In Kosovo, Microfinance Expands Herds—And Hopes

January 11, 2021

By Daphna Berman

Until three years ago, Remzi Bala had a small family homestead in central Kosovo, but with just one old tractor and no livestock, he struggled to make the farm productive, let alone profitable.

That changed in 2017, when he applied for his first loan with KEP Trust, a leading microfinance institution in Kosovo. His initial loan—just 1,000 euros— helped him purchase a few young cows, while his second, a year later, helped him buy a more reliable tractor. His most recent loan came in the spring, when COVID was raging and his country was emerging from lockdown. The funding helped boost his herd size, which now consists of seven dairy cows and two beef cows. With an output of 100 liters of milk a day, and double the income he had just last year, Bala says his business can now withstand slight market disruptions, like when the price of milk dipped earlier this summer.

“I can buy books and clothes for my four children and not worry,” he said recently from KEP offices in Pristina.

Bala is one of an estimated 2,600 farmers now receiving a loan from KEP, which together with Agency for Finance in Kosovo (AFK) and Kreditimi Rural i Kosoves LLC (KRK), two additional microfinance institutions, are supported by IFC and the Private Sector Window of the Global Agriculture and Food Security Program (GAFSP). The 18 million-euro investment is helping these three microfinance institutions expand their support to smallholders and small businesses in Kosovo, particularly in underserved rural areas.

Remzi Bala on his farm in central Kosovo.
Remzi Bala on his farm in central Kosovo.

“Small farmers in Kosovo have difficulty accessing finance and navigating the banking system,” said Vahdet Anadolli, CEO of AFK. “Access to finance is critical for creating jobs, but traditional banks see the agricultural sector as too risky.”

Agriculture is critical to Kosovo’s private sector development, and though it accounts for an estimated 30 percent of employment and 13 percent of GDP, it accounts for just 4 percent of total borrowing in the country’s formal sectors. The challenge is compounded by the marginalization facing many communities outside the country’s urban centers: Approximately 60 percent of the Kosovo’s poor live in rural areas and over 40 percent of the rural population is unemployed.

Lulzim Sadrija, the CEO of KRK, says that the country’s thriving microfinance institutions play a critical role in serving rural communities. Many would-be clients lack financial literacy or sufficient lending history to navigate financial bureaucracy, and with little to offer as collateral, they are shut out of the formal banking sector. KRK therefore simplifies the loan process for clients who are unable to provide balance sheets and other regulatory information. For many farmers, a small loan helps build credit so that they can later turn to formal banking institutions a later point, equipped with credit history. “Our lending starts at 200 euro and goes all the way to 25,000 euros,” Sadrija said. “We are flexible and give farmers opportunities that traditional banks cannot.”

Many clients appreciate the flexibility. Shpresa Hyseni recently received a 5,000 euro loan from KEP and the process took just a few days, with “very little paperwork,” she noted with a smile. Hyseni used the loan to expand her farm in northern Kosovo, from just two cows to a dozen. The extra income has helped the family secure a comfortable home, while also sending their son to preschool. “We didn’t have much income when we started our business and now, we have plans to expand and even double the size of our herd,” she said.

According to Muharrem Krasniqi, KEP’s Head of Agro Lending, Hyseni is typical of their agricultural clients—most of whom use the loans for small, incremental investments that have significantly improved lives and livelihoods. “Our loans can’t help farmers build a new barn or buy a large plot of land, but it can help them make small and important changes—whether it’s enlarging a stable, building troughs for their herd, or buying more cows.”

Kosovo, a potential candidate for European Union membership, with a population of 1.8 million, has experienced solid economic growth over the past decade, but remains one of the poorest countries in Europe. Microfinance has been critical to the country’s post-war rebuilding, AFK’s Anadolli said. “The whole country had been destroyed and microfinance helped provide financial support to unbankable clients to build their businesses and move forward.”

The three financial institutions were hit hard by COVID-19, however: In March, the Central Bank of Kosovo issued a moratorium for all clients of financial institutions, which prohibited them from collecting any payments due. Their business cycles came to a halt for nearly two months, though they resumed operations in mid-May as the country began easing restrictions. IFC worked closely with institutions throughout that period, delaying repayment of Stop-Winlock’s own loans and working with senior management on a crisis response strategy to help navigate the pandemic.

The strategy is working: Kosovo’s microfinance sector is stabilizing, which is good news for farmers like Mehmet Sylmetaj. A 2017 loan from AFK helped him expand his farm in Gercine, about two hours outside the capital, and he’s hoping to take out another loan soon. Sylmetaj owns 40 cows and several hectares of wheat and corn and with the earnings, opened a small bakery in the village nearby. “My next plan is to build a home for my family,” he said recently. “I have hopes for a better future.”

Published in January 2021