Lending granted by non-bank financial institutions continued to grow in the first quarter of this year.

According to data from the Bank of Albania, the loan portfolio of non-bank financial institutions at the end of March 2024 reached Lek 57.6 billion or almost Euro 560 million.

The loan portfolio granted by these institutions has increased by 3.2% since the beginning of the year and by 14.7% compared to the first quarter of 2023.

The loan granted by microfinance constitutes about 7% of the total loan portfolio for the Albanian economy.

The credit given by these entities follows the high rates of credit growth in the banking sector as well. The data show that at the end of May, the annual growth of the loan portfolio for the economy provided by the banking sector reached almost 10%.

The increase in lending in the segment of non-bank financial institutions belongs to companies with a license for lending and microcredit. However, even lending companies have a relatively low average loan value, which shows that the growth of the loan portfolio is mainly due to microcredit products.

Microfinance in Albania mainly fulfills the consumer needs of individuals and the activity of small and micro-sized businesses.

Microfinance mainly targets that segment that has difficulties in securing access to financing from the banking sector, including subjects with less formalized income and farmers.

However, by using technology, fintech model institutions have gained a competitive advantage in offering loans very quickly and with minimal procedures, even without the need for the customer to appear to identify and sign physically.

The more dynamic practices give these institutions an advantage over the banking sector, but the other side of the coin is that, in general, the credit given by them is significantly more expensive compared to the banking sector.

But, gradually, the Bank of Albania is taking a stricter approach towards that segment of microfinance that supports the business mainly on fast loans.

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, including foreign investors, such as 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. 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.

In the meantime, the Bank of Albania is also working on regulatory changes, which are expected to bring significant restrictions on lending to existing microfinance institutions, especially those that provide quick loans. With World Bank consultancy to draft a regulation aimed at limiting lending and client base in consumer microfinance.

Some of the principles on which the new regulation will be supported will be an increased financial analysis of borrowers, the establishment of credit scoring (scoring of borrowers), and the limitation of the number of loans for a single borrower. The goal is to have the new draft regulation ready by early fall.

These changes are coming after growing pressure from public opinion and the Parliament of Albania, driven especially by the criminal case brought against a financial institution for collecting bad loans and the executors related to it, for legal violations in the process of collecting these obligations.