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Sofija Adzic: THE SMALL BUSINESS CREDIT MARKET

IN THE TRANSITION COUNTRIES THE CASE STUDY OF SERBIA 73

THE SMALL BUSINESS CREDIT MARKET


IN THE TRANSITION COUNTRIES THE CASE STUDY OF SERBIA

TRITE KREDITA I MALI BIZNIS U ZEMLJAMA U TRANZICIJI -


STUDIJA SLUAJA ZA SRBIJU

SOFIJA ADZIC,
Faculty of Economics, Subotica, Republic of Serbia

Abstract: The paper discusses the specific aspects of development of the small business credit market in
the transition economies, through case study of Serbia. Topics elaborated in the present paper are focused
on the problem: How to create an efficient social and economic environment, which would secure collection
of credits from small businesses? The institutional solutions in Serbia are enabling the small businesses to
obtain credits pursuant to three sorts of guarantees: real estate property, movable property and their own
reputation. However, implementation of such solutions encounters significant difficulties. The records on
ownership over the real estate property are to a large extent inadequate and incomplete. It shall take a
relatively long period of time that the appropriate records, harmonized with the European regulations, are
formed. The area of collateralized credits for small business is relatively new and faces the problem of a
difficult realization of a lawful and timely judicial protection of creditors interests. However, the basic
impediment to establishment of an efficient credit market is the low business reputation of the small
businesses. The basic characteristic of small businesses in Serbia is works in the transitional area between
the official and the shadow economy, which assumes furtherance of a large portion of economy and mone-
tary transactions through unofficial markets. The authors ground thesis is that solutions should be sought
not in strict regulations, stern laws and all-inclusive state interventionism, but in self regulation, based
upon the development of the culture of mutual trust. It is therefore, in the authors opinion, that the issue of
development of the small business credit market in Serbia should be discussed within the chain of three
phenomena: creation, improvement and security of the mutual interest of banks and small businesses in
course of realization of the following activities: (1) promotion and development of business culture, wherein
performance of all financial obligations in a timely fashion plays a key role, (2) completion of the legal and
institutional infrastructure for implementation of the infrastructure for implementation of collateralized
credits for equipment and reproduction material, (3) promotion and development of new techniques for
evaluation of creditworthiness of small businesses pursuant to precise and clear standards, (4) identification
of new solutions for (high risk) financing of export projects, pursuant to generating and implementation of
high technologies and (5) promotion of new forms of credits for transfer of private property.
Key words: Transition, Small business, Credit market, Self regulation, Trust.

Apstrakt: U radu se razmatraju specifini aspekti razvoja trita kredita u funkciji finansiranja poslo-
vanja i razvoja malog biznisa u privredama u tranziciji na studiji sluaja za Srbiju. Izlaganje u ovom
radu je koncentrisano na problem: Kako stvoriti efikasno drutveno-ekonomsko okruenje koje e obez-
bediti naplatu kredita od malog biznisa?. Institucionalna reenja u Srbiji omoguavaju da mali biznis
moe dobiti kredit na osnovu tri vrste garancija: nekretnina, pokretne imovine i sopstvene reputacije. Me-
utim njihova implementacija se suoava sa brojnim tekoama. Dokumentacija o vlasnitvu nekretnina je
u velikom delu neadekvatna i nekompletna i trebae relativno dugi period da se izvri formiranje odgova-
rajuih registara prema evropskim normativima. Podruje kolateralnog kreditiranja malog biznisa je rela-
tivno novo i suoava se sa problemom teke realizacije regularne i blagovremene sudske zatite interesa po-
verilaca. Meutim, osnovni problem za uspostavljanje efikasnog trita kredita je niska poslovna reputa-
cija subjekata malog biznisa. Osnovno obeleje malog biznisa u Srbiji je poslovanje u prelaznom podru-
ju izmeu oficijelne i sive privrede, pa se veliki deo robno-novanih transakcija odvija neoficijelnim ka-
MONTENEGRIN JOURNAL OF ECONOMICS NO 7
74

