GMFI-Micro Enterprise Bank Yugoslavia

completed

In view of the improving political climate in Yugoslavia, in late 2000 IFC began discussions with its strategic partners concerning establishment of a microfinance institution there. IFC has worked closely with the shareholder group to develop this transaction, including negotiating project structure, developing MFB''s business plan and operating guidelines and obtaining support for technical assistance. When fully-operational, Micro Finance Bank Yugoslavia will provide a full range of credit and banking services to the MSE target group, including working capital and fixed asset investment lending, savings and time deposits, credit cards and money transfer services. Foreign markets for MFB''s international transfers and payment services include the over 800,000 Yugoslav nationals resident in Germany. Bank intermediation to MSEs is close to nonexistent in Yugoslavia. Confidence in the country''s banking system was destroyed through wartime confiscation of savings accounts and the collapse of pyramid savings schemes during the early 1990s. About half of Yugoslavia’s money supply is estimated to be held outside the banking system. In common with the other parts of the former Yugoslavia there is an immediate need to build new, professionally-managed and credible banks which can be trusted as both lenders and deposit-taking institutions.The proposed investment in MFB is, therefore, 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 Yugoslavia.In addition to poverty alleviation and related impacts within the MSE target group, IFC''s involvement in MFB is expected to yield a number of important demonstration effects. First, establishment of MFB will provide for a best-practice financial institution with sound operating policies, transparent financial reporting, environmental screening procedures and a clear governance structure. Establishment of a professionally-managed, reputable bank in Yugoslavia is particularly important in view of public loss of confidence in the country''s banking system as a result of wartime savings account seizures and the pyramid schemes of the 1990s. Second, IFC’s involvement in MFB is expected, over time, to lead to the replication of commercially-oriented MFIs in the market and downscaling by Yugoslavia''s existing commercial bank operations to serve MSEs. Third, Technical Assistance provided to MFB is expected to generate spill-over benefits in the form of trained managers and employees available to other Yugoslav financial institutions. Lastly, MFB will contribute to mobilizing MSE savings in due course, although this will not be its initial focus.