Running Had: ARGAK MICRO CRDIT ORGANIZATION

Argak Micro-Crdit Organization in Armnia

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Summary of th cas
Th cas is about Small Businsss and Intrnational ntrprnurship. Small businsss
play a vital rol in many socitis. Whr data ar availabl, such as in urop, North Amrica,
and Asia (.g. IFRA, 2002; OCD, 2002; USSBA, 2006), ovr 95% of all businsss ar small,
including many family businsss, which contribut to ovr 50% of th GNPs and gnrat 60%90% of th nw jobs annually dpnding on th country. Whil som of ths businsss may b
contnt to oprat in a domstic markt, mor ar xpanding across bordrs. To xploit
opportunitis in an incrasingly globalizd markt, it is imprativ that small and family businss
managrs, whthr domstically basd or doing businss across bordrs, larn about thir
stratgic options and adapt on a country-by-county basis. An ntrprnurial organization dals
with risks and uncrtainty of nw and untstd businss opportunitis. Th trm ntrprnurship
rfrs to th discovry, valuation, and xploitation of markt opportunitis (Bakr, Gdajlovic &
Lubatkin, 2005). Whn applid to th intrnational lvl, small businsss crat nw vnturs
that sk profits and growth byond national boundaris, just as thir largr countrparts do.
Mor spcifically, th cas focuss, xplors and analyss a micro crdit instution in
Armnia by nam Argak Micro-Crdit. ARGAK supports th conomic mpowrmnt and
improvmnt of living standards of low incom familis, small and mdium ntrprnurs
through provision of high quality, accssibl and sustainabl financial srvics.
In th cas, Mariam Ysayan th xcutiv dirctor of ARGAK, is about to mak a
major dcision involving whthr to rmain th micro crdit as a non-profit organization or
whthr to apply to th Armnian govrnmnt to b a licnsd as a for- profit organization which
in turn will man that govrnmnt rgulations will play a major part in th day to day running of
th organization. Through, th cas th pros and cons of convrting th organization to a for-

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profit organization ar xplord. For instanc, bcoming a rgulatd for-profit organization
would crat an opportunity for mobilizing savings as wll as an opportunity for tapping into
formal capital markts, including commrcial banks and global invstmnt funds, which
normally

would

not

contribut

to

unrgulatd

or nongovrnmntal microcrdit

institutions.
Th cas also giv a dtaild highlight of how micro crdit institutions and nongovrnmntal organizations play a significant rol in positivly impacting th livs of poor
communitis spcially womn through financial and social improvmnts.
Th procss Mariam Ysayan usd in approaching womn about loan opportunitis
through Argak
In ordr to mak th womn buy into hr ida, Mariam had to gt thir confidnc and
mak thm bliv in hr. This sh did by making thm fl that sh was part of thm. Togthr
with hr thr assistancs, thy wor som of thir old cloths and ngagd th womn in
convrsations that attmptd to instil a positiv attitud in thm, that in dd thy can b
dpndnt on thmslvs rathr than counting on othr popl or aid agncis
Mariam dvis a plan whr sh would mt th womn in larg groups and ngag thm
in such convrsations. This was indd important as th convrsations would m intractiv as
compard to whn addrssing a singl prson. Sh was abl to find such groups by showing up in
homs whr womn gathrd to watch tlvisions or on businss st ups. Sh showd thm how
thy could bcom indipndnt by starting thir own businsss through th loans that Argak
would offr thm.

