Microcrediting in Bosnia and Herzegovina: What Went Wrong?

Analyzing the microcredit sector in Bosnia and Herzegovina
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This paper traces the history of the microcredit sector in Bosnia and Herzegovina, and studies factors responsible for shaping it.

The microcredit sector, which began in 1996 as part of the World Bank’s measures for economic reconstruction of post-war Bosnia and Herzegovina, recorded a steady growth until 2008. The sector began to experience problems such as decline in portfolio quality and low repayment rates in 2009. The paper attributes this to the following factors:

  • Microcredit organizations’ (MCO) lack of client awareness and information;
  • Competition between banks and MCOs leading to erosion of borrowing standards;
  • Credit risk inherent in client profile of MCOs, where typical customers have unstable incomes;
  • MCOs’ inability to assess and monitor loan disbursement;
  • Global financial crisis and consequent lay-offs.

The paper states that although MCOs in Bosnia and Herzegovina gave the poor better access to credit, the number of clients with a repayment problem is a cause for concern. MCOs need to focus on their mission of providing access to credit for small entrepreneurs in order to survive.