nalima. Osnovna teza autora je da reenja treba potraiti umesto u strogoj regulaciji, krutom zakon-
skom okviru i sveobuhvatnom dravnom intervencionizmu, u samoregulaciji zasnovanoj na razvoju kultu-
re poverenja. Zbog toga, po miljenju autora, problem razvoja trita kredita za finansiranje malog bizni-
sa u Srbiji treba razmatrati u lancu tri fenomena: stvaranja, usavravanja i odbrane zajednikog interesa
banaka i malog biznisa u realizaciji sledeih aktivnosti: (1) promocije i razvoja poslovne kulture u kojoj
blagovremeno ispunjavanje svih finansijskih obaveza ima kljuno mesto, (2) zaokruivanja pravno-insti-
tucionalne infrastrukture za implementaciju tehnike kolateralnog kreditiranja opreme i reprodukcionog
materijala, (3) promocije i razvoja novih tehnika za procenu kreditne sposobnosti malog biznisa na osno-
vu preciznih i jasnih standarda, (4) nalaenja novih reenja za (veoma rizino) finasiranja izvoznih pro-
jekata na osnovu generisanja i implementacije visokih tehnologija i (5) promocije novih oblika kreditiranja
prava prenosa privatnog vlasnitva.
Kljune rei: tranzicija, mali biznis, trite kredita, samoregulacija, poverenje.

(JEL classification: G21, L 21; O 57)


Preliminary communications; Recived: May 12, 2008

1. Introduction array of explanations high macroeconomic uncer-


tainty, great differences between the active and passi-
Economic recovery and development of
ve interests, insufficient savings (in terms of accumu-
Serbian economy shall be to a large extending depen-
lation, i.e. productive engagement of capital, since
dant upon the dynamics of development of small
the Serbian population disposes with a relatively high
business1. In view of that, and within the scope of
treasured savings), and the inability to offer appro-
economic preparation of Serbia for European in-
priate guarantees to lenders. Analyses show that one
tegrations, very ambitious goals in development of
may not expect these problems to be overcome once
small business have been set2. Special attention has
the macroeconomic problems are adequately resol-
been dedicated to overcoming of the problem that
ved. Therefore, solutions for improvement of the
arises in all other countries, and which stems from
small business credits market should be sought in
the fact that entrepreneurs rarely dispose of suffi-
joint activities of banks and small businesses aimed
cient savings for autonomous financing of dynamic
at development, sustainability and regulation of the
works and development of their own businesses, and
market. The key issue that arises in this issue is:
that the subjects of savings rarely have sufficient
How is an efficient social and economic environ-
(individual) investment projects of good quality to
ment to be created, in order to secure collection of
absorb it. The basic solution lies with a good credit
credits from small businesses, and bring the perti-
market, which successfully circumvents such gap and
nent risks down to an acceptable level?
allocates savings to the most productive business and
Small business in Serbia may obtain credits
investment projects. The current state of this market
pursuant to three sorts of guarantees: real estate pro-
assumes high interest rates and low supply of credits
perty, movable property and ones own reputation.
for financing of small businesses and their invest-
However, implementation of such solutions encoun-
ment activities. What is the source of the low small
ters significant difficulties. The records on ownership
business credit supply in Serbia? One may offer an
over the real estate property are to a large extent
inadequate and incomplete. It shall take a relatively
1 Serbia belongs to the category of the post socialist countries in which long period of time that the appropriate records, har-
development and constitu-ting of market economy according to the
contemporary European concept progresses with great difficulties, and monized with the European regulations, are formed.
temporary stalemates and retrograde occurrences. It is due to this fact The area of collateralized credits for small business is
that even seventeen years upon restoration of capitalism that the scope
of gross national product amounts to about 65%, and the actual scope of
relatively new and faces the problem of a difficult
industrial production only about 43%, as compared to the pre-transition realization of a lawful and timely judicial protection
maximum (achieved over the long passed year of 1986). One must state of creditors interests. Such a situation prevents for-
that evaluations show that also the production within the small business
sector, which was then privately owned, is basically lower than at the end mation of strong business ties between the banks, as
of the socialism period (some 90% of the pre-transition maximum). the predominant financial institutions in Serbia, and
2 The official national strategy of economy development envisaged for the potential non-banking credit sources. Thereby
the period from 2006 to 2012, dedicates to the issue of entrepreneurship
and small business, either separately, or in terms of development of the development of such ties is blocked, which
individual sectors, about 10% from the total solutions.
Sofija Adzic: THE SMALL BUSINESS CREDIT MARKET
IN THE TRANSITION COUNTRIES THE CASE STUDY OF SERBIA 75

