Case Studies in Microfinance: Albania - Albania Development Fund (ADF)

Publication Date: 1999
Published by: World Bank
Document Type: Paper

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What is the performance of ADF's lending activities?

This paper briefly overviews the Albanian context, including a description of the formal financial sector. It summarises ADF's rural and urban credit operations, and factors attributing to its success. It further describes FEFAD, a German-funded microfinance organisation operating in Albania.

It draws many lessons for both donors and practitioners:

• ADF's rural credit program design was focused on reaching the very poor, encouraging the development of management capacity within the villages, and achieving high loan repayment. This is exactly what has occurred, providing a valuable model for other microfinance programs. However, the original design did not focus on cost recovery or sustainability. And, in fact, to date, all costs continue to be covered by donor funds, and interest rates in rural areas continue to be subsidised. Both these issues must be addressed if ADF's rural credit program is to continue long term, particularly as a private organisation;
• ADF's urban credit program was designed with less focus on the very poor; rather, it was designed to promote self-employment and the development and integration of micro and small businesses into the formal economy. It was also designed to achieve cost recovery and hence, charges much higher interest rates than the rural credit program. However, the creation of a financially sustainable urban credit program will require institutional autonomy, private-sector participation, improved financial management, and attention to the productivity of credit officers;
• FEFAD was designed with great emphasis on future financial sustainability, utilising a market-based approach to lending. It's initial success provides lessons for both ADF and other organisations providing microfinance in Albania suggesting that autonomous, near private institutions can more easily enforce the financial discipline required for the successful and sustainable provision of microfinance in transitional economies, at least in urban areas.