Improving Access to Finance for the Agriculture Sector Pipeline Project UNDP Kosovo Building Sustainable Microfinance in RBEC Community of Practice Workshop 9-11 November, 2005 Almaty, Kazakhstan

Kosovo at a Glance Population: Approx. 2 million Area: 10,000 km/sq GDP per capita (est.): 1,258 Euros GDP growth rate (est. 2004): 3% Agriculture share of GDP (est.): 30% Human Development Index: 0.734

Financial Sector Kosovo’s financial sector started to function in 1999 with establishment of Banking and Payment Authority of Kosovo (BPK) Kosovo’s financial sector started to function in 1999 with establishment of Banking and Payment Authority of Kosovo (BPK) Today, Kosovo’s financial sector comprises of: seven (7) Commercial Banks, fourteen (14) Micro Finance Institutions (MFIs), tree (3) Other Non-Bank Financial Institutions, eight (8) Insurance Companies, one (1) Kosovo Pension Saving Trust, and two (2) Money transmitter. Today, Kosovo’s financial sector comprises of: seven (7) Commercial Banks, fourteen (14) Micro Finance Institutions (MFIs), tree (3) Other Non-Bank Financial Institutions, eight (8) Insurance Companies, one (1) Kosovo Pension Saving Trust, and two (2) Money transmitter. In mid 2005 total deposits of the banking sector was around 742 million Euros (30% of GDP), total loans granted was around 412 million Euros (20% of GDP), In mid 2005 total deposits of the banking sector was around 742 million Euros (30% of GDP), total loans granted was around 412 million Euros (20% of GDP), Non-bank financial institutions loans granted was around 49.9 million EUR (10.7% of total loans) Non-bank financial institutions loans granted was around 49.9 million EUR (10.7% of total loans) The structure of the loans: is relatively uneven to some sectors. 84.1% were channeled to the services sector The structure of the loans: is relatively uneven to some sectors. 84.1% were channeled to the services sector

Problems to be addressed Although the volume of loans from commercial banks has increased during the last years the current level of lending for agricultural sector is low, Although the volume of loans from commercial banks has increased during the last years the current level of lending for agricultural sector is low, it is limited to a few sources it is limited to a few sources Lending to agricultural sector by MFIs is at minimal or at pilot level, Lending to agricultural sector by MFIs is at minimal or at pilot level, is not covering demand in this sector is not covering demand in this sector Credit methodology of these sources relies heavily on short-term loans with frequent, regular repayments Credit methodology of these sources relies heavily on short-term loans with frequent, regular repayments Even if MFIs expressed a desire to increase lending into the agriculture, they don’t have sufficient liquidity in order to increase short and medium-term lending with their own funds. Even if MFIs expressed a desire to increase lending into the agriculture, they don’t have sufficient liquidity in order to increase short and medium-term lending with their own funds.

Strategy The aim of the project is to improve access of farmers to short and medium term finance through The aim of the project is to improve access of farmers to short and medium term finance through i) creation of loanable capital/credit line that will provide necessary capital that MFIs require to expand their lending for the agriculture sector and i) creation of loanable capital/credit line that will provide necessary capital that MFIs require to expand their lending for the agriculture sector and ii) supporting the capacity development of MFIs in agricultural lending. ii) supporting the capacity development of MFIs in agricultural lending.

Component 1: Support to the MFIs donor funded loanable capital/credit line for MFIs donor funded loanable capital/credit line for MFIs capacity development of MFIs in agricultural lending capacity development of MFIs in agricultural lending

Donor funded loanable capital/credit line for MFIs Appraisal of MFIs, Appraisal of MFIs, Financial Disbursement of the loanable capital, Financial Disbursement of the loanable capital, Reviews (MFIs ) Reviews (MFIs )

Capacity development of MFIs in agricultural lending The design of the loan products for agriculture The design of the loan products for agriculture Training on agricultural lending Training on agricultural lending

Component 2: Support to Farmers training in loan application submission, business plan development, and guidance will be provided to the farmers by local business advisory services/centers identified by each MFI training in loan application submission, business plan development, and guidance will be provided to the farmers by local business advisory services/centers identified by each MFI

Exit Strategy To convert the balance into equity of MFIs, to be used for continued provision of credit To convert the balance into equity of MFIs, to be used for continued provision of credit conversion will be subject to fulfilment of a number of performance targets conversion will be subject to fulfilment of a number of performance targets

Estimated Budget breakdown for 2 years Euro Unit cost No. of units Total Administrative costs Project Manager (24 months) 1, ,200 Travel (maintenance and fuel) 6,000 Sub-total (administrative costs) 37,200 Grant for Loanable capital for agricultural lending Appraisal of MFIs (UNCDF experts) 70,000170,000 Loanable capital 4,000,000 Reviews15,000230,000 Sub-total (loanable capital) 4,100,000 Capacity Development The design of the loan products (UNCDF experts) 25,000125,000 Training of MFIs (UNCDF experts) 25,000125,000 Sub-total (capacity development) 50,000 Support to Farmers Training of farmers – local consultants/business advisory centres 100,000 Sub-total (support to farmers) 100,000 UNDP Management services fee (5%) 214,360 Grand total 4,501,560

Expected Results Number of loans given and the number of different clients served Number of loans given and the number of different clients served Higher volumes of agricultural loans Higher volumes of agricultural loans Increased MFIs activity in financing agriculture, Increased MFIs activity in financing agriculture, More diversity and competition in financial markets, More diversity and competition in financial markets, Wider range of financial services available to farmers Wider range of financial services available to farmers

Thank you