterprises—including women entrepreneurs and MSMEs—through the establishment of a working group

SME DNC and ADA (a) Memorandum of understanding

to establish a working group with representatives from SME DNC and ADA to support MSME development

Government/MOE to (a) adopt an action plan to ensure

collaboration between SME DNC and ADA and enable efficient and effective support to micro, small, medium–sized and large enterprises, including women entrepreneurs and MSMEs

Government/MOE (a) Adopted action plan

MOF = Ministry of Finance, MOE = Ministry of Economy, MOJ = Ministry of Justice, SME DNC = Small and Medium Entrepreneurship Development National Center, ADA = Armenian Development Agency, ICT = Information Communication Technology, MSME = micro, small and medium-sized enterprise, PACA = Participatory Appraisal of Competitive Advantage. a Monitorable Actions.