further prevents creation of one of the key channels of specifics of development and work of small busi-
for small business financing and development. The nesses in Serbia. The second part analyses the need
third and fundamental problem is a low business for different forms of credit financing. The third part
reputation of small business enterprises. Namely, the elaborates in more detail the issue of expansion of
key feature of small business in Serbia is work in the the collateralized credit system, as a prerequisite for
transitional area between the official and the sha- the system of outsource financing of small busine-
dow economy, which results in furtherance of a sses. The fourth part elaborates the problem of
large portion of trade and monetary transactions implementation of small business creditworthiness
through unofficial channels. Due to such fact, data evaluation mechanisms. Finally, the fifth part discu-
on business results of small businesses are bad (small sses the issue: What are the impediments to deve-
turnover and employment, works on the very edge lopment of the culture of trust in Serbia?
of feasibility, law salaries of employees etc.).
The ground thesis of this paper is that the 2. Specifics of work and development of
small business credit market may not function small business and the effects thereof to
without trust. Such thesis has been deduced in the outsource financing
context of responding to a very complex question:
The issue of disbursement of credits for
Should the mechanisms for overcoming of failures
work and development of small businesses in Serbia
in development of the small business credit market
should be discussed within the broader context of
be sought in enactment of new statutes, regulations,
historical heritage, restoration of capitalism and tran-
restrictions and administration, or would that cause
sformation of the economic system, i.e. the socalled
new expenditures to be borne by debtors, which
post-socialist transition. One of the basic tools the-
would alienate the latter from the credit market to an
reof is privatization, which assumes transfer of the
even larger extent; and should the solutions be soug-
state property3 to individuals. In Serbia, as in many
ht in self regulation, where the state should underta-
other countries in transition, this process approaches
ke certain actions so as to create a favorable environ-
its final phase. However, Serbia is marked by certain
ment for development of small business and the
specifics in this respect. While the majority of former
culture of trust?. In conformity with such thesis,
socialist countries were characterized by the absence
authors are of the opinion that the issue of deve-
of private property, Serbian economy system always
lopment of the small business credit market in Serbia
nurtured, save over one short period from 1948 to
should be discussed in the context of three related
1952 a strong presence of private sector. However,
phenomena: creation, improvement and securing of
private property was institutionally and in all other
the joint interest of banks and small business in per-
respects restricted to, what is known in the con-
formance of the following activities: (1) promotion
temporary economic terminology as small business.
and development of business culture, wherein per-
Private property was permitted in agriculture, small
formance of all financial obligations in a timely fashi-
industry and services (handicrafts), traffic, catering,
on plays a key role, (2) completion of the legal and
tourism and some category of intellectual services,
institutional infrastructure for implementation of the
although subject to severe restrictions in terms of
infrastructure for granting of collateralized credits
entry into certain sectors and areas of business, title
for equipment and reproduction material, (3) promo-
over agricultural land and engagement of works for-
tion and development of new techniques for evalu-
ce. Such institutional restrictions imposed on the pri-
ation of creditworthiness of small businesses pursu-
vate sector were rooted primarily in the presocialist
ant to precise and clear standards, (4) identification
heritage, and not in the principles of functioning of
of new solutions for (high risk) financing of export
projects, pursuant to generating and implementation 3 Upon the completion of transfer of entire property into state
of high technologies and (5) promotion of new ownership (by means of confiscation and nationalization, with and
forms of credits for transfer of private property. without compensation), which took place immediately after the World
War 2, over the period from 1950 to 1952 such state ownership was
Given all the aforesaid, the emphasis in this replaced by the so-called social ownership. Without any discussion on
paper has been put to research of the following - the core features of such form of ownership, we shall say that it assumed
How can one include in development of the small a special form of group ownership, which did not assume the right of an
individual to transfer it to third parties. Upon restoration of capitalism,
business credits market the elements of its sponta- the socially owned property was confiscated and turned into the state
neous development? In conformity therewith, the owned property, subject to approximately determined reimbursement of
first part of the paper analyses the basic characte- its creators, through distribution of the so-called gratis shares. In cases
of small, mid-size and in particular large enterprises, which could not
ristics of credit disbursements, from the perspective adjust to market conditions, such shares have had none practical
economic significance in terms of management and distribution rights.
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76

