A social impact bond pilot programme announced on February 4 by the European Bank for Reconstruction and Development (EBRD) and the United Nations Development Programme (UNDP) aims to improve the lives of smallholder farmers in the Shirak region of north-western Armenia.

The two institutions signed a letter of intent to structure a social impact bond, a financing tool that links financial success to the delivery of measured social outcomes.

Social bonds provide investment to address social problems by funding preventive measures. When the social outcomes improve, investors are repaid their initial investment plus a return for the financial risk that they took.

The social impact bond will be the first introduced in Armenia and it will be dedicated to supporting the development of the local agribusiness sector, the EBRD said. The Slovak Republic is providing financial support for the services of Social Finance, a consultancy, to build on the findings of a feasibility study prepared by the UNDP.

Dimitri Gvindadze, EBRD head of Armenia, said: “The EBRD and UNDP share the common objective of promoting the development of agribusiness in Armenia and making the economy more inclusive. Today we are formalising our partnership and leveraging our strengths to attract private-sector investment and activities. Supporting inclusive and sustainable development is one of our priorities in Armenia.”

Dmitry Mariyasin, UNDP resident representative in Armenia, said: “UNDP supports sustainable development in Armenia. The country is to be a pioneer in the use of new innovative financial mechanisms, such as social impact bonds, for unlocking private and public capital for national development priorities, including agriculture. We are delighted to be part of this process.”

The EBRD is the leading institutional investor in Armenia, active in all sectors of the economy. Since the start of its operations in the country in 1992, the development bank has invested €1.47bn in 187 projects there, in the financial, corporate, infrastructure and energy sectors, with 91% of those investments in the private sector.

UNDP is the leading United Nations organisation fighting to end the injustice of poverty, inequality and climate change. UNDP in Armenia was established in March 1993 and supports the government in meeting its development priorities and the sustainable development goals.