Informal borrowing is challenging banking market in Albania

Informal borrowing is challenging banking market in Albania

IBNA Special Report

Tirana, May 26, 2014/Independent Balkan News Agency

In Albania, banks make every once and a while very attractive offers and many people believe that it’s really easy to borrow from them.

But, when they face bank officials and loan analysts, they see that the offers are far from reality.

Endless paperwork are requested, bureaucratic procedures, conditions, high interest rates, collateral and guarantees.

All of this discourages businesses to credit their enterprises and develop them.

A part of them, that want to survive in the market or develop a little more, resort to the black market.

By making an observation on the field, IBNA has identified the fact that a large number of people have turned into loan sharks offering loans at high interests and the rest have turned into victims of this phenomenon, facing acute social problems that are caused by lending and the inability to pay back.

Interest rates on loans secured by non banking sources or financial institutions are very high, as a result of the fact that these funds are issued by individuals who do not need many bureaucratic procedures or application forms. Meanwhile, banks offer loans in exchange of the debtor’s property as a guarantee on the loan.

Businesses denounce the situation

“Konfindustria”, which is an important organization of Albanian and foreign businesses in Albania, says that it has sufficient information to raise the alarm that borrowing outside banks has turned into a real problem.

Albania is ranked among some of the countries with the highest interest on loans and the most stringent crediting criteria in Europe, without mentioning EU. Industry and production in general are the most affected parts of the national economy from the stringent policies of lending by the banking system.

A direct indicator of this situation is the pace of the growth of lending to the economy, which for the first quarter of 2014,  reached an all time low, even if it’s compared to the difficult year 2013. Imports of machinery and equipment continue to see a significant drop too.

Gjergj Buxhuku, general administrator of Konfindustria, admits this sad picture of the current economic situation in Albania and says that he’s worried about the increase of informal borrowing by businesses. He says that this is a direct consequence of stringent lending policies followed by commercial banks in the country.

“A direct consequence of these lending policies from the Albanian banking system relates to the fall of the competitive power of Albanian products and services, compared to foreign ones. In circumstances when the Albanian banking system is unable to secure lending for the private sector, the latter is obliged to resort to the informal market in order to secure the necessary liquidity for the continuation of the activity”, says the head of Konfindustria.

This organization sees the spreading of informal borrowing by businesses and individuals as a serious risk for the national economy.

Under these circumstances, it demands to the Albanian government “to intervene as soon as possible with adequate measures in order to fight oligopoly in the banking and finacial market of the country as the main cause of the serious situation mentioned above.

Experts on economic issues say that interest rates have caused economic turmoil in different societies. In neighboring Albania, ponzi schemes that spread in 1996 and 1997 degenerated into a revolt because tens of thousands of Albanians lost their savings, amounting to hundreds of millions of USD. The revolt escalated into a wave of violence and serious crimes throughout the country. Following the overthrow of the government, an interim coalition government was formed, demanding international military intervention to restore order in the country. Thousands of military forces swarmed Albania by supporting Albanian security forces for several months. The wave of violence at that time was accompanied by the opening of army depots, leading to many people to be equipped with fire arms. Some of these fire arms are in circulation even today and authorities are proving that crimes are being committed with these weapons. /ibna/