SME Access to Finance in Kosovo

Kosovo's GDP in 2014 was €5.5 billion, having increased by 3% from 2013, and by 24.6% since 2010. The GDP per capita in 2014 was €3,039. The trade deficit in 2014 was €2.4 billion, with imports being €2.5 billion and exports being €319 million, indicating Kosovo is an 88% import economy. The economy is also dependent on remittances, which in 2014 were approximately €696 million. In 2014, FDI in Kosovo was €123.9 million, having decreased from €314 million in 2010. The Central Bank of Kosovo (CBK) is an independent legal entity that regulates the financial system. The Credit Register of Kosovo (CRK) is an online system that provides credit histories and reports. The Pledge Registry of Kosovo is an online system that registers movable collateral. Mortgages are registered against immovable property at the respective Municipal Cadastral Offices. Private Enforcement Agents (PEAs) have improved contract enforcement, but the Law on Enforcement Procedures requires an amendment to specify the amount of time the court has to rule on a debtor objection to an enforcement order. The banking sector is over-liquid, with bank reserves at 43.3% according to the Central Bank of Kosovo (higher than the 25% required level), resulting in an estimated excess liquidity of €670 million. A significant portion of this excess liquidity is deposited in Western European banks earning negative interest rather than being put to work in the Kosovo economy. The average loan interest dropped by more than 5 percentage points during the 7-year period. Non-Performing Loans (NPLs) have followed an upward trend since 2008, although remain the lowest in the region. The average NPL 90 of the banks is around 8.3%. However, this figure includes consumer lending and corporate lending, and several banks report in interviews that the NPLs for non-corporate businesses are significantly higher. Kosovo ranks relatively well in the World Bank's Doing Business Indicators. From 2010 to 2014, Kosovo improved its Doing Business score from 113 to 86. Its Getting Credit score of 28 is very good, but its Enforcing Contracts score of 138 shows one of the major impediments and access to finance in Kosovo. The structure of the banking industry's assets (2010-June 2015) shows a significant increase in cash and balance with the Central Bank of Kosovo, as well as an increase in securities and gross loans and lease financing. Bank loans and deposits (2008-2014) show an increase in outstanding loans and deposits, with a loan/deposit ratio of 0.74. The loan interest rate has dropped by more than 5 percentage points during the 7-year period, while the deposit interest rate has decreased by more than 2 percentage points. The sectoral breakdown of loans (2014) shows that 64% of all loans were issued to corporate clients, with the trading sector dominating bank portfolios with a share of 54%. The agriculture sector accounts for only 4% of total loans, and woman-owned businesses account for approximately 2%. The Doing Business Report Rankings (2010-2014) show that Kosovo has improved its Doing Business score from 113 to 86. The Getting Credit score of 28 is very good, but the Enforcing Contracts score of 138 shows one of the major impediments to access to finance in Kosovo. The trade balance by sector (2008-2014) shows a significant trade deficit in the food and beverages sector, as well as a trade surplus in the crude materials sector. Impediments to SME access to finance include the fact that many micro and small businesses are unregistered, and some businesses underreport their sales and do not register all of their employees. The economy is also a large cash and barter economy, and many businesses do not have formal contracts and adequate written documentation of transactions. Additionally, many businesses do not have standard or adequate financial statements and financial statements, which increases the due diligence costs and risk for financial institutions.