The Microfinance Sector in Albania

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Microfinance is a concept introduced to Albania by the international community as one of the best and most innovative ways in the period of the socio-economic crisis faced by the country in the first years of transition. The first 100 microcredits earning $ 20,000 were donated in November 1992 to a French foundation. Their purpose was to test how villagers would respond to the initiative, which proved to be successful. From that beginning, rural crediting has not been interrupted. The need for funds on the one hand and the demands of the market economy were the main factors that simultaneously influenced the spread of microcredits in our country.

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In the first years of the operation of microfinance institutions, the situation was different from nowadays, as it was generally characterized by a non-competitive environment, as a result of poor financial services providers for poor or low-income households and micro-enterprises. In these circumstances, in general, each institution had its specific clientele and excessive demand was relatively large. For the most part, the activities of microfinance institutions consisted in improving the lending methodology, increasing institutional capacities, maximizing coverage and increasing loan portfolio with a view to sustainability. The recent years have changed drastically due to formalization, the involvement of commercial banks and the introduction of new institutions in the market. Fundamental changes have also occurred in the clientele of microfinance institutions, as clients are now better informed and more sophisticated in terms of diversity and products or services they want to benefit.

The microfinance sector is of great importance in Albania as it enables access to financial services in regions, areas or sectors that are excluded from the formal banking sector, contributing significantly to household lending.

Sectors of the Albanian economy such as agriculture, livestock breeding, mountain tourism and rural areas continue to lag behind real lending opportunities by banks and are therefore the main items in the portfolio of microfinance institutions. Rural, mountainous and peripheral regions of Albania, such as Tropoja, Hasi, Puka, Skrapari, Bulqiza, etc. are the main areas served by the microfinance sector, where the institutions provide significant input.

Over the past two decades, the financial sector in Albania has undergone an important transition and development phase by evolving into a sustainable system led by the Central Bank in the role of supervisory and regulatory authority.

The microfinance sector began to develop in the late 1990s, when international donor organizations created local foundations to support the development of the economy. Foundations such as USAID, FEFAD, OXFAM, World Vision, Save the Children operated as non-governmental organizations until the approval of the Law on Credit Organizations, aimed at regulating the activity of non-bank financial institutions involved in lending. This development was conditioned by the fact that most of these organizations had already developed into sound financial institutions and had become important players in the financial market.

The microfinance sector experienced an institutional consolidation period after the 2000s. If in its beginnings it was treated as a financial means to combat poverty, in the post-2000 phase, the microfinance was characterized by numerous structural changes, which strengthened its position in the Albanian financial market. Structural changes were made possible thanks to innovative institutional capacities, coordination of strategies with the Central Bank and legal and financial support from donors.After 2010, the expansion of the market and the portfolio of loans or deposits faced the microfinance sector with other challenges, most importantly related to the further consolidation at the operational level. Provision of financial services to more than 50,000 clients was made possible by the ability of microfinance institutions to adapt to the needs arising from the management of large financial and commercial flows in time. 

All institutions invested in information technology by providing automated management systems, expansion of regional branches, staff training in line with the new criteria set by the Central Bank and applying marketing practices borrowed from the banking system. Institutions began applying a number of internal regulatory practices related to collateral, risk and currency management. The gradual separation from donor organizations encouraged independence and increased internal capabilities, bringing greater consolidation and maturity to the entire system. 

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