Microfinance in Bosnia and Herzegovina: Current State and Future Prospects

Introduction

Bosnia and Herzegovina (BiH) has made significant strides in developing its microfinance sector. Despite challenges, there is a growing need for commercial microlending vehicles and other innovations that can help poor Bosnians access financial services.

Current Trends and Developments

Demand for Commercial Microlending Vehicle

There is a pressing need for a commercial legal form that allows microfinance organizations (MCOs) to offer savings services to their clients. This demand has sparked interest in exploring alternative models that can help bridge the gap between traditional nonprofit MCOs and commercial banks.

IFAD Project on Rural Finance

In 2003, an International Fund for Agricultural Development (IFAD) project was launched to improve rural finance in BiH. One of the project’s key objectives was to introduce a legal vehicle for savings and credit associations. However, the implementation process has been slow due to technical and political challenges.

Unified Financial System Regulation and Supervision

BiH is working towards creating unified and consolidated mechanisms for oversight of its entire financial system under the state-level Central Bank. This move aims to strengthen economic integration and create a single economic space.

New Draft MCO Law(s)

There is a growing consensus among stakeholders to replace the existing Entity-level MCO laws with a new law that addresses the current shortcomings. The proposed law will permit MCOs to transform into commercial legal forms or retain their nonprofit status.

Potential Future Developments

Commercial “Transformation” of MCOs

Larger MCOs may choose to undergo commercial transformation once the necessary legislative framework is in place.

Team-up with or Become a Commercial Bank

One or more MCOs may seek to partner with or become a commercial bank, taking advantage of the new draft MCO law that allows for commercial MCOs to be licensed as commercial banks if they meet specific prerequisites.

Implementation of a Savings and Credit Associations Law

While uncertain, it is likely that all other legal options for carrying out microfinance in BiH will eventually be implemented.

Conclusion

The future of microfinance in Bosnia and Herzegovina appears promising. Several key developments and trends are expected to shape the sector in the coming years. As the country continues to work towards a unified financial system, it is likely that the demand for commercial microlending vehicles and other innovations will continue to grow.