Yeah, I though we’re c 94891 IFC SOLUTIONS Responsible Finance Stories of Impact This series provides examples of our impact, expertise and lessons learned working with clients and partners. Reducing Over-indebtedness for RESULTS & IMPACT Bosnia and Herzegovina’s IFC played an important role in developing Bosnia and Herzegovina’s microfinance industry before the financial Microfinance Borrowers crisis and in recovery efforts post-crisis. Microfinance has been a lifeline for many in Bosnia and To date, IFC has: Herzegovina, playing a critical role in helping people -  Invested over $ 25 million in three microfinance institutions (MFIs) in particularly women - recover from the conflict. Bosnia and Herzegovina since 1999 and more through Microfinance Yet the rapid growth of microfinance industry combined Investment Vehicles (MIVs) with limited financial literacy among its customers  Facilitated drafting of the Law on resulted in multiple borrowing and over-indebtedness. Protection of Consumers – Users of Aggravated by the financial crisis, over-indebtedness led Financial Services, currently in to a dramatic rise in non-performing loans and an legislative process average of 40 percent loss in equity. By 2009, one-third  Provided advisory services to Plus, a of microfinance clients in the country had at least two personal responsible finance association focusing on debt loans and were unable to make on-time repayments. resolution. Since 2010 Plus has: In partnership with other organizations, IFC is working to  Educated more than 7,000 people restore Bosnia and Herzegovina’s microfinance sector by in Bosnia and Herzegovina through personal finance workshops promoting Responsible Finance practices: consumer protection, financial institutions self-regulation, and  Provided financial counseling and mediation services to 2,050 financial education. In addition, IFC focuses on debt individuals resolution and improving the legal and regulatory  Developed a unified framework for environment for microfinance. debt resolution process and engaged ten local commercial banks and MFIs to form a debt “IFC raised awareness about Responsible Finance among MFIs in counseling steering group Bosnia and Herzegovina, engaging them in financial education  Joined the European Consumer initiatives and shedding light on the issue of over-indebtedness”. Debt Network, a non-government organization aimed at mitigating — Nejira Nalic, CEO, MI Bospo over-indebtedness and financial exclusion In partnership with nice IFC SOLUTIONS RESPONSIBLE FINANCE The Opportunity • Institutional level The rapid growth of the microfinance industry in Bosnia and IFC worked with Bosnia and Herzegovina’s microfinance Herzegovina in the late 90’s provided much-needed access to institutions in several areas. Firstly, IFC helped establish clear finance for people, whose economic well-being was disrupted “ground rules” for debt resolution. In cases when a borrower by the war. The sector has also been one of the key drivers of has multiple loans from different MFIs, this industry-wide job creation in the country, with every microfinance borrower framework helps prioritize payments and avoid aggressive employing two people on average. collection practices. However, a flood of liquidity along with low financial literacy Secondly, to make the sector more transparent, IFC assisted in in Bosnia and Herzegovina resulted in multiple borrowing and unification of the key standard documents for debt counseling subsequent over-indebtedness. The financial crisis of 2008 - such as common financial statement. worsened the situation, further undermining public and investor trust in the country’s microfinance industry. Lastly, IFC partnered with SMART Campaign, which ensures compliance with core principles for fair treatment of With nearly 300,000 microfinance borrowers, representing microfinance clients and prevents over-indebtedness. These over 10 percent of the country’s population, the crisis of over- principles embed client protection into operations and serve as indebtedness has become a serious issue. Yet many over- a mechanism for market recognition of responsible MFIs. indebted clients in Bosnia and Herzegovina are reluctant to Three MFIs in Bosnia and Herzegovina have been certified by seek professional counseling, since the cultural norm is to rely SMART - among the first in the world. on friends and family for financial matters. Our Approach • Consumer level IFC has been engaged in Bosnia and Herzegovina’s IFC helped establish Plus, a non-profit debt advice microfinance industry since 1999, directly investing $25 center. Since 2009, over 7,000 people participated in its million in three local microfinance institutions (MFIs) and personal finance workshops, and over 2,000 individuals providing over $60 million through dedicated investment received debt counseling and mediation services. Over 40 funds. Having foreseen the challenges posed by the rapid percent of over-indebted microfinance clients who turned to growth of the sector, IFC had been advising its clients on Plus for counseling were able to work out a financial plan to microfinance best practices long before the crisis. re-pay their loans. In the aftermath of the financial turmoil IFC ’s focus entirely In addition to face-to-face workshops, Plus established a shifted from expanding Bosnia and Herzegovina’s telephone hotline on debt issues and a mobile financial microfinance portfolio to a comprehensive effort to revive and education program. consolidate the industry while tackling the over-indebtedness To achieve maximum reach, Plus is now expanding its issue. educational program to employees of local governments and IFC promotes Responsible Finance framework in Bosnia and large private companies, who are often asked to be guarantors Herzegovina as the main vehicle to address multiple for microfinance loans because of their regular salaries. challenges facing the country’s microfinance sector. The three Supermarket chain Merkator, Sarajevo Gas Company, and the pillars of Responsible Finance - consumer protection municipalities of Sarajevo and Tuzla became Plus’ first regulation; financial institutions’ self-regulation; and financial partners in this initiative. education – support the enabling environment to revive the With IFC support, Plus credit experts are training the staff of microfinance industry and reduce over-indebtedness. local social work centers, municipalities, and free legal assistance offices in debt resolution, thus paving the way to • Industry level make making debt counseling services in Bosnia and At the industry level, IFC partnered with Consultative Group Herzegovina more sustainable. to Assist the Poor (CGAP) to provide comments for the draft IFC, a member of the World Bank Group, is the largest global Law on Protection of Consumers – Users of Financial development institution focused exclusively on the private Services, which is currently in legislative process. The law sector in developing countries. will facilitate a more transparent financial market through better information to clients and effective mechanisms of dispute resolution. REGION: EUROPE AND CENTRAL ASIA | COUNTRY: BOSNIA AND HERZEGOVINA | STRATEGIC PRIORITY: FRAGILE AND CONFLICT-AFFECTED STATES | THEME: MICROFINANCE, RESPONSIBLE FINANCE | BUSINESS LINE: ACCESS TO FINANCE CONTACT Lory Camba Opem | Washington, DC Nataša Goronja | Sarajevo MCamba@ifc.org | +1 202 4733609 MGoronja@ifc.org | + 387 63560840 ifc.org/gfm ifc.org/gfm October 2013