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Having been isolated from the world and the global economic trends for the last 25

years, Serbia has missed a lot of innovation and new economic development
experiences. One of them is the microfinance, the activity that came into being
about fifty years ago, and which has spread globally as "world process".
Microfinance is based on a new approach to development problems, direct targeting
of poor individuals - entrepreneurs and micro-enterprises and their economic
activation with the aim of initiating and sustaining their economic activity with the
help of micro-credit so that they cease to be a social problem of the country and
become self-sustaining economic entities.
Why should microfinance be important for Serbia, a country with a record number of
unemployed? Basically, the main source for creating employment opportunities is
economic development, i.e. the creation of such economic environment which
enables new and sustainable development. According to modern conceptions, the
universal recipes for economic development are no longer recognized, but it is now
believed that the choice of ways i.e. of economic development strategy, depends on
the specificities of each country, and that the chosen model must be adapted i.e.
specific to each particular country and its conditions (Provided, of course, that there
is the political elite capable to understand this). And Serbia, with a great
unemployment rate is desperate to try out microfinance.
When the state does not recognize or deal with the problem of economic
development, it cannot see that microfinance is one of the alternative ways to
create jobs and generate household incomes. Due to the fact that there is the lack
of interest on the part of the Serbian state and all its governments for the real social
problems (except at the level of demagoguery), the state’s acts and both acting and
not acting has in fact banned microfinance. Justifying itself by using the absurd
argument that microcredits would be out of monetary control because they do not
go exclusively through controlled banks, so they could cause excessive creation of
money supply or inflation. All this is said despite the fact that the whole world
allows microfinance, and despite the elementary fact that microcredits have very
limited amounts and make up only a minor part of the money supply. Nondevelopment and stagnation which have been present for decades in Serbia, along
with the continuous rise in unemployment and systematic pauperization of the
population require that microfinance be put into practice as an attempt to improve
the welfare of the marginalized people.
The first microcredits for the poor unsystematically started appearing between the
fifties and the seventies of the twentieth century, and were given mostly to small
farmers. During the eighties, the focus of microcredit enterprise was the financing of
poor women and groups of poor entrepreneurs, especially in developing countries.
These experiments eventually led to the creation of microfinance institutions
specializing in serving the poor sections of society. The name “microfinance
institutions” derives from the fact that their transactions are small (loans of USD
100 and above, and savings deposits of USD 10 and more), but these are at the

NBS does not see or know that the banks needed competition and that it is desirable to introduce savings and credit cooperatives.they exist in the form of NGOs. Also. their offerings increasingly diversified and there was an increasing number of financial microproducts on the market.same time safe and reliable providers of financial services to the poor. venture capital funds. Their most important role is that they enable the poor families to create their own economic base and means and thus reduce their social and economic dependency and uncertainty. Thatcher). ethical banks. and particularly by replacing the indifferent state. to improve the social situation by replacing the financial sector. Social problems and unemployment are neither in their jurisdiction nor are they their interest. seed capital. the NGOs helped to finance the poor and vulnerable. At the time of democratic changes. The transition of financial institutions in this period to the strategy for achieving enormous profits left marginalized groups of people without financial services as banks completely ignored the small and micro businesses looking for wealthy clientele and large businesses. Their success proved that the poor people can be good clients. However. who do not have access to commercial financial services. and its refusal to deal with this problem. It is interesting that micro lending coincided with the rise of neo-liberal ideas in the US and the UK (Reagan. etc. microfinance institutions were providing very standardized forms of loan. II What are the key components of microfinance? There is no universal definition. The main reason why Serbia does not have a developed system of microfinance is the explicit prohibition of the NBY (the National Bank of Yugoslavia) later NBS (the National Bank of Serbia). All the subsequent teams in charge of the banking sector. mixed funds and other guarantee. At the macro level. funds. into the system . and that the banking profit can be realized by doing business with them. microfinance institutions. microfinance institutions expand the limits of the financial sector of each country to the social groups that are outside and create conditions for a more comprehensive economic development and improvement of the social status of marginalized groups." . all of which were control-loving. One of the possible ones is: "Microfinance is a sustainable system of financial services to poor people." Or simply: "Microfinance is banking for the poor. debt financing. have maintained the same principle of unilateral bureaucratic banking: loans may be given only by banks controlled by the NB. nonbanking financial intermediaries and as commercial banks. there are more types and legal forms of microfinance institutions . Entering this empty space. the Vice Governor of the NB stated in a public announcement that the time NB has at its disposal for the re-structuring of banks is not sufficient to deal with the problems of microfinance and the solutions which would enable microfinance. Initially. credit unions.