the so-called administrative socialism. Such heritage we indicated that the largest restricting factors are
encompasses primarily the social and economic the actual performances of average national entrep-
bases upon which the bourgeois revolution was reneurs. Much is said, although indirectly, about low
effected, simultaneously with the national liberation ethical performances of entrepreneurs, which is the
movement, aimed at ousting the government of the basic prerequisite for existence of credibility, by the
Ottoman Empire in the early 19th Century4. very fact that partnerships do not exist, and that
Restoration of capitalism and abolishing of even the scarce one fall apart quickly, mostly after
the institutional restrictions over the period from the first larger business success or failure. On the
1990 to 1994 resulted in large expansion of small bu- other hand, there are many difficulties in implemen-
siness in Serbia, primarily through establishment of tation of business plans mechanisms, being the basic
micro enterprises within the sector of services. Signi- formal prerequisites for provision of regular outso-
ficant part of new businesses was created by transfer urce financing. One is particularly concerned by the
of entrepreneurial staff, business connections and fact that small businesses are poorly self-organized.
proceeds from the sociallyowned sector in the pro- Namely, the largest development of small business in
cess of spontaneous privatization, mostly by delayed contemporary market economies is spotted in the
payment to suppliers in the period of hyperinflation. areas of concentration of complementary (i.e. pro-
Unfortunately, it soon turned out that new enter- duction, economy, financial, research, designer and
prises were engaged in provision of services that educational) and competitive small and medium
provided and still provide no significant potential for enterprises, public institutions, which have been for-
a dynamic development and growth within the med pursuant to individual or group initiative of the
regular course of economy. The production-related entrepreneurs themselves, within the narrow local or
part of small business was primarily based upon the regional communities. As opposed to that, the social
traditional activities with low technical and techno- and economic space of Serbia is characterized by
logical level of processing and quality. There was no small, unorganized and sporadic activities in creation
development of export clusters, or network with of a good local and regional business climate, and of
complementary small businesses, while the produc- a good regulation frame for work of small busine-
tions cooperation with large enterprises was practi- sses5.
cally nonexistent, since such enterprises simply disa- The government in Serbia, in particular after
ppeared from the Serbian economy scene due to the year 2000, has undertaken significant efforts to
inefficient transitional macro management. Generally improve the general social and economic regulatory
speaking, only a small number of small business frame, in order to entice development of small busi-
units display proneness to a dynamic development, ness. Week results show the course of changes,
according to the criteria of open market economy. which are partly already in progress. Primarily, state
The largest portion of small business is fina- intervention may be applied only to export clusters.
nced from two sources. The first encompasses indi- Secondly, public proceeds may be used solely for
vidual assets (personal savings and other property, as financing of technical assistance in: (1) elaboration of
well as proceeds credited from relatives and friends). business plans and (2) additional training for obtai-
The second is provided by deferral of payments to- ning the practical knowledge on international marke-
wards suppliers and the state, but in the first place by ting, total quality management, application of con-
evasion of fiscal obligations (acquisition and sale of temporary information technologies etc. On the
products on the shadow market and employment other hand, the strategy should be decentralized to a
of black work market). We indicated in Introduc- larger extent, by transfer of responsibility for its
tion certain phenomena that have not been favorable realization to the local level and associations of
to development of small business credit market, but entrepreneurs.
4 In late seventies of the previous century, under the pressure of the
non-cyclic economic crisis caused by hardships of adjustment of the
socialist economy system to the challenges of globalization (which was 5 It is particularly indicative that over the period from 1990 to 2000
ascribed in the national economic terminology by the term New World Serbia experienced establishment of numerous small private banks. Such
Economic Order), an ambitious project for development of propulsive banks were supposed to play a key role in formation and development of
areas of small business was initiated. Such area was, due to ideological the small business credit market, due to their size and ability to establish
reasons, signified by a pleonasm small economy, especially in case of and create direct contacts with clients. Nevertheless, bearing in mind the
the section of non-core and maintenance industry, and it also pertained actual activities of such banks, which fall beyond the scope of this work,
to development of the market of credits for financing thereof. Causes of one might ask were those enterprises really banks, or something
failure of this experiment have not been adequately elaborated in the completely different, given in particular their swift and painless
national economic literature. However, from this point in time, it is clear disappearance from the financial market upon announcement of a
that some of those failures still impede further expansion. stricter regulation of their operations.
Sofija Adzic: THE SMALL BUSINESS CREDIT MARKET
IN THE TRANSITION COUNTRIES THE CASE STUDY OF SERBIA 77

