1. Agribusiness and Rural SME Lending

2. Profile of Kosovo Land area: 10,908 km² Capital City : Pristina - pop. 400,000 Population Description: approximately 2 million People. 40% urban / 60% rural Currency: EURO (as of Jan. 1, 2002) GDP2002: €1,895 million (est.) Per capita: €964 (est.) Registered Businesses: 30,000 Employment: Private Enterprise 23%, Farming 15%, Diaspora 24% Unemployment: 35% to 60%

3. Background  Prior to 1999 conflict Kosovo was a cash economy.  After the conflict the business sector was destroyed and financial sector vanished.

4. Reconstruction Period  FINCA  Jan. 2000 to Sept. 2002  Rapidly put in place a lending program for micro and small businesses.  Helped restart many businesses destroyed during the conflict.

5. The Kosovo Employment Generation Program (KEG)  Kosovo Business Support (KBS)  Oct. 2000 to Sept. 2002  Broad-Based Business Development Services. Provided assistance to businesses with growth potential.  Prepared foundation for medium size SME lending.  Assisted SMEs to become eligible for bank lending.  Kosovo Business Finance (KBF) Fund  May 2001 to July 2003  Established a full service bank facility  Provided urgently needed credit to larger SMEs.  2% of outstanding portfolio dedicated for agriculture sector lending.

6. Kosovo Agribusiness Development Program (KADP)  July 2000 to February 2003  Implemented early activity to address agribusiness constraints.  Helped agribusinesses improve operations and become eligible for loans.

7. Transitional Strategy 2002 – 2004 The USAID SME program:  Began focusing on eight industries, working in clusters to improve quality of production, both for purposes of import substitution and for expanding exports.  Lending assistance focused on helping businesses become eligible for loans.

8.  USAID Program also assisted: In building financial regulatory and fiscal institutions In developing necessary policies and legislation.

9. Current Credit Constraints  Perceived high level of market risk.  High collateral requirements for short-term credit to finance purchases of inventory and raw materials.  Although banks are liquid, long-term finance for capital assets is almost non- existent.  Agriculture accounts for only 3% of bank lending.

10. Current Program 2004 - 2008 Cluster and Business Support (CBS)  Two components  Assistance to specific economic groupings and their individual enterprises that make up Clusters.  General Business Support

11. Increasing Access to Credit  Through local business service providers and associations, assist cluster members in obtaining credit.  Assist local banks  Train loan officers  Introduce new deposit mechanisms  Introduce a Development Credit Authority (DCA) program

12. Illustrative Results  A reliable financial structure created.  FINCA established a self sustainable micro business lending program in 3 years.  A full service bank was established in two years to increase credit to larger SMEs.  All KBS referred clients had loan applications approved.  12.7 Euro million in loans extended by KBF/ABK to KBS SME clients.  Banks continue to lend to former KBS clients.

13. Lessons Learned  Good business planning encourages SME lending.  SME demand for business services is large.  SMEs are willing to pay for business services.  SME assistance should support demand driven product lines.  SME assistance needs to be provided through local providers.