Greater efforts needed to promote responsible finance practices

Conference on responsible finance in Albania, jointly organised by the Bank of Albania, KfW Entwicklungsbank and EFSE

Frankfurt am Main and Tirana, March 24, 2010 – At an international conference held yesterday in Tirana, Albania, representatives from the Albanian financial sector and government, donor agencies, international financial institutions as well as microfinance practitioners called for greater efforts to promote responsible finance practices and principles. The event was hosted by the Bank of Albania and jointly organised with KfW Entwicklungsbank (The German Development Bank) and the microfinance investment fund European Fund for Southeast Europe (EFSE).

Over the past years, the financial and microfinance sectors in the region of Southeast Europe, including Albania, have experienced enormous growth rates. Enterprises and the overall population now have significantly better access to financial services. Yet, the panellists emphasised, that despite these positive impacts, the upward trend has also shown its downside – non-transparent lending practices, non-transparent pricing of financial products and ambiguous advertising have put many customers at the risk of over-indebtedness.

The panelists also emphasised the need for particular attention to be paid to the devaluation or depreciation of risks associated with foreign exchange and indexed loans. Particularly in volatile environments, fluctuations in foreign exchange rates could adversely affect the loan burden of the borrowers of such loans.

The conference also called for further efforts to increase financial literacy as a key component for ensuring fair and equal access to credit and banking services. For example in Albania, a study conducted by EFSE on the rural financial gap found that the majority (84%) of rural enterprises interviewed perceived the process of obtaining a loan from financial institutions to be challenging.

In his opening remarks, Ardian Fullani, Governor of the Bank of Albania, stated: “Responsible finance cannot be interpreted as a phenomena and responsibility that shall be left to the desire of the market participants. This should be understood not only as a right, but also as an obligation for all market participants. If you accept this principle, then you should be a promoter and this is the position that Bank of Albania has taken in this direction. Responsible Finance is the best term to sum up the overall efforts of the Bank of Albania during the last 3-4 years towards banking and financial supervision, monetary policy and public education”.

Underlining this, Ridvan Bode, Minister of Finance of the Republic of Albania, said: “This is certainly the right time to talk about responsible finance in the region, as it is everywhere else. The recent turmoil in the financial markets was to a large extent caused by irresponsible lending practices and limited oversight on the part of the financial regulatory authorities. In light of this, the regulatory institutions, both fiscal and monetary, should very carefully design and implement specific measures aimed at preventing irresponsible finance in the future. Although Albania’s banking sector was well-monitored and supervised during the financial crisis, there is much we can learn from what happened in the region and beyond, and put together safeguards in place to make the lending environment as transparent, and as “failure-proof” as possible. This conference is an important step in that direction.” 

Roland Siller, First Vice President of KfW, highlighted the importance of considering responsible finance as a real cross-cutting issue for KfW which is at the core of sound business practices. Bad lending discipline and poor lending standards have led to a clear deterioration of portfolio quality  in a number of countries in the Eastern Europe region, a phenomenon which cannot be explained by the crisis alone, but which was already in place well before the effects of the crisis set in. "We are pleased to see that Albania is not among the countries that were most hit by delinquency problems, but now it's the right time to make a case for rigorous client selection, fair treatment of clients, transparency of loan conditions, and improving client financial literacy," Siller said.

Sylvia Wisniwski, Chief Operating Officer of EFSE, and Managing Director of EFSE’s Fund Advisor Finance in Motion GmbH, emphasised that transparency and fair treatment of clients are “The causes of the global financial crisis lie in irresponsible lending practices, and its painful effects, which are now also negatively impacting the real economy, are felt around the globe by billions of people. This is why EFSE is committed to support responsible finance practices at all levels: the financial sector, individual financial institutions, investors and clients.” at the heart of any financial transaction.

EFSE is a leader in promoting responsible financing practices. In order to raise awareness for these issues, EFSE, together with KfW and central banks in its target region, organises workshops and conferences. The event in Tirana was the fourth conference on responsible finance supported by EFSE. Previous events were held in Serbia, Kosovo and Bosnia and Herzegovina.

To support responsible lending practices in microfinance, EFSE is also one of the signatories of the Client Protection Principles for Microfinance of “Smart Campaign“, promoted by CGAP.

Presentations held at the function can be downloaded here
Photos can be requested by contacting press@efse.lu

About the Bank of Albania
The Bank of Albania is the central bank of the Republic of Albania. This status is ratified by Article 161 of the Constitution and by Law No. 8269, dated 27.12.1997 "On the Bank of Albania" that establishes the targets, tasks, relationships with the banking system and the state, organisation and management, ownership on the capital, financial statements and profit allocation. The Bank of Albania is the only institution in the Republic of Albania responsible for designing, compiling, approving and implementing the monetary policy. This policy is designed in view of fulfilling the main target of the Bank of Albania: achieve and maintain price stability, contributing to the economic development and well-being of the country. Another important function of the Bank of Albania is to ensure the stability of the banking system that has been a promoter and supporter of the country's economic growth. The Bank of Albania also enjoys the exclusive right to issue and circulate the national currency, manage the international reserves of the Republic of Albania; serve as a banking, advisory and fiscal agent to the Government and guarantee the proper functioning of the payments’ system. As the monetary and supervisor authority of the country, the Bank of Albania enjoys all the authentic functions of a modern central bank.
For more information, please visit www.bankofalbania.org

About the European Fund for Southeast Europe (EFSE)
With an investment portfolio of EUR 578 million (as of December 31, 2009), EFSE is the world’s largest microfinance investment fund. Aimed at fostering economic development and prosperity in the region of Southeast Europe, the Investment Fund offers long-term funding instruments to qualified local financial institutions for on-lending to micro and small enterprises (MSEs) and low-income private households. Since its inception in December 2005, the Fund has facilitated approximately 200,000 loans to MSEs and private households, totalling over EUR 1 billion. EFSE also runs a Development Facility whereby grants enable technical consulting and training measures to institutionally strengthen the Investment Fund’s partner lending institutions. Initiated by KfW, the EFSE is a investment company that falls under the jurisdiction of the Grand Duchy of Luxembourg in the form of a public limited company, qualifying as a société d'investissement à capital variable ("SICAV-SIF"). As the first Public-Private Partnership of its kind, EFSE combines public funding and private investment. The investor base is comprised of donors and international finance institutions, including: European Commission, Federal German Ministry for Economic Development and Cooperation (BMZ), the governments of Austria, Switzerland, Denmark and Albania, KfW, IFC, FMO Netherlands Development Finance Company, European Bank for Reconstruction and Development (EBRD), European Investment Bank (EIB) and Oesterreichische Entwicklungsbank (OeEB). In addition, private investors, such as Sal. Oppenheim and Deutsche Bank, contribute to the funding base. EFSE is a privately managed investment fund with Oppenheim Asset Management Services S.à r.l., Luxembourg, as the fund manager and Finance in Motion GmbH, Frankfurt/Main, Germany, as fund advisor.

Media contact

European Fund for Southeast Europe  Mr. Samir Djikić, Communications Manager, EFSE Tel: +49 (0)69 / 977 876 50-26 E-mail: press@efse.lu

Bank of Albania  Ms. Erinda Nervaj, Head of Press Office, Tel:   +355 4 2222 152 ext. 5050 E-mail: zyraeshtypit@bankofalbania.org