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Opportunitis for funding for womn ntrprnurs through th commrcial banking
systm in Armnia with funding opportunitis availabl to thm through th Argak
program in th lat 1990s
In th 1990s, most Armnians wr mistrustful of th lnding institutions. This was aftr
bing significantly financially hurt by th failur of th Sovit baking systm and th collaps of
th currncy som tim latr. Th commrcial banking systm at th tim wr not comptnt on
how to giv loans. Th popl as wll did not know how to apply for thm. In th lat 1990s
whn th commrcial banking systm finally startd to giv out loans, thy wr charging vry
high intrst rats which rally discouragd th popl. Additionally, th loans rquird a
collatral which did not work out vry wll for th popl. To womn who possssd a fw
assts, it was almost impossibl to gt th loans.
Th birth of Argak providd a whol nw dawn for th popl spcially womn as far
as funding was concrnd. Argak showd smingly hoplss popl that indd somon
blivd in thm. Th micro financ cratd conomic opportunitis for low incom popl who
had no or limitd accss to th formal financial sourcs, spcially in th rmot rural aras. It
achivd this by giving out loans that did not rquir a collatral as a form of scurity. This rally
attractd a lot of clnts. Th loans intrsts wr ngotiabl ranging btwn 20 and 25 prcnt,
which was consistnt with bank loan rats at th tim and this mad Argak to b mor optd for.
Th rason for a dfault rat on loans of only 2 prcnt with Argak in spit of th fact that
th loans wr not collatrizd
Whn Mariam mbarkd on a journy to start Argak, th first thing sh did was to mak
th womn (in this cas hr clints) to bliv in hr. Thy bcam confidnt in hr and thr was

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no way thy could frustrat hr fforts of trying to mak thm indpndnt. That is why th tim
cam for hr to collct to th portion of th principal and intrst that was du for th first tim,
all of th womn who had rcivd loans cam on tim to rpay that month's portion. This good
rlationship that xistd btwn Mariam and th womn can a furthr xplain why thr was
only a 2 prcnt dfault on th Argak loans ovr th ntir nin yars of opration. Th womn
had to crat a good rputation by building a good charactr so thy could gt additional loans.
Thy faithfully rpaid thir loans with th main complling rason bing to nsur continud
accss to th srvic in th futur.
Importanc of microfinanc programs in th progrss of dvloping nations
Th cration of crdit markts in poor countris is a crucial factor for thir dvlopmnt.
If wll put into practic, popl would b abl to improv thir quality of lif. With th suitabl
support thy will bcom ducatd and that will allow thm to nlarg thir businss, to think by
thmslvs and to apprciat that thy hav rights. Th growing importanc of th rol of
microcrdit in th radication of povrty rflcts th rcnt succss of small-scal lnding
programs. In th arly 1990s svral institutions cam togthr to mak possibl th
rproduction of such xprinc to othr countris. Ths programs rlay on lnding to small
ntrpriss, distribution, crafts, trading and agricultur, tc. Th participatory natur of ths
projcts, togthr with th mphasis on womn ntrprnurs and job cration hav raisd hops
of rducing povrty through this approach. Ovr th past dcad, microfinanc institutions hav
succd, in providing crdit and savings srvics to th ntrprnurial poor, through innovativ
stratgis. Ths includ th provision of small loans to poor popl, spcially in rural aras, at
full cost intrst rats, without collatral.

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Povrty allviation programs provid matrial, funds, information and projct srvics for
popl with no incom or work opportunitis. Bcaus of th crdit risks and rlativly high
costs associatd with small loans, th traditional banking systm is gnrally not willing to
implmnt a microcrdit systm. Th borrowrs hav no collatral to put up against loans and
oftn ar rfusd th ndd capital bcaus of th high risk of dfault. If thy rsort to
undrground sourcs, thy ar oftn chargd xorbitant intrst. This quick fix solution dos not
addrss th main structural problm: a lack of propr funding channls. Th main goal of
microcrdit programs is to compnsat for th inadquacis of rgular financial institutions by
providing small loans in nontraditional conomic sctors. Flxibl rpaymnt procdurs and
rasonabl intrst rats ar faturs of th program. A small amount of mony can contribut
significantly to povrty allviation, as attstd to by th many succsss, particularly amongst
womn, in villags and in rmot aras.
In what way might Mariam Ysayan b considrd a "social ntrprnur?
Social ntrprnurs ar individuals with innovativ solutions to socitys most prssing
social problms. Thy ar ambitious and prsistnt, tackling major social issus and offring nw
idas for wid-scal chang. Mariam was all this. Rathr than laving socital nds to th
govrnmnt or businss sctors, Mariam discovrd what was not working and solvd th
problm by sprading th solution, and prsuading ntir socitis to mov in diffrnt
dirctions. Sh was abl to s th dprssion with th Armnians as a rsult of th arthquak of
1988 which killd 28, 000 popl and lft many mor homlss and rplacd th dprssion with
confidnc. Th ida of lnding without a collatral and convincing th womn to borrow on
thir own good nam was ingnious.

