Community-Driven Development Experiences Albania Microcredit Project

Albania Microcredit Project Rural Credit Component n Origins n Current Status n Lessons Learned

Albania Microcredit Project Rural Credit Component n Origins n Current Status n Lessons Learned

Rural Poverty Alleviation Pilot Project ( ) n Participatory design of “village credit fund” (VCF) system –revolving fund at village level –3-member village credit committee –loans up to US$500 for any income-generating activity –maximum loan duration: 3 years –interest: pegged to US dollar + 6% –collateral: village solidarity

Rural Poverty Alleviation Pilot Project ( ) continued n Continuous “learning-by-doing” approach in 10 poorest districts n Implementation by autonomous government foundation (Albanian Development Fund - ADF)

Rural Development Project ( ) n Expansion of VCF system n More emphasis on financial sustainability –Lek-based loans at a real interest rate n Pyramid scheme crisis in 1997 proved strength of village “ownership”

Rural Development Project ( ) continued Results as of 3/31/99: n 225 VCFs in 10 districts n Over 9,300 active loans n Over 17,000 cumulative loans n Active portfolio: US$3 million n Average loan outstanding: US$325 n Real effective interest rate: 8%-14% n Portfolio at risk: 1.2%

Rural Development Project ( ) continued n Main challenge: institutional environment (ADF) not conducive to financial discipline or sustainability

Albania Microcredit Project Rural Credit Component n Origins n Current Status n Lessons Learned

Microcredit Project (effective December 1999) n New focus: development of private, sustainable savings and credit association (SCA) network n Goal: 340 sustainable SCAs in 11 districts in five years, governed by a private SCA union

Microcredit Project (effective December 1999) continued n Separation of ADF Rural Credit Department to autonomous Rural Finance Fund (RFF) n VCFs in five northeastern districts transferred to IFAD-supported Mountain Areas Financing Fund n Revised law for SCAs

Microcredit Project (effective December 1999) continued Results as of 12/31/00: n 21 SCAs (76 SCAs planned by end 2001) n 505 SCA members n 231 SCA loans totaling US$300,000 n 156 VCFs in 5 districts n Over 4,000 VCF loans amounting to US$2.4 million n Portfolio at risk: 3.5%

Albania Microcredit Project Rural Credit Component n Origins n Current Status n Lessons Learned

Lessons Learned #1 Base credit delivery mechanisms on local context and tradition

Lessons Learned #2 Community-based microfinance can overcome rural finance systemic weaknesses and withstand political/civil crises n Decentralized borrower appraisal and loan decision making resolves “information barrier” n Non-traditional collateral substitutes for traditional collateral n Moral hazard is adverted because reputation of borrower at risk

Lessons Learned #3 Place early emphasis on financial sustainability and institutional environment ( Community-based microfinance is the marriage of social and financial approaches)