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Credit Access in SerbiaThe Balkan nation of Serbia suffers from many of the same problems with credit access as its neighbors. And as with its neighbors, these problems pose a significant obstacle to small-scale, grassroots economic development. That being said, there are several initiatives underway to help to improve credit access in Serbia until the Serbian financial industry is able to offer expanded opportunities to secure credit.

In the wake of the 2008 financial crisis, Serbian banks have set very rigid requirements in order to secure a line of credit. Interest rates tend to be prohibitively high for small business owners, and there are many regulations in place that discourage lending to small businesses and startups because they are perceived to be too risky. The government has introduced subsidies and risk-sharing programs to try to mitigate this problem at great cost to the state, but this has not been sufficient to really improve credit access in Serbia. It is estimated that small and medium-sized enterprises in Serbia are collectively in need of €267 million worth of financing that Serbian banks are not willing to lend.

This is not to say that the Serbian financial industry is underdeveloped or ill-equipped. The World Bank is quite satisfied with the state of credit access in Serbia at a broad level. However, it does acknowledge that small and medium-sized enterprises experience more difficulty than they should when trying to access credit.

There have been several positive developments over the past several years that bode well for the future of credit access in Serbia. Recently, banks have begun to change the risk assessment procedures that they use when dealing with small and medium-sized enterprises. Where previously these entities were assessed in the same manner as a large corporation would be, many banks now use a procedure that takes into account the comparatively small size of these enterprises and does not allow size or inexperience to negatively impact the applicant.

Additionally, many international entities have stepped in to extend additional microfinancing money to be used to improve credit access in Serbia. The European Investment Bank recently provided €30 million to ProCredit Holdings in Serbia. This is intended to promote long-term, stable credit access in Serbia that will encourage economic growth and development for years to come.

While credit access in Serbia remains less than ideal, these recent developments represent major improvements over the previous situation. If similar improvements continue to follow, it can be expected that improved credit access will precipitate much greater economic development in Serbia in the coming years.

– Michaela Downey

Photo: Flickr

KIVA_Crowdrise
1. What is KIVA’s main goal?

Shah: Kiva is a nonprofit whose mission is to connect people through lending to alleviate poverty.

Kiva is the world’s first and largest crowdfunding platform for social good. Visitors to Kiva.org can browse through the photos and profiles of people all over the world seeking a loan and choose those that they want to support with a loan of $25 or more.

Kiva’s community of one million lenders crowdfund more than $2.5 million in loans per week. These small dollar loans have helped more than one million low-income borrowers start and grow businesses, go to school, improve their homes, buy clean energy products, and more.

Kiva leverages the power of collective good and new technologies to push the boundaries of economic opportunity in unique ways. With the philosophy of empowering people around the world, Kiva is providing safe, affordable access to capital. Since its founding in 2005, Kiva lenders have loaned over $480 million in 72 different countries.

2. Tell me your most inspiring success story. Which of your clients really stands out from the others?

In one moment, Yenku Sesay’s life was changed forever with the swift, savage cut of a knife.

On May 6, 1998 Yenku had the misfortune of being home when soldiers from the rebel army, Revolutionary United Front, invaded his village in northern Sierra Leone to cut off the hands of people who voting for the country’s current leader. Yenku pleaded with the rebels not to cut off his hands. But the rebels took a certain enjoyment from the process. Each prisoner was pushed forward for his or her punishment and had to choose slips of paper in a gruesome lottery. The paper either said “short sleeve” or “long sleeve.” Yenku pulled two long sleeves. His hands were severed with a machete, first the left, then the right. Many of the victims did not survive.

Yenku would likely have soon died if his father had not taken decisive action. Yenku’s father used the family savings to hire a motorbike to take Yenku for treatment in a hospital hours away in the country’s capital city, Freetown. It took 3 days to find a motorbike they could use, and for these three days Yenku waited without any medial treatment. During that time, Yenku was just hoping to die.

Due to the treatment he received at a hospital in the nearest city, Yenku eventually recovered from the physical wounds. In other ways, however, his life was destroyed. He was incapable of taking care of himself and eventually resorted to begging in the streets of Sierra Leone. He was just 21 years old.

Yenku would still be begging today, had he not been approached by Salone Microfinance Trust (SMT), in 2006, about taking out a group loan with four other local borrowers to help them learn a trade and start a business. No other institutions were even willing to consider Yenku for credit because of his amputee status. However, through lengthy discussions with Yenku, SMT saw in Yenku natural business skills and a drive to be self-reliant.

Yenku used this money to develop a modest retail business. At first the business was no more than Yenku selling small items in the street, such as packaged biscuits, soaps, and other sundries. Over the past two years, by reinvesting the profits and building his credit with SMT, Yenku’s business has grown to become a small shop selling an assortment of clothing, shoes, drinks, and other packaged food products.

Yenku dedicated himself to his business, and every month he made his repayments on time and often early. With the profits from his retail business, Yenku has recently expanded into livestock and agriculture. The result is that Yenku is now self-reliant.

