Feature story

Re-building small business finance in Albania

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New restaurant opens thanks to the eighth loan.

Welcome to my restaurant!

Art Construction employs 20 local workers

It takes courage and perseverance to get a bank loan for a small business in Albania. Courage because 10 years ago so many Albanians lost their businesses and savings by borrowing from and investing in what they thought were banks, but which turned out to be unsustainable pyramid schemes. Perseverance because most of the country's existing banks prefer to lend to 'big boys'.

Ferdinand Kita is no big boy, but he has now received his eighth loan from ProCredit bank to open a restaurant in an exclusive area of the Albanian capital, Tirana, once populated only by communist leaders. Talking with Mr Kita about his business is like tasting fine old wine. He is a man at peace with himself, having seen it all. His previous job in the Albanian diplomatic service took him to 37 countries. He has built up a business, watched it collapse, and built it up again.

And they still return to Albania

In 1991, when the European Bank for Reconstruction and Development was established to nurture a new private sector in post-communist countries, Mr Kita’s children, Elona and Lorenc, emigrated to Germany and Italy in search of better lives. “I disapproved of their decision to go abroad, but then most young people found themselves jobless and left Albania to try the western world,” says Mr Kita.

Then in 1993, Mr Kita’s children returned to Albania because they had been unhappy living illegally abroad. Mr Kita lost no time investing his children’s savings and a partner’s money in setting up a textile factory only to see it collapse in 1997 with the rest of the economy brought down by the pyramid scheme fraud.

Through these schemes Albanians lost $2.5 billion, mainly savings from working abroad. “Can you imagine their anger when learning that their money was lost? Chaos reigned. Every man had a gun and looting was a common thing,” says Mr Kita as the memory of his destroyed factory darkens his face.

“Looters even destroyed the factory walls,” says Mr Kita, “but I would not give up.” In 1997, Mr Kita saw a small glimmer of hope on the otherwise bleak economic horizon: ProCredit Bank. Its goal is to support Albania’s small businesses, an aim shared by the EBRD, which owns 11 per cent of the Bank, and by the US government which donates funds to improve the availability of credit to entrepreneurs.

With a first loan of $2,500, Mr Kita opened a clothing shop. “The shop was a success and there was no problem paying the loan back,” says Mr Kita, “except for days when there was shooting in the street and I would go to pay the interest but found the bank closed.”

Seven other loans followed, amounting to €189,000, but Mr Kita believes that “the first loan saved my family in a time of economic depression in Albania. Back then, ProCredit Bank was the only support for a small business like mine.”

Today, his restaurant employs 13 people and in Mr Kita’s words "is more profitable than our textile business".

Another success story

ProCredit Bank, EBRD’s partner in Albania, doesn’t just lend money but also helps small business by providing transparent and efficient banking services. Lutfie Brahimllari used to walk around the city with as much as €50,000 in cash in belief that her handbag was the best bank in the country.

In 1999, Mrs Brahimllari, an economist and her husband, Refat Brahimllari, an engineer, learned to build water tanks while working for a Greek company. Two years later, they started their own company, Art Construction.

“The beginning was very difficult,” says Mrs Brahimllari. “We paid taxes and salaries with our savings. Taking a loan was out of the question after the 1997 experience with pyramid schemes.”

Local demand for water tanks and running an honest business helped the Brahimllaris.

“To increase profit, we lowered production costs. We imported cheaper materials from Kosovo, Macedonia, Ukraine and Bulgaria. The choices were either to travel to these countries and pay in cash or transfer funds via banks. We chose ProCredit Bank because our partners in the region operate through this bank,” says Mrs Brahimllari.

Contrary to most local businesses who pay their staff in cash, she pays the salaries of Art Construction’s 20 workers through the bank only. Mrs Brahimllari says, “Art Construction is a small business but my guess is that we contribute as much to the economy as many big businesses. This is because we create jobs, pay tax and insurance regularly, and satisfy local demand.”

Written by Marjola Xhunga, an EBRD Communications Adviser.

Photos: R. Hackman

Contact:

EBRD Small Business Banking

9 June 2006