Jasmina Hadzic, Communications Assistant in the Bosnia and Herzegovina World Bank Office, offers this story.

Bosnia and Herzegovina was already in a tough economic spot when the worldwide financial crisis hit, with unemployment at 24 percent. It then rose to 27.2 percent – a serious setback for a post-conflict economy in transition. And a difficult time for many people, as there are no effective social safety nets. Strained public resources were further stressed by mounting unemployment claims.

Zlatko Popovic

Businesses had trouble getting paid and in turn had trouble paying creditors. Higher interest rates made it increasingly difficult for businesses to get and pay off loans. Small- and medium-enterprises were hit especially hard by the lack of available working capital.

The government asked the World Bank for help in mitigating the crisis’s effects. In response, the World Bank restructured its lending program to provide assistance to small- and medium-sized enterprises, which are engines of job creation. It provided a $70 million line of credit so banks could lend to small- and medium-sized businesses at affordable interest rates. That would give firms a breather to weather the crisis. To date, 50 companies have benefited from these funds, and the impact has trickled down to other firms in the supply chain.

Budimir Ninic

“This project enables small- and medium-enterprises to access funds in a depressed economic environment. As a result, users of these credit funds have the opportunity to strengthen their export activities, increase turnover, and hire new workers,” says Zlatko Popovic, Loan Manager to local governments for the Investment-Development Bank of Republika Srpska.

A furniture manufacturer with 100 employees took advantage of this line of credit. The company, Drinjaca, mostly exports to Germany and was hurting because clients who once paid within weeks were months overdue. Owner Budimir Ninic borrowed EUR385,000 to stay afloat and used almost half that sum for working capital. With the rest, he bought new equipment that will allow him to hire ten to fifteen more people and increase his exports.

“Without the loan, we would not be able to export, and we would have closed down within a year,” Ninic says.

Another company, Studenprom, processes and packs snail meat for export to a French supermarket chain, with which it has an exclusive deal. With its loan, the company bought two refrigerated eighteen wheelers to drive goods to France itself rather than relying on commercial shippers.

Owner Pero Divljanovic says he could not have afforded a conventional bank loan because already high interest rates kept climbing during the crisis.

Pero Divljanovic

“Working with commercial banks is very difficult; some have their interest rates now at about 10 percent,” he says.

In addition to supporting businesses, the line of credit also gives local banks capital to stay viable.

“In the first instance, this credit line allowed commercial banks to respond to entrepreneurs’ requests for credit. It supports their daily efforts to maintain liquidity, and to expand and reorient current production to other and different demands and new markets. Progress in implementing this project in the Federation BiH is constant. The first phase of implementation was primarily for investment loans, later there was more interest in refinancing loans,” says Miroslav Trezner, Executive Director, OdRaz, Federation BiH.

Miroslav Trezner

Responding to constraints on capital flows was a cornerstone of the government’s crisis response. By helping banks to lend to businesses, the project has supported both the government and the private sector.