50196 - SLGP EC Converse

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Summary of Investment Information

Project Number

50196

Company Name

SLGP EC Converse

Date SPI Disclosed

Aug 20, 2024

Country

Armenia

Region

Europe

Projected Board Date

Dec 9, 2024

Environmental Category

FI-2 - Limited

Status

Pending Disbursement

Last Updated Date

Nov 19, 2025

Department

Regional Industry FIG LAC & EUR

Industry

Financial Markets

Previous Events

Approved : Dec 9, 2024
Signed : Dec 11, 2024

Sector

Commercial Banking - Risk Mgmt Facility

Additional Project Attributes

Blended Finance

Project Description

The proposed investment consists of an unfunded risk sharing facility (RSF) with Converse Bank for a portfolio of loans to small and medium enterprises (SMEs) in the amount of up to US$10 million in Armenia, where IFC’s risk participation will be up to US$5 million, or 50% of the aforementioned SME loan portfolio (the Project).The Project will be processed under IFC’s Small Loans Guarantee Program (the Program), a programmatic approach to derisk and scale up financing for SMEs in Armenia and other eligible countries. The Program will benefit from a pooled first loss guarantee provided by the European Commission (“EC”) via European Fund for Sustainable Development (the EFSD) and the IDA IFC-MIGA Private Sector Window’s Blended Finance Facility (“IDA PSW-BFF”) (“SLGP EC/PSW”), which will help enable the Bank lending to the underserved SMEs in Armenia and at rates that are affordable.

Sponsor / Cost / Location

The level of concessionality (i.e., “subsidy”) provided by SLGP EC/PSW is estimated to be up to 9.7% of the total portfolio of €486 million of the entire program. The estimate is based on the difference between (i) a “reference price” (either a market price if available; the price calculated using IFC’s pricing model, which comprises three main elements: risk, cost, and profit; or a negotiated price) and (ii) the “concessional price” being charged by the blended concessional finance co-investment under the program. This level of subsidy is considered the minimal amount of subsidy required based on the expected risk level of the overall portfolio to achieve pricing levels that are viable. SLGP EC/PSW is a platform approach that can be accessed by other financial institutions in the eligible countries. As is the case with all IFC’s blended concessional finance co-investments, this Project has been assessed against the Enhanced Blended Concessional Finance Principles for DFI Private Sector Operations adopted by IFC and more than 20 other DFIs in 2017. Further information on these Enhanced Principles, IFC’s blended finance approach and governance, and details and historical information on estimated subsidy levels in IFC’s blended finance portfolio can be found at: www.ifc.org/blendedfinance. The risk sharing facility with Converse Bank is also supported by the Canada’s Advancing Gender Equality, Resilience, Opportunity and Inclusion Worldwide (Canada GROW) in the form of performance-based incentive of up to US$60,000 to encourage more lending to women SMEs. The estimated subsidy provided by GROW assumes that the Project will fully reach the agreed impact and shall only be paid out upon achievement of the pre-defined targets. GROW's support would enable IFC to reach more women SMEs that may otherwise not be served without its support. The Canada GROW combines blended finance and advisory services with IFC financing to help companies achieve measurable gender equality and inclusion impacts. Launched in 2024 with a CA$100 million investment from the Government of Canada, this flexible funding platform addresses urgent challenges aligned with IFC’s strategic goals for Gender Equality and Economic Inclusion and the World Bank Group’s Gender Strategy 2024-2030. GROW aims to mobilize private financing and support the private sector in adopting policies and practices that prioritize the poor and underserved, focusing on six key areas: inclusive capital, inclusive supply chains, reducing barriers to entrepreneurship, employment, and leadership, inclusive digital solutions, inclusive climate action, and addressing gender-based violence. Additionally, GROW promotes the inclusion of other marginalized groups, such as persons with disabilities, LGBTI individuals, and those at the base of the pyramid.

Product Line	IFC Investment (million USD)
Risk Management
Guarantee	5.0
Loan
Equity

IFC's loan to the financial institution described in this SII is targeted for on-lending to the following sector(s):

Product Type	Use of Proceeds
Guarantee	Loans to SME Borrowers
Guarantee	Loans to Woman-Owned SMEs

IFC's Definitions of Targeted Sectors can be found here.

Development Impact

The Project is expected to contribute to increased access to finance for SMEs in Armenia, including women-owned businesses and SMEs operating in agriculture sector, and help narrow the SME finance gap in the country. At a market level, the Project will promote the competitiveness of the SME finance market in Armenia. Access to finance for SMEs in Armenia is constrained mainly by perceived risk and hard collateral requirements by financial intermediaries. IFC’s provision of a risk mitigation tool will relax the collateral constraint and increase the risk appetite of the Bank. IFC anticipates that this investment will demonstrate the effectiveness of RSFs in mitigating the credit risk of SMEs and the business case for SME lending, spurring other financial institutions to replicate lending to WSMEs and agribusinesses.

The project will provide financial additionality to the Bank in the form of financing structure and resource mobilization. Financing Structure: The Project provides a critical risk mitigation tool that will allow Converse Bank to mitigate the perceived risk of lending to SMEs by covering up to 50% of principal losses on all eligible loans extended to this segment. The RSF is also expected to reduce the capital charge on the portfolio covered by IFC’s guarantee due to its AAA credit rating. Thus, the Project would help improve the Bank’s capacity to take additional risks associated with increased lending to SMEs, including women-owned SMEs. Resource Mobilization: The Project expects that the Bank will retain 50% of the SME portfolio risk that are not covered by IFC. This approach will allow to leverage private capital and maximize the development impact of the Project. Non-Financial Additionality: Knowledge, innovation and capacity building: Under the Platform, the Project will provide operational and/or technical support to help the Bank scale origination in the targeted SME segments through (i) reporting training to equip the Bank to meet the quarterly and annual reporting requirements, and (ii) operational implementation support to assist the Bank to integrate the risk mitigation product into its systems and procedures.

