Crisis Seen Boosting Bosnia’s Vital Micro-Credit Lending

Jul 2009
Sarajevo, Bosnia, July, 05 2009 - The micro-credit sector in Bosnia, a cornerstone of recovery from the country’s devastating war, is tipped to emerge even stronger from the global recession.

Since the 1990s conflict, the Balkan state’s micro-credit market has grown to serve nearly 400,000 clients thanks to generous international financial and technical support.

This accounts for 20 percent of the ex-Yugoslav republic’s workforce who have a combined active loan portfolio of more than 500 million euros (700 million dollars).

In 2007, five of around 15 Bosnian micro-credit providers were included on the Forbes magazine’s list of the world’s top 50 micro-finance institutions.

In the Sarajevo suburb of Lukavica, women gather once a month at one of them, the Mikra agency, to collect money which repays their loans.

Mikra uses different models of lending to the poor, including the so-called village banking model where loans are granted to groups of people in which peer pressure and collective responsibility helps ensure payments are made.

Loans can grow only if the initial debt is paid off.

“In Lukavica, we have 270 clients, but only three or four have difficulties repaying loans,” Mikra’s Vedran Zametica told AFP.

But the global economic crisis is having an effect on this sector, which since 1996 registered a steady default rate of less than 1.0 percent.

“The trend of growth of portfolios at risk started at the end of 2008,” Nejra Nalic, the director of Mi-Bospo micro-credit foundation, told AFP.

“Since October last year until the end of May 2009, the percentage of our portfolio at risk has grown by 100 percent,” said Nalic.

However, experts say micro-credit remains one of the healthiest segments of Bosnia’s economy

“We are talking about highly sophisticated management and employees... It is a very successful example of emergence and development of a completely new industry,” Rijad Hasic of the European Bank for Reconstruction and Development told AFP.

In the past three years, the EBRD provided several Bosnian micro-credit organisations with some 57 million euros too lend on and another two million euros worth of technical assistance.

“We intend to continue with our support,” Hasic said, adding the EBRD even considered becoming equity investor in some of micro-credit foundations after their expected transformation into micro-credit banks.

Commercial banks which provide about 15 percent of funding for the sector also appear undeterred by the crisis.

“I expect micro-credit institutions to emerge from the crisis even stronger... we will continue to finance them,” Mirzet Ribic, senior representative of Hypo Alpe Adria Bank in Bosnia told AFP.

However, some within the sector warn that the global crisis has only brought to the surface a much deeper problem.

“I am afraid that some of us grew a little bit too much, a little bit too fast and have thus started encouraging clients to borrow more than they can repay,” warns Mikra director Sanin Campara.

Mikra opted for a conservative approach which Campara stresses can hurt the agency in the short-term, but “only make us stronger” in the distant future.

Nalic agrees that in their fight for clients, micro-credit institutions “have neglected their primary mission a bit and become too commercial.”

“In some cases this resulted in poor assessment of client’s loan repayment capacity,” she said.

However, Reiffeisen Bank’s Dino Osmanbegovic is confident the sector is “reliable and able to respond to the challenges.”

Bosnia’s largest micro-credit agents are already cooperating with some of the world’s leading micro-finance investment funds on establishing counselling and preventing cases of over indebtedness.

During crises, micro-credit remains the only hope for people like Nagorka Govedarica who at the end of Bosnia’s 1992-1995 war was a widow struggling to raise five children on a meager school teacher’s salary.

Today, in her house near Sarajevo, Govedarica runs a private day-care centre for 60 children in which two of her daughters work thanks to a micro-credit loan.

“All I had was a good business idea and this house, I was not eligible for a bank loan, but I borrowed from Mikra,” Govedarica told AFP.

Govedarica has outgrown micro-finance and is now also borrowing from banks, but her experience with Mikra has taught her not to take more than she can repay.

“The strength of this sector is that it emerged in the immediate post-war period as part of the solution for economic and social problems,” Nalic said.

“I expect that we will be a part of the solution again.”

Source : Khaleejtimes.

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