The Bank of Albania 'closes the doors' to the microfinance of fast loans, there will be no new licenses

The Bank of Albania has decided to take a strict approach to the granting of new licenses to financial institutions for quick microcredits.

Sources from the market inform that in the last two years, several applications submitted by specific entities that relied on business plans of this type have been rejected by the Bank of Albania.

This includes foreign investors, as is the case of one of the most important microcredit entities in Bulgaria, Easy Credit.

The Bank of Albania has argued that it will not prevent the licensing of new financial lending institutions, but their business model should not rely only on fast loans, with very high interest rates.

By analogy, the central bank does not rule out granting licenses to institutions of the NOA or BESA model, which have a wider spectrum of products and individual and business clients, but it seems that it will not allow the licensing of new financial institutions of the IuteCredit model or Kredo Finance, who have built their business exclusively based on quick consumer loans.

Apparently, the Bank of Albania estimates that the further expansion of this business model, besides being associated with high risks for the lender and the borrower, does not serve the public interest.

Microfinance of fast loans has seen a rapid development in the last decade. This business model relies on taking on high risks, which in turn are compensated by small loan amounts and very high effective interest rates.

The high rates applied by institutions became the main reason that the Bank of Albania decided to apply a ceiling interest rate for consumer loans in Albania, at the beginning of the year 2022. According to the Bank of Albania, the main reason was to protect the consumer from potentially abusive interest, applied mainly by some non-bank financial institutions.

Based on the data of the Bank of Albania, effective interest rates before the entry into force of the regulation reached up to 256% for loans in small amounts and minimum maturities.

According to the regulation "On consumer and mortgage loans", the maximum NEI is calculated by the Bank of Albania on a six-monthly basis, based on the data of the Credit Register administered by it.

Maximum NEI levels are published at the beginning of each 6-month period and are based on loans disbursed in the previous six-month period. This indicator is constructed as the average of the effective interest rate for each product and interval, increased by one third.

The maximum NEI is mandatory to be respected by all banks and financial institutions licensed for lending activity in Albania.

 

However, in addition to the application of a ceiling interest rate, the Bank of Albania has already imposed a tightening in this segment of the market also at the licensing level./MONITOR