Evaluation of the USAID-Kosovo SME and Agriculture - Economic ...

Development Associates, Inc.than 30% of its deposit base. Raiffeisen Bank has a rate of 60%, the five local banks are closerto 70% and FINCA lends close to 90%. 272. Can Raiffeisen Bank carry on?Although not yet profitable, Raiffeisen Bank is moving in that direction. It has entered Kosovofor the long term and expects to show positive numbers in 2004. The owners 28 added 2.5 MEuro in capital in 2003 and are preparing to add 5M Euro in 2004. Like any new bank, it is stillfinding efficiencies and the right portfolio to obtain operating profits that cover operating costs.Loans from Raiffeisen are longer in term and more favorable than for Pro-Credit and it providesa welcome bit of competition in the international banking market.LESSONS LEARNED1. Raiffeisen Bank is lending commercially in Kosovo, including housing, consumer creditand trade loans. Its portfolio of agribusiness, defined very liberally to include all foodprocessing and soft drinks, is down to 10%. Its minimal loan has become 10,000 Euro,with 16-18% interest for first time borrowers under 35,000 Euro, and 2% a monthbetween 35,000 and 50,000 and 1% above 50,000. They expect to make 50 loans amonth. In loans over 30,000 Euro, they want immovable collateral. In the city, land isacceptable, but in the countryside, there may be no market for repossessed property as allof the neighbors may be relatives or friends who would not buy a bank-auctionedproperty. If there is a new start-up activity, the bank will want to see cash flow from anexisting business line that would cover the full costs of interest and principle. While intheory it will lend for agricultural inputs, in practice, they like regular payments, notseasonally adjusted. The Bank provided credit to a mushroom grower with seasonalincome and did not receive the repayment as scheduled, which further dampened itsenthusiasm for “irregular” lending. In some circumstances, they are prepared to accept agrace period for one year of interest-only payments. The lesson is that commercial bankswill act like commercial banks, not like an extension of a USAID project.2. In development terms, the question is whether it was worth $10,500,000 to create thecommercial bank and do the other activities of this project. When compared to otherdonor expenditures in Kosovo, where the impact is often hard to see after the money flowhas ended, the sustainability of the result suggests this investment was worthwhile.Getting support out to the SME sector early in the recovery process was a definitebenefit. The confidence in the “American bank” was an important impetus in thefinancial sector. The speed with which USAID was able to move in getting this (andother projects started), according representatives of other donors, was and inspiration toall. This is particularly notable for an organization not generally known for quickness.27 FINCA, of course, does not take savings and thus has far lower reserve requirements.28 Raiffeisen is owned by hundred of local banks in Austria, the periphery owns the center, rather than the other wayaround. This gives the bank great stability, as the local banks exist by serving a community and are not, by allreports, complete profit maximizers in the usual way.Evaluation of the USAID/Kosovo SME 65 May 2004and Agriculture/Agribusiness ProgramsVolume I