Indicator	Metrics	Calendar Year 2022	Calendar Year 2023	Calendar Year 2024
Number of banks obtaining RSFs to lend to SMEs	3	Not Available	Not Available	Not Available
Number of Outstanding Loans, SMEs	loans	Not Available	Not Available	Not Available
Number of Outstanding Loans, SMEs : (target group)	loans	Not Available	Not Available	Not Available
SME share of total loan portfolio	%	Not Available	Not Available	Not Available
SME target group as a share of SME loan portfolio	%	Not Available	Not Available	Not Available
Value of Outstanding Loans, SMEs	USDMill	Not Available	Not Available	Not Available
Value of Outstanding Loans, SMEs : (target group)	USDMill	Not Available	Not Available	Not Available
Board Composition Total (#)	number	Not Available	Not Available	Not Available
Board Composition Women (#)	number	Not Available	Not Available	Not Available
Direct Employment (#) Operations And Maintenance	individuals	Not Available	Not Available	Not Available
Female Direct Employment (#) Operations And Maintenance	individuals	Not Available	Not Available	Not Available
Number of Senior Management Positions	individuals	Not Available	Not Available	Not Available
Number of Women In Senior Management	individuals	Not Available	Not Available	Not Available

E&S Category Rationale / Risks and Mitigation

The expected portfolio to form the RSF will comprise of low to medium environmental and social (E&S) risk investments with potentially limited adverse E&S risks or impacts that are few in number, generally site-specific, largely reversible, and readily addressed through mitigation measures. The Project will not support any activities on the IFC Exclusion List, coal-related activities, hydropower plants, solar photovoltaic (PV) installations other than those purchased by eligible borrowers for their own consumption and higher-risk business activities, that may include a) involuntary resettlement, b) risk of adverse impacts on indigenous peoples, c) significant risks to or impacts on the environment, community health and safety, biodiversity, cultural heritage, d) significant retrenchment, and/or e) significant occupational health and safety risks. The Project has therefore been categorized as FI-2 according to IFC’s Sustainability Policy. For this Project, IFC's applicable E&S requirements will be the IFC Exclusion List, the applicable environmental and social national laws and regulations, and screening out non-eligible activities and higher E&S risk transactions. The Bank will additionally be required to be in line with the life and fire safety requirements of Performance Standard 4, and requirements of IFC’s Performance Standard 2 on Labor and Working Conditions. The main E&S risks and impacts of this investment relate to the Bank having adequate systems and capacity in place to manage the operations being financed in line with the IFC’s applicable E&S requirements.

The Bank established its Corporate Social Responsibility and Environmental Risk Management Policy in 2019 and the Environmental and Social Risk Management Procedure in 2020. The Policy sets up the goals to continuously ensure and improve the efficient management of environmental and social risks in the lending process; avoid/minimize the adverse impacts on people and environment arising from lending; exclude financing of business on exclusion lists; and exclude lending to parties actually or potentially violating the Armenian labor, environmental and natural resources laws. The Policy requires alignment with the respective IFIs’ exclusion lists and with applicable E&S laws and regulations of the Republic of Armenia, as well as establishment of an E&S risk management procedure and implementation of the related processes for efficient E&S risk management. The procedure provides for E&S categorization, details the E&S due diligence process, equips with the needed tools, requires loan officers to prepare an ES due diligence report to identify and propose mitigation of potential E&S risks and monitor those during loan cycle.

The Bank has assigned an E&S team responsible for the ESMS implementation. For this project, the Bank will be required to enhance the ESRM procedure to duly screen out non-eligible activities and high-risk projects from the pool of loans to form a part of the RSF, as outlined in the Environmental and Social Action Plan below. Additionally, the HR policy and procedures are required to be enhanced in line with PS2 requirements. Regular training programs will be delivered regularly to the staff responsible for E&S risk management.

S.no	Title	Anticipated Completion Date
1	Enhance ESMS in line with IFC’s requirements by adding a tool to screen-out non-eligible activities and high-risk loans	12/15/2024
2	Submit E&S training plan	12/15/2024
3	Carry out training for staff to implement the ESMS enhancement.	03/15/2025
4	Update HR Policy in line with PS2 requirements	03/15/2025
5	Submit ESDD procedures implementation records	06/15/2025

Contacts

For Inquiries About the Project, Contact

Converse Bank CJSC
Lusine Balanyan
Head of Investor Relations and Strategy
conversebank.am

For Inquiries and Comments About IFC, Contact

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IFC Communications
2121 Pennsylvania Avenue, NW
Washington DC 20433
Telephone: 202-473-3800
Fax: 202-974-4384

IFC supports its clients in addressing environmental and social issues arising from their business activities by requiring its real sector clients to set up and administer appropriate grievance mechanisms and/or procedures to address complaints from Affected Communities in relation to environmental and social issues arising from IFC's clients' business activities. Since 2012, IFC's Financial Intermediary clients applying the Performance Standards are required to develop External Communications Mechanisms to receive and review inquiries or complaints from any interested party regarding the E&S risks and impacts of their operations.

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