3. Which credit forms do the small ment activity of a small business unit from private
businesses in Serbia need? proceeds and current revenues represents a serious
threat for its sensitive financial balance. In case of
It is important to emphasize in the begi-
onset of unforeseen problems in cash flow, such as
nning that the notion of small business credits used
belated collection of receivables, occurrence of unfo-
herein, assumes any loan of cash, goods (equipment,
reseen conjuncture variations in consumption, delays
transportation units, reproductive materials, raw ma-
in current reproduction cycle caused by problems in
terials) and services. The emphasis is put on the
supply of reproductive and raw materials, onset of
word loan. A beneficiary of any form of outsource
large damages on equipment, one needs urgent and
financing must be creditworthy. The credit must be
additional financing.
repaid within the envisaged terms and with the
3. The investment credit system for small
interest as regularly applied on the financial market.
business. This system encompasses long-term and
This criterion is mentioned, due to the fact that even
midterm multi purpose credits. Long-term credits
seventeen years upon restoration of capitalism in
should be designated solely for additional financing
Serbia there are certain views according to which the
of construction of real estate property and the acco-
state has an obligation to subsidize development of
mpanying infrastructure, or for planting of long term
small business without any reimbursement in many
plantations. Midterm credits should be used for pro-
cases. What is more, there are certain public funds
curement of equipment and transportation units.
designated for such purposes. Works of such funds
4. The credit system for finance transfer of
are scarcely revealed to the public, maybe in order to
ownership in small business. One should differen-
cover their insignificant results from the taxpayers,
tiate between two characteristic cases. The first is the
or due to the fact that selection of funded projects
issue of transfer of ownership rights in case of take-
has been performed according to the criteria that
over of key resources of small business by creditors,
rank the economic efficiency as the least of priorities.
due to inability of the owner/entrepreneur to settle
At any rate, there is a need that the public legislature
the undertaken obligations. The second arises with
provides the following: (1) a general frame of regu-
the owner/entrepreneur becomes unable, due to
latory, which would enable a clearer and more pre-
objective reasons, such as old age, illness etc., to run
cise determination of the real credit rating, based
his business, and there is no identified individual
upon economic performances and indebtedness of
interest for a direct transfer of ownership.
the entrepreneur in question, his company and other
Once the issue of development of small bu-
property; and (2) amount of the interest rate, depri-
siness credit market has been defined in the above
ved of the effects of soft budget limits and expenses
manner, the further course of this paper shall discuss
of artificial maintenance of macroeconomic stability
the following: (1) basic aspects of introduction of the
by means of depreciation of foreign currencies and
minimum institutional support for introduction of
monetary restrictions. Given all the abovementioned
the collateralized credit system, (2) contents of the
broad statements, a solution must be found to esta-
activities on promotion of certain untypical lending
blish four subsystems within the credit market, whi-
forms for transfer of ownership rights, (3) promo-
ch would be harmonized with the actual needs of
tion and development of new techniques for evalu-
small business in Serbia.
ation of credit rating of a small business, pursuant to
1. The credit system for financing of the
precise and clear standards, based upon the criterion
production of small business. This system is suppo-
requiring that the implementation thereof must be
sed to provide credits over the period of one repro-
founded on selfregulation and strengthening of trust
ductive cycle, in order to create preconditions for
between the lender and the debtor and (4) problem
increase of production. The purpose of these credits,
of formation of market for risky lending to export
combined with the assets of the entrepreneur, to
projects, based upon generating and implementation
enable a small business unit to procure the appro-
of high technologies.
priate raw materials, reproductive materials and other
inputs, in a manner which would lead to increase in
A. Options for reform of the
productivity, as compared to the situation in which
collateralized transaction system
there would be no credit. In other words, the issue
comes down to maintenance of leverage between the Introduction and implementation of the co-
credit, production costs and productivity growth. llateralized credit models should play a key role in
2. The credit system for overcome of the cu- disbursement of credits and mid-term financing of
rrent work problems in small business. Any invest- investments in small businesses. This, primarily, per-
MONTENEGRIN JOURNAL OF ECONOMICS NO 7
78

