Diaspora Support for Business Development in Armenia: Examining Paradigms of Social Entrepreneurship Kate Gillespie Anna Andriasova The University of Texas at Austin

“I believe that Armenians in the diaspora should invest in Armenia and not just donate to Armenian charities.”

Social Entrepreneurship Not-for- Profit Sector Establishing new not-for-profit organizations Establishing new not-for-profit organizations – Lincy Foundation – Izmirlian Foundation Engaging in for-profit businesses to support charitable programs Engaging in for-profit businesses to support charitable programs –Izmirlian Foundation For Profit Sector Operating to enhance the well-being and benefit of the larger community in which the business is embedded – in addition to generating wealth to the business owners Operating to enhance the well-being and benefit of the larger community in which the business is embedded – in addition to generating wealth to the business owners – Armenian Business Corporation (ABC)

Lincy Foundation Loan Programs Lincy Foundation Lincy Foundation –Kirk Kerkorian –No interest loan to the Armenian Government 1998 – – 2004 SME Loan Program SME Loan Program –Armenian government would loan funds to Armenian banks at no more than 3% –Banks would make loans to SMEs in amounts of $100,000- $1,000,000 for no more than 15% –No Lincy employees involved in program administration

Lincy Foundation (continued) Project Adjustments Project Adjustments –SME loan program scaled back significantly and funds transferred to infrastructure projects –New loan/equity program initiated targeted to majority-owned foreign investments Results Results –$20 million allocated under SME program –No allocations under FDI program –Programs not renewed

Izmirlian Foundation Loan Programs Izmirlian–Eurasia Small Business Loan Program Izmirlian–Eurasia Small Business Loan Program –$3 million commitment in 1999 to augment relatively successful Eurasia Foundation Small Business Loan Program –Administered by Eurasia via Armenian Banks –Loans up to $125,000 for two years –Low defaults

Izmirlian Foundation (continued) Project Adjustments Project Adjustments –Bypass banks to establish proposed Izmirlian–Eurasia finance company Izmirlian–Eurasia finance company –2003, joint venture with Black Sea Trade and Development Bank $125,000 – 500,000 loans $125,000 – 500,000 loans Profits accruing to the Izmirlian Foundation will be used to support philanthropy in Armenia Profits accruing to the Izmirlian Foundation will be used to support philanthropy in Armenia

Armenian Business Corporation Armenian Business Forum, 1991 Armenian Business Forum, 1991 –Charged with finding investors for Armenia –Establishes ABC in 1994 Armenian Business Corporation (ABC) Armenian Business Corporation (ABC) –For profit ordinary joint-stock company –$320,000 capitalization –Diaspora businessmen from 17 countries –Primarily made loans to local businesses –Most defaulted and collateral proved to be overvalued

ABC (continued) Project Adjustments Project Adjustments –Restructuring: Shareholders are given opportunity to withdraw at value slightly less than face value. Number of shares drop from 32,000 to 821 –Model changes from loans to equity investments –Broader participation encouraged –ABC listed on Armenian Stock Exchange –2003—ABC actively involved in 7 joint ventures –Eighth venture in legal quandary –No dividend yet

Project Control Set Input Set Output Set Lincy Foundation SME Loan Program SME Loan Program Armenian Government US Government Lincy Foundation Armenian Government Armenian Banks Medium-Large Armenian Businesses Armenian Banks Foreign Investment Foreign Investment Loan/Equity Program Loan/Equity Program Armenian Government US Government Lincy Foundation Armenian Government Foreign Investors Local Partners of Foreign Investors Izmirlian Foundation Izmirlian-Eurasia Izmirlian-Eurasia Small Business Loan Small Business Loan Program Program Armenian Government US Government Izmirlian Foundation Eurasia Foundation Armenian Banks Small-Medium Armenian Businesses Armenian Banks Proposed Finance Proposed Finance Corporation Corporation Armenian Government US Government Izmirlian Foundation Eurasia Foundation Small-Medium Armenian Businesses Izmirlian – BSTDB Izmirlian – BSTDB Joint Venture Joint Venture Armenian Government Izmirlian Foundation BSTDB Netherlands Management Cooperation Programme Medium-Large Armenian Businesses Armenian Business Corporation Pre Pre Armenian Government Armenian Business Forum Diaspora Investors Armenian Government Small–Medium Armenian Businesses Larger Diaspora Investors Post Post Armenian Government Diaspora Investors Small–Medium Armenian Businesses Larger/Smaller Diaspora Investors

Performance Propositions P1: The greater the homeland government interference with agent or service selection, the lower the performance of the DBS project. P2: The use of a host government as agent decreases the performance of a DBS project. P3: The greater the home government interference with service selection and governance, the lower the efficiency of the DBS project.

P4: Agents from cultures with strong governance institutions will encourage more openness with diaspora investors resulting in better performance. P5: The greater the participation of diaspora social entrepreneurs in governance, the more effective the project. Performance Propositions

P6: Services congruent with target client needs will increase performance of DBS projects. P7: The more homogeneous the SME clients, the better the performance of the DBS project. P8: An agent with more experience in SME support/creation/or management will provide better services resulting in better performance. P9: The greater the interaction of diaspora social entrepreneurs or their agents with SME clients, the better the performance of the clients and, consequently, the better the performance of the DBS project. Performance Propositions

P10: : The more transitional the macro- environment, the lower the performance of the SME project. P11: The greater the cooperation among DBS projects, the greater their impact on the macro- environment, and consequently the greater the performance of the diaspora social entrepreneur. Performance Propositions

P12: The greater the perseverance of the social entrepreneur, the better the performance of the DBS project. P13: Contributors will exhibit less perseverance with DBS projects than with other philanthropic efforts. Performance Propositions

Armenian Diaspora SME Support Project Performance Lincy Izmirlian Foundation ABC P P2--++ P3--++ P P P6--++ P7--++ P8--++ P P P P

Performance Model of Diaspora Business-Support Projects Diaspora Social Entrepreneurs Homeland Government Home Government Services Governance Macro Environment Client SMEs Social Goals Agents Return to Stockholders