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MFI in Kosovo

 


The Microfinance sector in Kosovo has been operating since 1999, and most microfinance institutions (MFIs) there started as economic development programs of international humanitarian organizations. Currently there are 17 MFIs operating mainly in rural areas, representing approximately 3.5 percent of the financial sector. From the previous years had decreased. Kosovo has the highest number of poor people in the Balkans with a national poverty rate of 44% (990,000 people aproximatly). In the initial phase of their operations, MFIs registered as NGOs and were regulated by the United Nations Mission in Kosovo (UNMIK). MFIs registered at the Ministry of Public Services and their profits were tax exempt. In March 2008, UNMIK approved the Regulation 2008/28 on the Registration, Licensing, Supervision and Regulation of Micro-Finance Institutions, thus enabling MFIs to transform into “licensed” deposit-taking entities. Deposit-taking MFIs would need to be registered at the Ministry of Trade and Industry as a Joint Stock Company (JSC) or Limited Liability Company (LLC). The Regulation also provides a clause for MFIs not capable of meeting the capital requirements for deposit-taking institutions to become “registered” institutions instead. Registered MFIs can continue operating as NGOs providing microfinance loans as the only product, whereas licensed MFIs may operate as commercial entities and are allowed to mobilize deposits from the public. As most MFIs were established through donations, the issues of asset transfer from the NGO to the new business entity (JSC or LLC) and retroactive taxation of transforming MFIs in relation to their Public Benefit Status are still debated, which is why the transformation process has been blocked for over a year. However, stakeholders recognize that transformation would be beneficial for the microfinance sector, regulatory bodies, and Kosovo’s population, as MFIs would have a clearly defined ownership structure, would become tax payers, and would be able to offer products to people with limited access to financial services.

 

In April 2012, the “Law on Banks, Microfinance Institutions and Non Bank Financial Institutions”, was approved resulting in a number of regulations to be put into effect in May 2012 by Central Bank of Kosovo. However, with the decision of the Constitutional Court to suspend few articles related to Microfinance institutions  for ” Law on Banks, Microfinance Institutions and Non Bank Financial Institutions”, Central Bank of Kosovo drafted a separate Law on Microfinance Institutions, now pending the approval from the Kosovo Assembly.