tains to dealers of equipment, raw and reproductive the national banking system. It is necessary that the
materials and transportation units. Introduction of very banks, which are unable to collect their recei-
dealers, as intermediaries in these transactions, repre- vables from small businesses, initiate creation of the
sents actually the only real involvement of the cu- ESOP credits, which would be available for repur-
rrently existing bank driven economy into small bu- chase to employees; or to introduce specific long-
siness credit system. Let us discuss the issue of credit term mortgage covered credits for repurchase of the
for procurement of equipment. Dealers, as opposed entire small business unit; or to enable takeover of
to banks, by the very nature of their work have fre- business premises and equipment. Introduction of
quent contacts with their clients through mainte- such credit forms would make room for inclusion of
nance of equipment, sale of spare parts etc. They are banks into the ownership transfer process in case of
therefore much better acquainted with the debtor onset of uneconomical events that might jeopardize
and his real capability to repay the credit within the existence of a small business unit. On the other
contracted terms, and are able to monitor the hand, such situation would worsen the problem of
whereabouts of the collateral in possession of the technical ability of the national banks for credit to
debtor. small businesses to a great extent. Namely, that
In order for the system of collateralized cre- would open the debate on the issue: How will a
dit to be introduced into the national small business bank, that has once made a wrong decision in credit
outsource financing system, it shall be necessary to to reproduction project, avoid mistakes in credit to
establish a national registry of collaterals in the first sale of an entire enterprise? Thus, banks must do
place. Instead of waiting for the state to resolve the much more in terms of promotion of practicalities
problem, banks and entrepreneurs should initiate, for elaboration and verification of trueness of
together with the Bar Association of Serbia, the crea- business plans. The basis for furtherance of such
tion of a network of authorized law offices, which actions would be that the banks themselves or their
would be linked into a single information system appropriate departments do more in promotion of
through the Internet. Introduction of the collaterali- business plan elaboration techniques, and to provide
zed credit system requires also furtherance of signifi- services of continued education and professional
cant changes within the insurance system. Institutio- counseling of entrepreneurs for elaboration thereof.
ns that undertake to deal with insurance of property It is particularly necessary to put an emphasis to the
that serves as collateral must render compensation of principle of trueness, wherein both parties must find
damages due to partial or full destruction, or aliena- an interest - the banks to find a reliable client, and
tion of such collateral. Terms of compensation sho- the clients to recognize the banks as business
uld be clearly, precisely and transparently defined, partners that builds its interest on distribution of
and it should assume the shortest practicable periods newly created value, arising from the respective
of time. State intervention should not be required in credit transactions.
these cases either. The banks, dealers and insurance
companies must find the appropriate solutions on C. Why is it important to have a business
their own instead. Finally, it is of an utmost impor- plan of good quality in development
tance that the legal practice in Serbia be enriched by of the small business credit market?
an efficient system of protection of collateral inte-
Great efforts were invested in Serbia in the
rests. Given that the national judicial system may not
years 2001 and 2002 into a thorough implementation
fully meet all of the above obligations, it is necessary
of business plan elaboration techniques and their
to enable that the collaterals be seized and sold
unification per regions and activities. However, end
directly in case of failure to meet the credit
results of this action turned out to be unclear and
obligations, under terms that are strictly and precisely
represent only one of numerous examples of murky
governed by the law.
and manipulating transition. We will limit our dis-
cussion only to the details defining the needs of
B. How can the problem of credit for tran-
users thereof (in this case the banks), and we shall
sfer of ownership in small business be resolved?
disregard what are the views of entrepreneurs, accor-
ding to their needs. Let us therefore look for an ans-
Avenues to be pursued in activation of the
wer to the question: What does a banker expect to
credit market towards development of small business
see in a business plan? Obviously, the answer is not
should be sought also in creation of new financial
simple, but we shall strive to determine how an
instruments, aimed at transfer of ownership within
Sofija Adzic: THE SMALL BUSINESS CREDIT MARKET
IN THE TRANSITION COUNTRIES THE CASE STUDY OF SERBIA 79

