Limited Financial Information and Lack of Collateral, Challenges for SME Financing

Interview with Elira Abeshi, Director of the SME Department at Raiffeisen Bank Albania

The financial statements of small and medium-sized businesses provide less information for banks and this increases the risk of their financing. Elira Abeshi, Director of the Small and Medium-sized Businesses (SME) Department at Raiffeisen Bank Albania states that this affects higher interest rates for these businesses.

Another challenge, according to her, is the difficulty of businesses to provide valuable collateral to the bank. The geographical distribution of these businesses, especially in more peripheral areas, often makes it difficult to meet the requirements for sufficient collateral according to banking standards.

According to her, in recent years, a significant improvement has been observed in the formalization of small and medium-sized businesses, driven by several key factors, such as fiscalization, the obligation to channel more transactions through bank accounts, the reduction of commissions for domestic payments, and the advancement of digital services.

In recent months, the Governor of the Bank of Albania has asked banks to increase support for small and medium-sized businesses. What are the main problems that limit the access of small and medium-sized businesses to bank loans?

The main problems that limit the access of small and medium-sized businesses to bank loans are related to the fact that most of them are small businesses that are not obliged to keep and file financial statements. Banks make their decisions based on less official information available (the Simplified Profit Tax Declaration Form), which increases the risk that the bank assumes and also affects the interest rates for these financings.

Another challenge is the ability to provide collateral that is valuable to the bank. The geographical distribution of these businesses, especially in more peripheral areas, often makes it difficult to meet the requirements for sufficient collateral, according to banking standards.

At Raiffeisen Bank, SME Business is at the focus of our growth strategy starting in 2020. To overcome the difficulties we encounter in lending to these businesses, we have developed products that take into account their size and problems, focusing more on uncollateralized products.

Do you notice improvements in terms of formalization and to what extent do small and medium-sized businesses continue to offer “second balances” to benefit from bank loans?

In recent years, a significant improvement in the formalization of small and medium-sized businesses has been observed, driven by several key factors, such as fiscalization, the obligation to channel more transactions through bank accounts, the reduction of commissions for domestic payments, and the advancement of digital services. These changes have helped increase financial transparency and have created a more favorable environment for lending.

At Raiffeisen Bank, we finance based only on the information declared to the relevant authorities, guaranteeing a structured, transparent process, as well as a quality loan portfolio.We have continuously developed personalized products, tailored to the needs of small businesses, including those that declare only the Simplified Profit Tax. By offering suitable financing to small and medium-sized businesses, we aim to facilitate access to credit and support their growth.

We believe that this ongoing commitment will gradually help further formalize the sector and create a more sustainable foundation for the development of the domestic economy.

From your business relationships, how do you assess the performance of SMEs in recent years and how is this segment positioned in the positive cycle of the economy after the pandemic?

The SME segment has had a steady growth, playing a key role in the country's economic recovery and development. At Raiffeisen Bank, this segment has recorded double-digit growth year after year, exceeding the market average, reflecting our dedicated approach to supporting small and medium-sized businesses.

We believe that SMEs are an important pillar of the Albanian economy, significantly contributing to employment and regional development. For this reason, this segment remains one of the main priorities of our strategy, and we are continuing to invest in personalized financial products and advanced services to facilitate their growth and expansion. Through this approach, we aim to further strengthen the position of SMEs in the positive cycle of the economy.

In which economic sectors is the demand for loans from SMEs the highest and for what purposes do these businesses usually seek loans?

The demand for loans from SMEs is diversified both in terms of economic sectors and financing purposes. Small and medium-sized businesses seek financing mainly for working capital, investments in capacity expansion, purchase of business premises, and modernization of equipment and technology.

Furthermore, the demand for financing is distributed in a balanced manner, with a high presence in agriculture, tourism, construction, trade and services. These businesses seek financial support to strengthen their position in the market and to benefit from expansion opportunities, thus contributing to the growth and sustainability of the economy.

How do you assess the recently announced program of the Bank of Albania to promote lending to small and medium-sized businesses? Do you believe that it can be an effective impetus to increase lending to these enterprises?

The latest initiative of the Bank of Albania will definitely have a positive impact on increasing the demand for credit for these businesses and reducing their financing costs. This segment plays a key role in economic development and needs continuous support from the banking sector and interest groups. Such initiatives, together with the process of formalizing businesses, help reduce financial barriers, creating more favorable conditions for their growth and sustainability.