Albania’s economy has gone through a dramatic change in the recent years. Globalization and emigration seem to have shifted an agricultural based economy toward industry while welcoming SMEs in the scene. In fact, today SMEs account for almost 70% of the non-agricultural employment. Even then, agriculture continues to be one of the biggest sectors in Albania, contributing approximately 23% to the GVA. And SMEs account for about 99.4% of the total agricultural enterprises. However, the Albanian agricultural sector still faces challenges, which causing a hindrance to faster growth of the agricultural SMEs. The Italian government is putting efforts in promoting the SMEs and encouraging competition among them. Funding being one of the primary ways to support growth of small to medium enterprises, let’s have a look at its different types:
Loans
Bank loans are the major source of funding. In a report, it was found bank loans are shifting to the business sector. In fact, the business lending share increased from 62% to 70%. The businesses are accounted for approximately 70% of the loan portfolio. Generally, credit is available, but it might not be affordable. With almost 6,800 employees and over 500 branches, banks are able to serve enterprises of all size. The loans are provided in foreign currency, including EUR and USD for flexible repayment schedule. New businesses can available these loans without being constantly worried about repayment. The best thing is that these loans are available from multiple sources, offered by IFIs at discriminatory conditions.
Loan Guarantees
Importantly, loans can be extended with a guarantee. This scheme was supported by eight commercial banks and has become quite successful. Under the umbrella of the Italian-Albanian Program for development of SMEs, loan guarantees have been made available. The fund has almost EUR 2.5 million and it will be supplemented with more EUR 2.5 million. Besides, Rural Credit Guarantee Fund guarantees up to 50% of the amount and is particularly made available for rural loans. Initially, financial institutions were quite reluctant to actively participate in the scheme as they were awaiting NGFARD which is expected to have much better conditions.
Trade Finance
SMEs are into using trade finance services. Both banks and financial institutions offer trade finance loans, letters of credits and guarantees. Moreover, a few banks provide factoring among the products and services. Until 2015, three banks accounted for a quarter of estimated SME Albanian gross loan portfolio. There are a number of banks who took part in the IFC Global Trade Finance Program. SMEs can also derive trade finance from Albanian BSTDB.
Risk Capital
There are few capital providers who are all set to invest in the Albanian SMEs. Each provider has their own terms and conditions that include investment return formula, exposures per instrument, exit policy, legal form and participation in a company.
Another is lease products that are also meant to supplement the product range offered by the banks. In a nutshell, both the banking system and the non-bank financial institutions have become the backbone of Albania while supporting the development of small and middle-sized enterprises.