MICROCAPITAL STORY: International Finance Corporation (IFC) Provides Loan worth EUR 7 million to Microcredit Foundation EKI (MCF EKI) to Expand Financial Services in Bosnia and Herzegovina

The International Finance Corporation (IFC), the private sector lending arm of the World Bank, is providing a loan worth EUR 7 million to the Microcredit Foundation EKI (MCF EKI), a microfinance institution (MFI) based in Bosnia and Herzegovina (BiH). According to a press release on the IFC website, this loan is issued to enable MCF EKI to expand its outreach to micro-entrepreneurs in the rural areas of the BiH region and will be used in part to finance micro-entrepreneurs and the rest to finance home-improvement projects in several of the region’s war ravaged areas. In this regard, EKI’s micro-lending program, which targets micro and small enterprises in the region, aims to utilize IFC’s support to disburse 4,200 new loans to microentrepreuners by the end of 2011. Under its Housing Refurbishment Loan Program, EKI will use up to EUR 1 million of IFC’s loan to provide loans for repair and improvement of several houses in the BiH region that were badly damaged by the Bosnian Civil War that took place between 1992 and 1995.

Commenting on IFC’s gesture, Ms Sadina Bina, Director of EKI, said the investment was particularly important considering the effects and stress caused by the financial crisis. IFC Director for Southern Europe and Central Asia, Shahbaz Mavaddat opined that the funding would infuse medium-term liquidity to support EKI’s lending program and would also have a significant development impact on the country’s microfinance sector. No further information on the loan details is publicly available. MicroCapital has previously reported on IFC’s activities in the BiH region; please click here for more information.

MCF EKI was created in 1996 from the microcredit program of World Vision International (WVI), a relief, development and advocacy organization dedicated to working with communities to fight poverty. In March, 2001 EKI registered as a local microfinance organization. It has 14 branches and over 40 satellite offices covering approximately 90 percent of BiH territory. As of December 2008, MCF EKI had a total loan portfolio of USD 145 million and 53 thousand active borrowers. As of December 2007, it had total assets worth USD 122 million, a debt to equity ratio of 416.65 percent, return on assets of 7.33 percent and return on equity of 34.82 percent.

The International Finance Corporation is an intergovernmental organization launched in 1956. It is a member of the World Bank group and its main objective is the promotion of private enterprise. The IFC finances private sector investment, mobilizes capital in the international financial markets, and provides advisory services to businesses and governments. For the fiscal year ending June 2008, IFC reported total assets of USD 49.5 billion.

According to a 2008 study by the UK Department for International Development (DFID), the UK Government organization that manages Britain’s aid to poor countries, 17.8 percent of people in BiH live below the poverty line and another 30 percent of the population lives very close to the poverty line. The idea of micro-credit in Bosnia was introduced by The International Development Association (IDA) as a means to help the Bosnian economy recover from the after-effects of the Bosnian war i.e high unemployment, lack of infrastructure and basic financial services, etc. IDA’s first project in 1997 focusing primarily on demobilized soldiers, women entrepreneurs and those people displaced or disabled by war marked the start of the development of microcredit in the country. MicroCapital recently featured an analysis of the microfinance sector in Bosnia; please refer to this paper wrap-up for more information.

So far, in terms of meeting the first of its United Nations Millennium Development Goals by 2015 (i.e. reduce, by half, the proportion of population living on less than one dollar a day), the United Nations says BiH is ‘very likely’ to achieve its goal of poverty reduction. The 2008 Human Development survey of the United Nations gives Bosnia and Herzegovina a rank of 75 out of 179 countries placing it among the list of high developed countries, measured on the basis of standard of living, life expectancy and literacy.

By Bharathi Ram, Research Assistant

Additional Resources:

IFC Press Release

United Nations Millennium Development Goals – Bosnia and Herzegovina

The International Development Association

2008 Human Development survey – Bosnia and Herzegovina

Microcredit Foundation EKI