Posted on January 4, 2010 - by James

Microfinance meltdown in Bosnia…

A market-led lending scheme some hoped would be the driving force behind economic revival in Bosnia after the civil war ended in 1995 is facing meltdown. Its harshest critics say the scheme is not only in crisis, but that it has done more economic harm than good. Microfinance, where modest loans are distributed to tiny start-ups, is seen by its supporters as a way to foster profitable economic activity from the grass-roots level. This idea has steadily won favour among policy-makers and socially-minded investors around the world since it was first pioneered in Bangladesh in the 1980s. All was seemingly going to plan in Bosnia until recently.

Microfinance loan portfolios grew at 80 per cent plus a year for the five years leading up to 2008 and fewer than 2 per cent of loans were more than a month in arrears. By the end of 2008 there were 390,000 loans on the books, together totalling over BAM 1 billion ($770m).

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