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EBRD revives Bosnia and Herzegovina banking sector with two local bank investments
Almost two years after the signing of the Dayton peace agreement, Bosnia and Herzegovina's financial system is still fragile and unable to make a significant contribution to the recovery of the economy. To restore confidence in the financial sector and to support the emergence of the private sector in the country, the European Bank for Reconstruction and Development (EBRD) is injecting DM 3 million (ECU 1.5 million) into two private sector banks, Market Banka and Micro Enterprise Bank.
"The EBRD's investments will have a strong effect within the financial sector of Bosnia and Herzegovina since currently few financial institutions are providing credit to small enterprises in the country, which represent the backbone of the economy," said David Hexter, Deputy Vice President at the EBRD. "Supporting the nascent local private sector, Market Banka and Micro Enterprise Bank will assist residents of Bosnia and Herzegovina who are making the transition from unemployment and dependency on humanitarian aid to employment and independence."
The DM 2 million (ECU 1 million) equity investment in Market Banka's share capital will allow the bank to increase credit maturities and to become a natural contact for foreign banking partners. The investment represents approximately 30 per cent of Market Banka's DM 6.2 million (ECU 3.1 million) capital. Officially established in November 1992 by 10 local companies operating in the Sarajevo area, Market Banka has a total of 100 staff, four branches in Gorazde, Mostar, Tuzla and Visoko, and a representative office in Split.
Today the bank has over 50 shareholders from Bosnia and Herzgovina and has grown its initial business, which focused on financing food imports and servicing international payments into and from Sarajevo, to the point where it now offers a range of banking products. Its' total loan portfolio (including international credit lines agent arrangements) consists of 300 loans totalling DM 40 million with geographical and sectoral distribution that covers most of the Federation* part of the country and vital economy sectors.
"The partnership with the EBRD will have a twofold positive effect on Market Banka" says Edin Muftic, General Manager. "The strengthening of our capital will certainly attract foreign investors as well as open up wider business development perspectives for our clients."
The EBRD's DM 1 million (ECU 515,000) investment representing 28.5 per cent in the initial DM 3.5 million (ECU 1.8 million) share capital of Micro Enterprise Bank will enable micro and small enterprises employing up to 50 people to access both working capital and long-term financing tailored to their individual needs.
Alongside the EBRD, other investors in the Micro Enterprise Bank are the International Finance Corporation which, is also providing 28.5 per cent of the total, and the Netherlands Development Finance Company, Internationale Projekt Consult (IPC) and BH Banka, a local bank, with 14.3 per cent each. IPC will also provide advisory assistance to Micro Enterprise Bank.
"To help small enterprises in Bosnia and Herzegovina and to optimise the operating results of Micro Enterprise Bank, IPC will draw on its specialist microlending expertise accumulated over a period of more than 10 years" said Claus-Peter Zeitinger, Managing Director of IPC.
The European Commission is also making an important contribution to Micro Enterprise Bank through the provision of ECU 7.5 million of financing to be used both for on-lending and technical assistance. Micro Enterprise Bank formally opens its doors for business on 7 November in Sarajevo.
"Micro Enterprise Bank can play a pivotal role in the transition of Bosnia and Herzegovina from the cultural and economic heritage of communism towards the challenges of an open market economy. It will help the country's budding entrepreneurs in their efforts to establish a healthy economic environment in which small and medium enterprises can flourish," said Ambassador Donato Chiarini, head of the Representation of the European Commission in Bosnia and Herzegovina.
The EBRD has built up substantial experience in micro and small lending operations mainly through the Russia Small Business Fund, which has granted over 13,500 loans worth more than US$ 170 million (ECU 153 million), and on a smaller scale with the Swiss-American Micro-Enterprise Programme in Moldova.
Previous EBRD projects in Bosnia and Herzegovina comprise a sovereign-guaranteed infrastructure project to rebuild the transport system, signed in December 1996, and a private sector investment in Hrvatska Banka signed in May 1997. The EBRD shall invest US$ 5 million in a private equity fund to strengthen the supply of equity capital to small and medium-sized enterprises.
* Under the Dayton Peace Accords, Bosnia and Herzegovina consists of two entities: the Federation of Bosnia and Herzegovina and the Republika Srpska.
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