Today Yenku is married and has become a provider. He can feed and clothe his three children. He sends both of his school-age children to primary school, and he even pays for his younger brother’s education.

Thirty-three people from six different countries helped to crowdfund loans to Yenku by chipping in $25 through Kiva.org to support his business. Yenku has paid each and every one of them back.

3. How does KIVA make an impact in terms of poverty?

Kiva is striving to bring access to crowdfunded capital into the hands of the working poor around the world. In addition, we are increasingly seeking ways to crowdfund new types of loan products for the working poor to help increase access to clean/green energy, education, and more.

4. What do you think is the most important factor for KIVA’s success?

Designed to be user-friendly, Kiva enables anyone with an internet connection and $25 to engage in our microlending movement. This incredibly low bar for participation has helped Kiva become a pioneer in the crowd funding space and brought microlending into the mainstream.

People are by nature generous, and will help others if given the opportunity to do so in a transparent, accountable way.

Kiva was born from the knowledge that individuals are capable of lifting themselves out of poverty if given access to financial services – all they need is access to just a little capital, and Kiva loans provide just that.

By connecting people we can create relationships beyond financial transactions, and build a global community expressing support and encouragement of one another.

These core values continue to drive Kiva’s evolution and have resulted in more than 1 million lenders reaching out around the world to lend their support to more than 1 million people working to lift themselves and their families out of poverty. Proof of a compelling mission and a sustainable model.

5. What do you feel sets KIVA apart from other organizations?

Microfinance has immense potential for improving the lives of the poor. In the last 40 years, it has reached nearly 200 million people. But — while the existing system strives to reach everyone — traditional microfinance still leaves a huge number of people out:

·       Subsistence farmers enduring uncertain seasons and harvests.

·       Students who make the grades but can’t afford college.

·       Extremely rural families with little opportunity.

·       Millions more who have the potential to change their lives with the right loan products.

Traditional banks and microfinance institutions are often unable or reluctant to offer flexible loan products to meet these people’s needs – mostly due to high costs and risk.

Enter KIVA. With more than one million lenders worldwide who don’t think like banks, Kiva is a powerful source of flexible, risk-tolerant capital. More and more, we’re directing this capital to social enterprises, NGOs, and microfinance institutions that are going beyond classic microfinance to take on issues like education, clean energy, agriculture and others that are central to poverty alleviation and economic opportunity.

Through Kiva’s lenders, we provide crowd-sourced capital to relieve the cost constraints on new ideas. And together with this new breed of Kiva partners, we’re testing and developing new financial products for borrowers worldwide.

Our approach is to see what works and share the results with a global audience. Ultimately, our hope is to get high-impact products to people who have been too long overlooked, and demonstrate their success to the global market.

– Samantha Davis

Sources: KIVA, BizDayTech
Photo: Imagur

microloans
A new pilot program from microlending organization, Kiva, is providing small loans to entrepreneurs in the United States in order for them to start their own businesses.

The concept of offering low- or no-interest microloans to individuals in order for them to have the start-up capital available to create their own businesses–subsequently lifting them out of poverty–is not a new idea for those living in the developing world, but applying that model domestically is innovative.

Kiva’s new program, Kiva Zip, helps connect potential borrowers with local trustees that vouch for the borrower so that they have the opportunity to receive microloans. Once the borrower has been accepted for a loan, the funds must be raised. At this point, lenders from all over the world can log on to their Kiva Zip accounts, scroll through the various loans, learn about the businesses and the people behind them, and ultimately make a small loan.

Crowdfunding the loans in this manner is critical in order to find lenders for the loans. A lender in South Africa might fund a loan in Los Angeles, while a lender in Chicago might want to fund a loan locally. Connecting people who want to give back, with people that have the entrepreneurial spirit to lift themselves out of poverty, is what Kiva Zip is all about.

All Kiva Zip loans are repaid on a decided upon time schedule. The lenders receive their money back to either make another loan or withdraw their funds. The hope is that lenders continually reinvest their funds into new loans–making the model self-sufficient.

Kiva Zip’s guiding principles are clear:

1) Expand financial opportunities and access for borrowers who otherwise lack them
2) Reduce the cost of capital for borrowers who need it
3) Enhance the connectedness between lenders and borrowers

The Kiva Zip model differs from the Kiva model in two important ways. First, Kiva Zip disburses loans directly to the borrowers, while the Kiva model sends the funds to a third-party organization, usually a non-profit or NGO, who then disburses the loan amount to the borrower.

Secondly, because of the direct disbursement of loans to the borrowers, Kiva Zip loans are riskier than Kiva loans. The default rate on Kiva loans are very small–only one to two percent. The default rate on Kiva Zip loans are expected to be quite a bit higher, but as the model becomes more efficient, the default rate should decline.

Applying a proven principle, like microloans, to economic woes domestically makes all the sense in the world. After all, Muhammad Yunus, father of microfinancing, said it best, “Poverty is unnecessary.”

– Aaron Faust

Sources: Kiva, Noble Prize
Photo: Komo News