Access of low-income households to financial services in Bosnia and Herzegovina pilot study

In light of the financial crisis and concurrent economic slowdown in Bosnia and Herzegovina in late 2008, market participants expressed concerns about irresponsible use of financial services and a rising level of indebtedness and potential risk of over-indebtedness among micro entrepreneurs and housing loan clients from the lower income spheres. In October 2008, the Development Facility of the European Fund for Southeast Europe commissioned the Microfinance Centre for Central and Eastern Europe and the NIS (MFC) to examine the application of customer protection principles, the level of access to financial services and the risk of over-indebtedness among low-income clients in Bosnia Herzegovina. As part of a two-staged concept, this pilot study aimed at probing the relevance of the issue on a smaller scale and pre-testing a methodology to be applied potentially in a larger roll-out study.

The qualitative and quantitative survey took place between September and November 2008. The qualitative survey involved 8 focus group discussions (65 participants) held in two municipalities of Bosnia and Herzegovina: Tuzla, in the Federation of B&H and Foca, in Republika Srpska. The quantitative survey involved a public opinion poll on a random sample of 100 low-income households in the Tuzla Canton.

The study found the interest in and use of financial services other than credit to be rather low among the survey participants, while pointing at a worryingly weak savings culture:

• Fewer than half of the credit-using households (46%) have a bank account and benefit from the facilities that it offers: a quarter of households use debit cards, 21% use credit cards, 17% use SMS service and 16% bill payments via bank transfer
• The majority of survey participants were of the opinion that they were too poor to save; only 17% of them saved – and less than half of those use bank deposit facilities
• The most common reason why people do not use financial services of formal institutions is that they do not meet the eligibility criteria

Clients felt transparently informed and satisfied with the level of advice and customer service provided by financial institutions. Nonetheless, the level of knowledge about financial services was found to be rather low.

The findings confirmed a high level of indebtedness and, in certain client segments, cross-borrowing and potential risk of over-indebtedness.

• Households which took housing loans more often repaid larger instalments – for almost a third of such households the sum of monthly repayment exceeded 50% of their monthly income
• 4% of the households were over-indebted, i.e. their monthly instalments were higher than what they perceived as manageable
• Another 16% of the households were close to exceeding their repayment capacity with a relative indebtedness index (sum of monthly instalments/self-determined maximum monthly instalment) of 80% to 100%

MCO leaders who participated in a study presentation and discussion workshop organised by the EFSE DF in Sarajevo confirmed the findings of the study, underscoring particularly the acuteness of the issue of over-indebtedness among low-income households.