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What is the truth of microfinance?

2024-06-05 18:25:28Biznes SHKRUAR NGA REDAKSIA VOX
What is the truth of microfinance?

The Special Prosecutor's Office and the Prosecutor's Office of Tirana are conducting two parallel investigations regarding lawsuits and accusations brought by hundreds of citizens for fraud with non-banking institutions. At the center of the scandal is the company Micro Credit Albania, whose license was recently revoked by the Bank of Albania.

The accusations leveled against Micro Credit Albania may also harm companies that have operated in accordance with the legislation in the microfinance sector, by unfairly linking them to these cases labeled as microcredit providers, which have also acted as executors.

The biggest of them is jute .

To understand more, we interviewed Ms. Elsa Peca, Director of the Compliance and Legal Department at iute . One of the main topics discussed was the process of sending small bad loan cases into enforcement, which can affect assets such as residential homes.

Ms. Peca, how do microfinance institutions manage the foreclosure process and how many cases has it sent to foreclosure?

Elsa Peca: " iute has never taken clients into foreclosure for houses, and currently we own zero houses. This is because we prioritize maintaining relationships with our clients and aim to avoid substantial procedural costs associated with enforcement. Procedures of execution also require time. For us, the first choice is direct contact and in full transparency with the client, offering alternative solutions for restructuring the loan and negotiating penalties and commissions in the case when the client is in arrears with clients last up to two years."

It seems that maintaining a positive relationship with customers is a key priority. Can you also explain the risks microfinance institutions take when providing loans and how this affects pricing? There have been claims that the loans can double the amount borrowed, with some claiming a 100% payback requirement.

Elsa Peca: "This percentage is completely untrue! Microfinance institutions take on more risk because they serve clients who typically have limited access to traditional financial markets. These clients often face challenges in securing credit from traditional banks, making microfinance essential to their financial inclusion.

Lately, we've been seeing a lot of confusion about what's called NEI, which stands for Effective Interest Rate. This is a formula prescribed by the Bank of Albania that shows the total cost of a loan, including interest and any additional fees. So, if you borrow ALL 100,000 with a 100% NEI, you do NOT have to pay back ALL 200,000. Clients of a microfinance mostly face simple interests that go up to about 40%. Which means if you receive 100,000 ALL after 12 months, you will return 142,140 ALL. Undoubtedly, in iute there are also products with interests comparable to those of a credit card or even with 0% Smart 0%."

Amid so many unclear developments, the truth seems to be that microfinance institutions play a crucial role in financial inclusion by effectively managing high risks and costs. Their digitization efforts further enhance their ability to better serve customers, ensuring transparent and fair lending practices.


Në përputhje me standarded JTI

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