Small Loans Boost Incomes

Maglaj, Bosnia and Herzegovina - After the war ended in Bosnia and Herzegovina in 1995, unemployment reached 70 to 80 percent, and the population grappled with both post-war reconstruction and the emerging market economy.

Microcredit offered the promise of helping poor people get back on their feet. Two Local Initiatives Projects launched in 1996 and 2002 helped small entrepreneurs all over the country start anew. Special attention was given to those displaced by war, demobilized soldiers, and people disabled during the war.

Old paper factory in Maglaj

A total of about US$45 million helped establish eight microcredit organizations. “People get loans from us much faster and more flexibly than from banks,” emphasizes Mirsad Milavić, general manager of Sunrise, one of the eight organizations. “Our credit officers are on the ground, visiting borrowers, and getting to know the businesses.”

Factory layoffs left many unemployed

A glance around Maglaj, in the hills south of Sarajevo, reveals the difficult economic situation many face. A run-down paper factory provided jobs for most families in the area, but layoffs after the war left many out of work. Muhamed Šehić, 35, a former soldier, had no work experience prior to the war and few options when he returned.

Muhamed Šehić with one of his 17 cows

Muhamed now owns 17 cows thanks to the loans he received from Sunrise and can support his family with the income he makes from selling milk to the local milk bottling plant.

“Without the loans, I would still have only three to five cows,” he says. “The process was very quick, and the deal is fair.”

Overall, the two Local Initiatives Projects have disbursed some 350,000 loans, 51% of them to poor people. Almost 185,000 jobs have been created or supported through the loans.

A growing family business

Autoservice Krule illustrates the impact of small loans on a struggling entrepreneur. After the war, Hakija Kruško, a skilled car mechanic, had dreams of leaving for the United States, but his aging mother needed him at home. He initially opened a small garage, but today, after five loans from the microcredit organization ‘Partner’, he has a large garage as well as a diagnostic center next door, employing five people. Hakija’s office is filled with modern electronic equipment and certificates of achievement from Mazda for training he has undergone.

Autoservice Krule has become a large garage

“Since I received the first loan, my profits have increased 500%,” Hakija says.  “Eventually, I want to be an official car dealer and repair specific brands of cars.”

With his earnings, he has sent three of his children to college, and his fourth, a son, has finished high school and works with him in the garage. Hakija’s wife contributes to the family business by taking care of the paperwork.

Hakija’s business is an example of the positive impact that microcredit had on employment, with each entrepreneur employing an average of 2.15 workers, thus improving the quality of life for even more people. These workers also received an income boost, as microcredit was found to increase monthly wages by 21 KM, or about €11.5, for each non-household employee. Clients who received microcredit also invested more in both their business premise and equipment.

Business registration among microcredit clients has also grown by 13%.

Despite the successes, challenges still remain for the future of the microcredit sector in Bosnia and Herzegovina. A new law is currently in preparation that would allow microcredit organizations to become for-profit institutions. This would let them obtain capital from sources other than international donors or commercial banks.

“We want to maintain our success, our closeness with our clients, and even export our knowledge to the rest of the former Yugoslavia,” Mirsad proclaims. “Our success is shown by the fact that 99% of our clients were able to repay their loans.”

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This progress was made possible thanks to the Local Initiatives Project (2001-2005). Click here to read more about the project.