EBRD helps reform Albania's capital market

By Claire Ricklefs

The EBRD, with funding from the Greek government, has helped introduce a new law that will govern municipal and corporate bonds in Albania. These bond legislation reforms reflect the rapidly-changing legal and financial environment in Albania and match best international practice.

As is the case in several other transition countries, Albania’s banking system has developed quicker than its equity and bond markets. Broad access to finance is one of the essential pre-conditions for the development of private entrepreneurship. Without credit, companies cannot grow and develop, and innovative ideas may never be implemented. As is the case in several other transition countries, Albania’s banking system has developed quicker than its equity and bond markets.

Change, however, may now be on the way. At the request of the Albanian Financial Supervisory Authority (FSA), the EBRD’s Legal Transition Team, with funding from the Greek government, has developed an action plan aimed at improving securities market legislation in the country. This should eventually provide companies and municipalities with alternative means of raising funds.

A major result of this action plan was the passage of a new law which supports the development of a corporate and government bond market. The law, approved by the Albanian Parliament in October 2009, was developed by a working group jointly led by the EBRD and the Albanian FSA, and including representatives from ministries and the Bank of Albania, as well as local law firms and banks.

“In a period in which loan markets worldwide, including in Albania, are being described as illiquid, the bond market offers an alternative avenue for companies to raise funds,” says Gian Piero Cigna, the EBRD's Senior Counsel. “The presence of a wider range of financial products will also be important as the country develops products for savers. Insurance companies and pension funds need diverse assets to develop. Up to now, they had to rely mostly on bank accounts and government bonds,” explains Mr Cigna.

The new law was recently introduced to businesses and the media at an event in the Albanian capital, Tirana. Elisabeta Gjoni, Chairperson of the Albanian FSA, reminded that 'the adoption of the law is an important step but its implementation is crucial”.

Comprehensive legal reform

The work on corporate and municipal bonds needed to respond to and reflect the rapidly changing legal environment in Albania and match best international practice. Since the EBRD started this project two years ago, the Albanian FSA was restructured from the Securities Commission to its current status and the country passed new laws on securities, entrepreneurs and companies, municipal borrowing, collective investment funds and pension funds.

Daniel Berg, Head of the EBRD Office in Tirana, notes: “There are many important reforms underway to strengthen capital markets in Albania. Under the new law on municipal borrowing, for the first time a municipality has borrowed money without a sovereign guarantee. And the new law on bonds will make it easier for other municipalities to access funding and ensure savers and institutional investors have a safer way to invest.”

Innovative tool

The legal reform project implemented by the EBRD can also be cited for meeting best international practice in terms of its development. For example, before the draft law was sent for government approval, the EBRD with Italian funding implemented a Regulatory Impact Analysis (RIA) which helped identify shortcomings in the proposed law.

This helped to ensure the law was well drafted before discussions took place in government and parliament. “The RIA project helped us to understand the impact of the new law within the Albanian framework and to anticipate and correct possible implementation problems,” explains Mr Cigna. “We believe that the RIA procedures used in this case can be considered a best-case model for future legislative reform in Albania.”