They are often approved without collateral to an individual or a group. 5. breading poultry . Here are some of the best known ones: Deutsche Bank. by improving the infrastructure and the like. the purpose. 3. the amount of the loan. The success and the rapid expansion of microfinance and the especially innovative methods of finding poor clients and insurance-specific financial services has set the basic principles of microfinance. savings and credit unions and commercial banks. Microfinance must meet the needs and preferences of the client (contrary to the practice of banks where the client has to adapt to the banks’ demands). they began offering other financial services and microcredit has evolved into microfinance. a tailor's workshop. The role of the government or the state is to create conditions for the development of microfinance by improving the business environment for small and micro entrepreneurs. like an elephant in a china shop.. Micro-financial institutions may be: non-profit organizations. but the decision on the loan must be based on the assessment of the sustainability of the project being financed. and not to be the subject of direct financing. commercial banks are showing an increasing interest in microfinance and are included in the process. Those are: 1. The first generation of MFI were non-governmental institutions in the period from 1970s to 2000 and they provided only the microcredit. Microfinance institutions must be sustainable so that the system can function and include as many clients. since it will disrupt these small markets. Over time. Interest rates must ensure the sustainability of the institution. .. ABN and AMRO. Specific lending has been developed to overcome the basic problem of poor entrepreneurs – the inability to guarantee the repayment of the credit. 4. Citigroup. and not the profit of the financiers. Commerzbank. It is interesting that since the beginning of this century. 2. For an individual a "collateral" is a real project idea. the repayment terms and conditions have to be tailored in accordance with the possibilities and capacities of the client. In other words. Microfinance has the purpose of increasing the income of the client and his income capabilities and this is the basic criterion for granting loans. and a group collateral is for all the group members to guarantee for each member of the group.).The subject of microfinance is an individual or a micro entrepreneur with up to five employees who operates in the informal sector and is usually the only source of household income (newsagent’s.

so the constant to increase of their own capacities is an essential principle. because they are empirically proven to be more successful than men. 9. Microfinance is a specific activity that combines banking and welfare. Mobile branches of microfinance institutions in rural and marginal areas. Donor subsidies which are used to form microloan funds should be complementary to the private commercial financing. Focus on vulnerable sections of the population. 3. Transparency of operations of microfinance institutions is an essential feature of the system. displaced persons. The system of microfinance always includes non-financial services. No collateral. laid-off workers. Simple procedure. The empirical data show that the biggest beneficiaries of microcredits in the world are: first the women who lead the households. trainings for the recipients of microfinance. small farmers and micro-entrepreneurs. The rule is to always approve a new loan to each client who regularly repays the microcredit 13. 5. . Short credit terms. 12. Completely diversified purposes. because without information available on both sides. this system cannot work (dissemination of information to the poor clients.500 for the banks in 2006). then the pensioners. 10. 11. as well as monitoring and the assessment of the project progress).6. 8. The impact of microfinance institutions themselves that are spreading and creating great new employment opportunities is not negligible.213 and USD 2. 7. The free choice of entrepreneurial activity of the client. 2. Low amounts of loans and savings (NGOs and credit unions with the average of USD 1. 7. Quick financial services on the doorstep. 8. and should not be seen as competitors.e. Women are privileged clients. as well. i. 4. Characteristics of microfinance are: 1. 6.

where the position of each government has remained long term constant? The only way I see is to prepare a proposal for a legal text with a strong rationale that would abolish the barriers to microfinance. so the focus of the policy must be the promotion of economic growth which is the only one that could create conditions for greater employment. since people who have jobs will not be protesting on the streets. It takes time. which is not familiar with the problem.14. III What can microfinance actually do? Microfinance plays an important role in enhancing the safety and increasing the consumption of marginal groups. . it is possible that this government. This is because credit is only one factor in the process of generating income or production. What to do in Serbia. it would be completely wrong to understand microfinance as a major lever to combat unemployment and poverty. Nothing can replace development programs. However. Since the reasons for the introduction of microcredits are strong. could realize that it could benefit from the introduction of microfinance institutions. microfinance can be useful and help the disadvantaged households. The owners of microcredit learn by working and thus enhance their position and potential. the right resources and a real commitment for microfinance activity to be raised to a level that would have a positive impact on the expansion of employment in the local area. Precisely that is why. in a long time that’s ahead until the launch of economic growth.