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Mariam was indd possssd by hr idas, committing hr lif to changing th dirction
of hr fild. Sh was not only visionaris but also ralistic, and sh was ultimatly concrnd
with th practical implmntation of hr vision abov all ls. vn aftr working for tn yars
with th sam NGO, Mariam still flt that sh ndd a radical chang in hr carr. Sh yarnd
for mor practical work that would mt hr satisfaction and sh vntually got it by stablishing
th Argak Micro-Crdit Organization. By looking into th stps of Mariam and hr
achivmnts, on can actually conclud that social ntrprnurs prsnt usr-frindly,
undrstandabl, and thical idas that ngag widsprad support in ordr to maximiz th
numbr of citizns that will stand up, siz thir ida, and implmnt it.
Licnsing Argak as a nonprofit organization in Armnia
In Armnia, it is not a rquirmnt for micro financ organizations to b for- profit
rgulatd ntitis. Mariam has a dcision to mak. Sh can ithr tak stps to licns Argak as
a nonprofit organization in Armnia, which would bring with it rgulation by th govrnmnt, or
rmain an NGO (nongovrnmntal organization) as it had bn originally structurd. Th two
sids rally hav thir own pros and cons and thrfor sh should tak furthr consultations and
com up with firm facts bfor making any dcision.
Prhaps th most obvious advantag of a for-profit company is th possibility of making
mony. Rvnu gnratd abov and byond xpnss is for th ownr to do with what h will.
Th mor succssful th company, th gratr th financial rward. Bsids financial rwards,
th ownrs of a for-profit company ar thir own bosss. Again, th advantags and
disadvantags of that dpnd on th ownrship modl. A sol propritorship givs on prson th
ability to mak unilatral dcisions for th company, but his financs and thos of his businss
ar on and th sam. H's ntirly liabl if th businss gos undr. On th othr hand, a

ARGAK MICRO CRDIT ORGANIZATION 8

corporation is it's own ntity, absolving ownrs of liability byond th pric of thir shars,
providd thy ar not party to tax fraud.
Nonprofit organizations hav to go undr th Intrnal Rvnu Srvic's microscop to
nsur thy work toward thir statd purpos. Whil individual industris may b subjct to
govrnmnt rgulation, for-profit companis takn as a whol ar allowd to conduct businss as
thy s fit, so long as thy abid th law. Howvr, nonprofits ar fundd by donations. A
nonprofit could fall short of xpctations and not b liabl to donors as long as it tris in arnst.
For-profit companis rarly rciv mony with no strings attachd. Th vry ssnc of
commrc is th xpctation of mutual bnfit in financial transactions. In that sns, a for-profit
company is rgulatd by its obligations to invstors and crditors.

Rfrncs
Culln, J. B., & Parbotah, K. P. (2013). Multinational managmnt: A stratgic approach (6th

ARGAK MICRO CRDIT ORGANIZATION 9

d.). Mason, OH: South-Wstrn
Bakr, T., Gdajlovic, . & Lubatkin, M. (2005). A framwork for comparing ntrprnurship
across nations. Journal of Intrnational Businss Studis, 36, 492-504.
ICDF Annual Rport 2002. Th Importanc of Microcrdit Programs in Sustainabl
Dvlopmnt
Mrio O. & Sofia S., 2009. Markt Solutions in Povrty: Th Rol of Microcrdit in
Dvlopmnt
Countris with Financial Rstrictions