entrepreneurowner should respond to such question


*Table No 1.):

Table No 1.
Bankers goals: Basic fields of interest are:
Financial security A plausible business plan, based upon the following:
Actual profit within a short term - Entrepreneur-owner, who possesses high ethical and business
Long-term business cooperation performances and a positive financial attitude,
- Conjuncture material and immaterial products (goods and
services),
- Cash flow projects that display how would the credit be
revolved under a growing dynamics,
- Realistically evaluated future financial needs.
Other factors for risk minimization:
- Insurance of security pledges (mortgage, collaterals)
- Counter signatories for the credit
- Inclusion of financial professionals as members of the board
that was assigned to determination of the contents of the
financial construction,
- Information that point to occurrence of possible losses,
- Information that provide knowledge on largest commitments
and the dynamics of their timely performance
Other relevant information necessary for rendering of the
decision on the credit

D. Why is there a need for the market of enterprise would provide cash flow necessary for
risk-bearing credit to small business timely maintenance of investment credits in a middle
export projects based upon generation and long term. In any event, it is a challenge that
and implementation of high technologies? requires appropriate solutions, especially in view of
the fact that development of such enterprises should
What is seen as one of the largest uncertain-
play a key role in creation of prerequisites for an
ties is the formation of risk-bearing credits for finan-
efficient functioning of market economy in Serbia in
cing of small business reproduction projects based
the future.
upon generation and implementation of high techno-
logies. It is primarily important to point out that this
4. What are the impediments to develo-
phenomenon does not assume credit to small and
pment of the culture of trust in Serbia?
mid-size enterprises with a high profit generating
potential, based on generating and economic valori- When discussing the causes that impede de-
zation of high technologies. In Serbia there is almost velopment of the culture of trust, authors have put
none enterprise, or undertakings, having high profit the issue of development of small business credit
potentials in hightech industries. However, if the market into the context of creation of enticing social
notion is modified and determined as the business and economic framework for restructuring and
initiative for enhancement of development of small development of export industry. It is that very field
and mid-size enterprises by export based upon im- that suffered none core changes. To the contrary,
plementation of high technologies, there is a public various reforms have taken place, that resulted in
interest for their inclusion into the small business downfall of the export industry in Serbia, especially
credit market. Namely, in the context of the aggre- in the field of electronics and metal and consumer
gate national restrictions, any export-oriented produ- goods production, and which essentially diminished
ction represents a high risk commercial undertaking. the space for development of the most propulsive
On the other hand, orientation towards export is areas of small business. The state is such that there is
actually the only realistic guaranty that a production none realistic private initiative in Serbia, which wou-
MONTENEGRIN JOURNAL OF ECONOMICS NO 7
80

ld be aimed at development of export industry. Ex- of national product and wealth. The ones at the very
