CATLAYZE Engines of Growth Introduces New Financial Products in Albania to Support SME Success
This blog is written by Anila Behramaj.
Albania’s economy is rapidly shifting in favor of foreign investment. The government’s recent steps to shorten the time for a business to be registered from 40 to eight days and its signing of several conventions for the protection of investments with most of the European Union countries are sure to attract more investors. In July, the European Union (EU) began accession talks, which could lead to Albania joining the EU in the next several years. These moves, combined with the country’s strategic geographical position — with ports in both the Ionian and the Adriatic seas — and its young and low-cost workforce, further increase the country’s investment appeal.
All this is good news for the economy, and new players are entering the market to capitalize on the country’s unlocked potential. The outlook is particularly promising for SMEs if they are able to access favorable financing.
To ensure sustainable, inclusive economic growth, the USAID CATALYZE Engines of Growth project in the Western Balkans partnered with Creative Business Solutions (CBS), a business development consulting firm, to develop 23 alternative financial products with local banks in Albania, Kosovo, and North Macedonia.
Currently, Albania lacks suitable financial products for SMEs. The banking sector remains the main source of finance, yet high collateral requirements of up to 200% of loan values and banks’ insistence on land and real estate as collateral are huge barriers for SMEs. In the past, banks have shown little interest in offering alternative debt instruments, including leasing, supply-chain financing, or even purchase order financing, that a large majority of SMEs could benefit from to grow their businesses.
With CBS, CATALYZE is changing the financial landscape for SMEs. Already, CBS has signed agreements to develop products with the largest banks in Albania: Intesa SanPaulo, Credins Bank, and Union Bank. CBS expects that more than USD 35 million in capital will be deployed to SMEs over the next two years across the three Western Balkan countries through the new products.
“We have noticed a growing interest from banks in the Western Balkans to introduce alternative financial products as financial institutions compete with one another to attract new clients and sectors,” said CBS Director Enio Jaco.
While CATALYZE is developing an array of alternative financial products, including equity and factoring financing, the project is working with CBS to diversify debt instruments offered by banks since they have the capital and infrastructure to reach scale.
“The development of financial products is a long and complex procedure which includes different stakeholders such as the bank product department, business department, external consultants, potential clients, interest groups and in some cases, the National Bank,” said Pranvera Guxho, a business development consultant from CBS who helps women-owned, -led and -managed SMEs (W-SMEs) to access finance. “For this reason, it is difficult for a financial institution to develop products on its own, since it requires significant time, financial costs, and effort to overcome lots of legal barriers and regulations.”
CBS is working with two leasing companies, Partner Leasing and Albania Leasing, to diversify their product portfolios to include an Operating Lease and Real Estate Lease. Leasing in Albania is mainly used to purchase vehicles, but there is a nascent secondary market for the sale of used equipment and machinery. Both leasing companies provide vehicle leasing, but with support from CBS, they want to expand their product offerings. For example, the operating leasing product can help businesses in the rapidly-growing health tourism sector to buy medical machinery and dental equipment. The financial institutions retain ownership of the equipment, which reduces the risk as they can repossess the equipment if leasing payments are not made. CBS will work with suppliers to advertise the option of leasing to businesses. The real estate capital lease (RECL) product offers an immediate injection of capital that can be used for different business purposes. The benefits of RECL include the opportunity to gain a higher value of the leasing in comparison to a standard loan, flexible conditions, and more manageable collateral requirements.
These new alternative financing products will generate growth for high-potential SMEs, contributing to increased economic growth, job creation, and improved incomes, particularly for W-SMEs across the Western Balkans.