Kosovo Credit Guarantee Fund
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EMPOWER Credit Support project (ECS) calculates that the MSME financing gap in Kosovo is around USD 870 million. The ratio of loans to GDP in Kosovo is about 16%, among the lowest in the world. For comparison, in Bosnia and Herzegovina it is over 30% and Croatia is over 35%. In emerging Asian and Latin American countries it is over 60% and in developed countri...
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EMPOWER Credit Support project (ECS) calculates that the MSME financing gap in Kosovo is around USD 870 million. The ratio of loans to GDP in Kosovo is about 16%, among the lowest in the world. For comparison, in Bosnia and Herzegovina it is over 30% and Croatia is over 35%. In emerging Asian and Latin American countries it is over 60% and in developed countries over 120%. (Empower Credit Support - Six Year Business Plan for the Kosovo Credit Guarantee Fund, 2015) To address the problems faced by MSMEs in Kosovo, the Ministry of Trade and Industry (MTI) and USAID in 2012 jointly unveiled plans to establish the Kosovo Credit Guarantee Fund (KCGF). The main purpose of KCGF is to facilitate access to finance for MSMEs. KCGF’s mandate is to provide credit guarantees to banks and financial institutions in order to stimulate increased lending to micro, small and medium-sized enterprises (“MSMEs”). Encouraging increased lending to MSMEs is deemed essential for accelerating economic growth through expanded local production, increased sales/ consumption, employment, and exports. KCGF will cover up to 50% of the collateral or risk for the approved loans, and consequently eventual losses. Through KCGF, the Ministry aims to reduce difficulties that businesses face in accessing financial instruments, a problem that prevents businesses from expanding. The proposed intervention from Sida is a re-guarantee which would serve to avoid a situation where the build-up of KCGF’s operations is held back by a limited capital base, as KCGF would be able to off-load risk on Sida (pari passu and pro rata). The Re-guarantee facility amount is proposed to be 10 MEUR or a maximum ampount of 120 MSEK. Sida covers 50 % of KCGF:s eventual losses. KCGF covers 50 % of the banks eventual losses. Hence, the leverage of Sida´s guarantee has the relation 1:4. The risk sharing Pari Passu means that Sida linearly covers 50 % of the sustained losses. The same risk sharing holds between the banks and KCGF. The Sida re-guarantee should serve to encourage the Central Bank of Kosovo to generally view its risk weighting of KCGF products more favourably, and potentially the banks could be encouraged to allocate more lending under the guarantee program. - Overall Sida's support via a re-guarantee is perceived very positively by KCGF and the Central Bank of Kosovo, as it is likely that it will (directly and indirectly) enable KCGF to generate a greater volume of guarantees and therefore revenues, which are needed to cover the costs of the facility and improving its sustainability.
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Total aid 9,391,434 SEK distributed on 0 activities
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Result
The Kosovo Credit Guarantee Fund (KCGF), with Sida reguarantee, has successfully guaranteed loans worth 19.02 million Euros. Registered financial institutions (Banka) have disbursed a total of 40 million Euros in loans, benefiting 859 micro, small, and medium-sized enterprises (MSMEs). Through Sida re-guarantee 887 loans are issued by the KCGF to MSMEs, 10% of these loans are allocated to womenled businesses. This has resulted in the creation of 1,342 new jobs and a significant increase in sales figures, totaling 41.1 million Euros, an 11% increase from the baseline. Note: Re-guarantee provided by Sida is not a revolving loan therefore, once the funds have been utilized, the objective of the intervention remains constant and unchanged.
The intervention is under strategic result area 1.2: Enhanced economic integration with the EU and development of market economy - Competitive small and medium-sized enterprises make up a greater share of the economy. The Sida intervention in the form of a re-guarantee is developed to leverage the newly established Kosovo Credit Guarantee Fund (KCGF) developed and created by USAID EMPOWER Credit Support project in Kosovo. The purpose of KCGF is to facilitate access to finance to micro, small and medium sized enterprises (MSMEs) in Kosovo. The theory of change for this contribution is based on market catalyzing effect, which is difficult to isolate to a large number of influencing factors. However, the overall desired impact is an increase share of MSMEs contributing to the Kosovo economy. The Outcome levels are related to increased lending to MSMEs, an improved lending environment and the business expansion of borrowoing MSMEs. At the outcome level the partner bank will have modified its lending behavior by reducing collateral demands and lower interest rates post expiration of the guarantee facility. At the impact level, the guarantee instrument aims to prove there is a direct causality between guarantee availability and improved access for target beneficiary MSMEs. Beyond the purpose of private sector development, increased growth and employment; the intervention aspires to contribute to alleviate some of the depravations faced by the poor that were identified in the Multidimensional Poverty Analysis for Kosovo (2017). The guarantee is expected to have an impact on the bank's operations, by stimulating new lending product(s), improving loan terms for target borrowers (particularly women and first time borrowers). In the long term it is expected that the bank will continue to lend to the target group without the guarantee.
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