In a report on the Reuters website entitled ‘Balkan loan guarantors struggle to pay others’ debt’ by reporter Daria Sito-Sucic , it was stated that guarantors in the Balkan states are increasingly being pursued by lenders to pay up on loans to defaulting borrowers. The article notes that it was common for borrowers to secure guarantees from family and friends in order to rebuild their lives in the immediate aftermath of the war from 1992 to 1995. Mr Sito-Sucic notes that people readily guaranteed loans for friends and relatives after the collapse of Yugoslavia ‘unaware that their backing was no longer a mere formality as during socialist times’. In the past, jobs were more or less secure until the age of retirement and the local currency did not suffer frequent redenomination as it has in post-war times. Now, the impact of the global economic crisis is affecting small businesses and the financial sector in the Balkan region.
Officials in Bosnia were quoted as stating that losses affecting the microcredit sector that have been induced by the financial crisis could bring poverty to many middle and working class families that rely heavily on microloans. This trend could well exacerbate instability in the ethnically divided country. A spokesperson for the Bosnian microcredit organization, Sunrise , known as Mr Milan Seselj, was quoted as stating that the global economic downturn has taken a significant toll on microenterprises. He added that the microcredit sector in Bosia had seen strong growth rates of 40 to 50 percent in some MFIs in the recent years. However, he stated that Sunrise will report a loss of up to 4 percent for the first half of 2009 for the first time since it was established as a result of the financial crisis. Default rates were stated to have doubled to 8 or 9 percent since the end of 2008.
Microloans in Bosnia are said to range from up to Euros 5,000 in the Muslim-Croat Federation to up to Euros 25,000 in the Serb Republic. Sunrise was founded in 1997 and has a gross loan portfolio of USD 66,470,996 with 28,651 active borrowers, according to its profile on the MIX Market portal , a database that houses financial and other data on MFIs across the globe. Its total assets as at 2008 is stated to be USD 73,471,026 and it has a debt to equity ratio of 4.30 and a capital to asset ratio of 18.85 percent.
Another problem alluded to by Mr Seselj was that of over-indebtedness and a lack of transparency. Many microborrowers took on several loans as MFIs were not obliged to report on their clients to the central credit registry. On top of their own personal debts, many microborrowers also acted as guarantors for their friends and relatives, essentially compounding the problem of over-indebtedness in the region. It has also been stated that banks are choosing to target guarantors rather than to go through lengthy court procedures to obtain loan repayments. In the absence of a clear regulatory framework, the risk that fraud and bad practices in the microcredit sector will go unchecked is high.
The problem of over-indebtedness has been covered in previous stories on Microcapital.Org which are referenced in the ‘Bibliography’ section below , , . Related publications on microfinance in the Balkans have also been referenced below , , .
By Chinq Yee Chong, Research Assistant
 Article on Reuters entitled ‘Balkan loan guarantors struggle to pay others’ debt': http://www.reuters.com/article/lifestyleMolt/idUSTRE57G0H720090817
 Sunrise Microcredit Organization:www.microsunrise.ba
 Profile of Sunrise Microcredit Organization on the MIX Market portal: http://www.mixmarket.org/mfi/sunrise
 MICROCAPITAL STORY – Highlights From A Hanson Wade Conference On Microfinance Investments And Observations By Key Panelists From MFX Solutions, ACCION, OPIC, Deutsche Bank, Microfinance Transparency And Others
 PAPER WRAP-UP: Bosnia and Herzegovina Microfinance Analysis and Benchmarking Report, 2008, by the Association of Microfinance Institutions in Bosnia and Herzegovina (AMFI), and Microfinance Information Exchange (MIX)
 MICROCAPITAL STORY: European Fund for Southeast Europe (EFSE) Provides EUR 5m Loan to Macedonian Commercial Bank, TTK Banka A.D. Skopje (TTK); Fund will be Used to Provide Microloans to Micro and Small Enterprises (MSEs) in Macedonia