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Agribusiness and Rural SME Lending

Agribusiness and Rural SME Lending. Profile of Kosovo. Land area : 10,908 km² Capital City : Pristina - pop. 400,000 Population Description : approximately 2 million People. 40% urban / 60% rural

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Agribusiness and Rural SME Lending

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  1. Agribusiness and Rural SME Lending

  2. Profile of Kosovo Land area: 10,908 km² Capital City : Pristina - pop. 400,000 Population Description: approximately 2 million People. 40% urban / 60% rural Currency: EURO (as of Jan. 1, 2002) GDP2002: €1,895 million (est.) Per capita: €964 (est.) Registered Businesses: 30,000 Employment: Private Enterprise 23%, Farming 15%, Diaspora 24% Unemployment: 35% to 60%

  3. Background • Prior to 1999 conflict Kosovo was a cash economy. • After the conflict the business sector was destroyed and financial sector vanished.

  4. Reconstruction Period • FINCA • Jan. 2000 to Sept. 2002 • Rapidly put in place a lending program for micro and small businesses. • Helped restart many businesses destroyed during the conflict.

  5. The Kosovo Employment Generation Program (KEG) • Kosovo Business Support (KBS) • Oct. 2000 to Sept. 2002 • Broad-Based Business Development Services. Provided assistance to businesses with growth potential. • Prepared foundation for medium size SME lending. • Assisted SMEs to become eligible for bank lending. • Kosovo Business Finance (KBF) Fund • May 2001 to July 2003 • Established a full service bank facility • Provided urgently needed credit to larger SMEs. • 2% of outstanding portfolio dedicated for agriculture sector lending.

  6. Kosovo Agribusiness Development Program (KADP) • July 2000 to February 2003 • Implemented early activity to address agribusiness constraints. • Helped agribusinesses improve operations and become eligible for loans.

  7. Transitional Strategy 2002 – 2004 • The USAID SME program: • Began focusing on eight industries, working in clusters to improve quality of production, both for purposes of import substitution and for expanding exports. • Lending assistance focused on helping businesses become eligible for loans.

  8. USAID Program also assisted: • In building financial regulatory and fiscal institutions • In developing necessary policies and legislation.

  9. Current Credit Constraints • Perceived high level of market risk. • High collateral requirements for short-term credit to finance purchases of inventory and raw materials. • Although banks are liquid, long-term finance for capital assets is almost non-existent. • Agriculture accounts for only 3% of bank lending.

  10. Current Program 2004 - 2008 • Cluster and Business Support (CBS) • Two components • Assistance to specific economic groupings and their individual enterprises that make up Clusters. • General Business Support

  11. Increasing Access to Credit • Through local business service providers and associations, assist cluster members in obtaining credit. • Assist local banks • Train loan officers • Introduce new deposit mechanisms • Introduce a Development Credit Authority (DCA) program

  12. Illustrative Results • A reliable financial structure created. • FINCA established a self sustainable micro business lending program in 3 years. • A full service bank was established in two years to increase credit to larger SMEs. • All KBS referred clients had loan applications approved. • 12.7 Euro million in loans extended by KBF/ABK to KBS SME clients. • Banks continue to lend to former KBS clients.

  13. Lessons Learned • Good business planning encourages SME lending. • SME demand for business services is large. • SMEs are willing to pay for business services. • SME assistance should support demand driven product lines. • SME assistance needs to be provided through local providers.

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