Quick loans plunge Kosovo citizens into debt

In the Kosovo banking market, besides commercial banks, their activity is also developed by microfinance institutions (IMF), in which citizens can receive loans in different values.

According to the recent Kosovo Central Bank report, the interest rate for loans in 21 microfinance institutions operating in Kosovo has reached 22.7 percent from 22.7 percent. 2 percent averaged in the same period last year.

Despite the interest rate, the value of the issued loans has reached over 153m euros. Of this value, 99m euros are family loans, and over 54m euros are loans for companies.

Over 75 thousand are said to be the number of borrowers in these institutions.

Leaders of the Microfinancial Institutions Association say that interest rates are similar to European quick credit rates with cash and without many documentations. They say that according to the European Network of Microfinance, interest rates in these institutions are the lowest in the region.

The executive director of the association, Education Bruciaj, for Radio Free Europe, says interest rates are similar to commercial banks' products, such as credit cards or overload.

These rates range from 12.5 per cent to 25 per cent, Bruqaj says, adding rates depending on the type of credit, the earlier loan owner's response to the IMF, from his history to the credit register, by deadline, to the amount.

It argues interest rates, because, as he says, institutions take credit themselves to loan, as they do not accept deposits.

Bruciaj shows the possibility of lowering credit rates.

A possibility for lowering these rates is that microfinance institutions (IMF) are allowed to increase the institution's sustainability beyond credit. This could be done so that these IMFs could be allowed to do additional services, such as transfers and payments, or even other” services.

“on a medium-term future, greater adoption of technology would affect the reduction of costs for credit units, and that would affect lowering the interest rate”, Bruqaj says of Radio Free Europe

On the other hand, experts on economic issues estimate that citizens who do not meet the conditions to receive loans in commercial banks are taking loans without any criteria in microfinance institutions.

Economics expert Naim Gashi estimates credit rates in these institutions are extremely high.

Microfinance institutions require no criteria to meet, no monthly wages, no mortgages, no collateral. Only one sheet of application and ID is required. And in most cases they're aware that families don't have a chance to return loans, but because of their financial difficulties they're forced to take loans which are not the full meaning of the word, because they're over 20 percent”, Gashi says to Radio Free Europe.

These institutions are organisations offering small loans to low-income individuals or family businesses but with simpler procedures than commercial banks.

A citizen from Ferizaj, Albert Gashi, who has completed the Economic Faculty, shows that he has been interested in loans to these institutions, but also in commercial banks. But, as he says, high interest rates have been a reason why he refused to take credit.

“Credit rates are very high, which sometimes cannot even be called interest”, Gashi says.

Microfinance institutions operating in Kosovo are monitored by the Central Bank of the Republic of Kosovo.

The claim Ahmeti, spokesman at this institution, tells Radio Free Europe that microfinancial institutions have increased their governance capacity, affecting the stability of the financial sector as well.

It has already shown these institutions to implement the legal framework.

Kosovo's Central Bank consistently provides recommendations for advancing the processes of these institutions, and when identified as having irregularities, the CEC acts as a transformation in power by taking measures such as: written remarks to institutions, institutions officials, as well as penalties with monetary fine”.

“All measures that have been taken have been respected overall by these institutions, and the same have positively impacted their discipline in respecting the legal framework”, Ahmeti says.

Ahmeti says one of the main principles of the CEC is maintaining an efficient financial system in providing quality services to consumers at competitive prices.

The Central Bank has established adequate legal infrastructure that encourages efficiency and competition, as well as provides an adequate level of financial services, which is also being affected through such approach by lowering credit interest rates.

Microfinance institutions provide almost all types of loans, such as commercial banks, ranging from loans for families, agriculture, business loans, renovations, and vehicle registration loans.

In Kosovo, 21 microfinance institutions operate, with 129 units on the entire territory of Kosovo, out of which 14 are more foreign-owned, while only seven are local. The number of employees in these institutions is over 1,000.

In turn, ten is the number of commercial banks with 237 units on the entire territory of Kosovo. Eight of them are most foreign-owned. The value of citizens' loans to these banks has reached over 2.5 billion euros, out of them over 900m euros, are family loans, while 1.6 billion euros are loans for companies. (REL)