GMFI Micro Enterprise Bank Kosovo

completed

Operating since January 2000, MEB Kosovo is a specialized provider of credit and financial services to private micro and small enterprises in Kosovo. As of the end of May 2001, total credit provided was US$15.9 million equivalent, including a loan portfolio of over 1,200 accounts totalling US$5.7 million equivalent, with an average loan size of about US$4,700 and average maturity of ten months. Portfolio quality is high, with the end-May arrears rate reported at 0.5%; the sectoral distribution of the portfolio was 65% to trading enterprises, 20% to the light manufacturing sector, and 15% to the service sector. The bank reported net income of US$3.7 million in 2000. MEB Kosovo has experienced an exceptionally high rate of deposit mobilization. Customer deposits were US$110.0 million as of end-May, representing 36,563 depositors.Although initially developed to provide microcredit, MEB Kosovo quickly has become a key part of the payments infrastructure of Kosovo -- an infrastructure which was wiped out by the conflict in the former Yugoslav province. The bank has, in addition, developed a considerable international transfer business and has attracted a large deposit base of over US$100.0 million. This is a major achievement, considering the widespread losses depositors suffered due to wartime confiscation of savings accounts, and the collapse of pyramid savings schemes during the early 1990s. It is estimated that about 90% of Kosovo''s money supply is still held outside the banking system. In common with the other parts of the former Yugoslavia, therefore, there is a need to support new, professionally-managed and credible financial institutions in Kosovo which can be trusted as both deposit-taking and lending institutions. Following its very successful launch, MEB Kosovo strategy in 2001/02 is to build on its province-wide presence by establishing itself as the main lender to the MSE sector.Microfinance schemes have shown a major positive impact in reducing poverty and unemployment in emerging markets worldwide, and -- in recognition of this strong developmental impact -- almost all multilateral and bilateral institutions and donor agencies are actively promoting microfinance schemes. The developmental impact of commercially-run microcredit programs in particular, on post-confict transition economy populations with little or no access to formal credit institutions has been well-demonstrated by IFC''s microcredit investments in Bosnia-Herzegovina and Albania. IFC''s developmental strategy in the field is to attract serious private sector investment in microfinance by demonstrating that microfinance can be a viable commercial proposition.The proposed investment in MEB Kosovo is expected to be strongly developmental -- in terms of its economic impacts, stimulus for business reconstruction, employment generation, confidence-building in the banking sector, and introduction of commercially-oriented microfinance techniques to Kosovo.