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

Development Associates, Inc.MAJOR OPPORTUNITIES1. New product development is underway to provide a product aimed at serving the Kosovohousing improvement market. Negotiations are ongoing for an additional KfW 1M Euroloan funds for this new product including TA to finish the development of the loanproduct and to disperse the first loans. The goal of this product is to improve the standardof living in Kosovo and diversify sources of income for FINCA/K. Market demand forthis loan type is growing rapidly.2. No additional urban credit products are planned. The only future product opportunityseen by FINCA/K is a new pure Ag loan product in addition to the current mixedMicro/Small loan product. A new initiative for women starting businesses is beingdiscussed as a potential future project (due to a low percentage of women to date in thelending activities – 16 %).MAJOR CONSTRAINTS TO REALIZATION OF OPPORTUNITIESThe only major constraint FINCA/K faces is the inability to receive and use savings depositsfrom the rural population thus inhibiting FINCA use of a cheap and seemingly abundant sourceof loan capital. This is particularly unsettling for FINCA because savings is an integral part ofthe FINCA global approach to Village Banking (VB). FINCA/K currently has 68,421 euro insavings within its 252 VB groups (December 2003). The savings are currently managed by theVB group officers (as distinct from being available to FINCA as a deposit that allows expandedlending) and are used by the groups as an additional source of loan capital that can be taken byany member of the group with permission of the group.SOLUTIONS TO THESE CONSTRAINTSThe current BPK requirements to begin receiving and using savings are 4M Euro in equity. Fivelocal banks are very close to this threshold (KSB: 5.7 M Euro, BpB: 5.9M Euro, NBK: 4.7 MEuro, BKP 4.5 M Euro and BE: 4.4 M Euro) and the two international banks are 2 and 3 timesover this threshold (Raiffeisen with 7.5 M Euro and Pro-Credit with 12.3 M Euro). Consideringthe economic and lending environment in Kosovo 4M Euro does not seem to be a reasonablerequirement for a Kosovo MFI. To solve this constraint FINCA/K must either search for grantopportunities to increase its equity (currently at 2.6 M Euro, a 1.4 M Euro shortfall) faster thanthe 5 (optimistic) to 10 year (pessimistic) prognosis for increasing equity from interest income.A second more economical (from a Donor perspective) solution is to convince UNMIK andspecifically the BPK to reduce the requirements for MFIs in order to promote rural developmentin Kosovo. This seems prudent since the banks are predominately working in the urban areasand the MFIs are working in the rural areas. The overall idea being that when savings isentrusted to FINCA/K it will be used to provide financial services to rural areas directlypromoting grassroots development.FINCA/KS WORK WITH OTHER DONOR ORGANIZATIONS/FINANCIALINSTITUTIONSFINCA/K has worked with other donors and financial institutions. It has received two grants,one from OSCE (102,258 Euro, May 2003) for lending to minorities and the other from UNMIKEvaluation of the USAID/Kosovo SME 73 May 2004and Agriculture/Agribusiness ProgramsVolume I