Micro-credit helps Bosnians to make big ideas a reality

Analysts expect sector to keep growing strong despite the current crisis

A group of hundreds of Bosnians carrying their national flag embarked on a four-day march to Srebrenica from the village of Nezuk, 120 kilometers northeast of Sarajevo, yesterday. This was the route survivors took 13 years ago to escape the Bosnian Serb massacre in Srebrenica.

SARAJEVO (AFP) – 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 work force who have a combined active loan portfolio of more than 500 million euros ($700 million).

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.

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.

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 counseling 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 1992-95 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 center 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 postwar period as part of the solution for economic and social problems,” Nalic said.