Community-Driven DevelopmentExperiences

Albania Microcredit Project

Albania Microcredit Project Rural Credit Component

Origins

Current Status

Lessons Learned

Albania Microcredit Project Rural Credit Component

Origins

Current Status

Lessons Learned

Rural Poverty Alleviation Pilot Project (1993-1995) 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 (1993-1995) continued

Continuous “learning-by-doing” approach in 10 poorest districts

Implementation by autonomous government foundation (Albanian Development Fund - ADF)

Rural Development Project (1995-1999) Expansion of VCF system

More emphasis on financial sustainability– Lek-based loans at a real interest rate

Pyramid scheme crisis in 1997 proved strength of village “ownership”

Rural Development Project (1995-1999) continued

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

Rural Development Project (1995-1999) continued

Main challenge: institutional environment (ADF) not conducive to financial discipline or sustainability

Albania Microcredit Project Rural Credit Component

Origins

Current Status

Lessons Learned

Microcredit Project (effective December 1999) New focus: development of private,

sustainable savings and credit association (SCA) network

Goal: 340 sustainable SCAs in 11 districts in five years, governed by a private SCA union

Microcredit Project (effective December 1999) continued Separation of ADF Rural Credit Department

to autonomous Rural Finance Fund (RFF)

VCFs in five northeastern districts transferred to IFAD-supported Mountain Areas Financing Fund

Revised law for SCAs

Microcredit Project (effective December 1999) continued

Results as of 12/31/00: 21 SCAs (76 SCAs planned by end 2001) 505 SCA members 231 SCA loans totaling US$300,000

156 VCFs in 5 districts Over 4,000 VCF loans amounting to US$2.4

million Portfolio at risk: 3.5%

Albania Microcredit Project Rural Credit Component

Origins

Current Status

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

Decentralized borrower appraisal and loan decision making resolves “information barrier”

Non-traditional collateral substitutes for traditional collateral

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)