periences from the period over the years 2001-2007 top of the society are the most powerful and the
show that not even introduction of institutional re- most inconsiderate. At each following lower level of
forms, similar to the ones furthered in the European the social and economic organization are, similarly to
Union, focused on acquisition of trust of foreign the hierarchically organized bureaucratic system,
investors, has not resulted in an explosive growth of other distribution-oriented coalitions, which serve as
external financing of development programs. It a justification or concealment, in the political and
turned out that servicing of import of goods from any other sense, of the ones at the upper level.
highly developed countries for foreign capital is a Obviously, a large part of small-business players is
more attractive and less risky alternative than in- included in the appropriate distribution-oriented coa-
vesting into development of export industries. Why litions, since belonging to the appropriate one serves
hasnt there been any actual private initiative in as a prerequisite for unsanctioned furtherance of bu-
Serbia over the period of seventeen years aimed at siness within the transitional area between the offi-
development of the export industries and the most cial and shadow economy. Therefore a large part
propulsive segments of small business related the- of its transactions in goods and services is furthered
reto? In our opinion, the answer should be sought through unofficial channels.
also in one factor that signifies Serbia as a small and One of the most severe consequences of
underdeveloped country, which so much as two such basic social and economic determinations is the
whole centuries after the authentic bourgeois revo- change in the system of value in Serbia. The prin-
lution fails to enter the circle of modern European cipal characteristic thereof is that the ability to
market economies by means of its development apprehend more, in whatever way, is appreciated
performances. We refer here to the aforementioned more than the ability to create national product and
fact of domination of distribution-oriented coaliti- wealth. Consequently, radical changes took place in
ons6. the overall goals in life (decline of interest in learning
Although small and underdeveloped, Serbia and the production-related professions, and increase
is full of distribution-oriented coalitions, which cover of interest in professions related to distribution of
all levels of its social and economic being, in the the created values, as well as the inflation of diplo-
form of a pyramid. The parties in power represent mas in the area of higher education). This even goes
the key distribution-oriented coalitions, to begin to the extent that any obligation to achieve positive
with. Such orientation is displayed through party results of work and successful completion of tasks is
members, as the exclusive criterion for occupation of rebutted. It was thereby that work, creativity and
influential positions in economy and public sector. trust, which have never occupied a high place in the
Such occurrence spreads, pursuant to the principle hierarchy of the national system of value, have been
of concentric circles, in such a scope that virtually all replaced by a model of solving of professional and
resources, forces and political powers are aimed at life problems by speculation, evasion of tax
distribution of anything that exists, which explains obligations, fraud, usurpation, crime, etc. Obviously,
the largest part of the development blockade in in such a system of value, it does not make sense to
Serbia. Naturally, not all distribution-oriented coali- speak of the necessity of hard work on development
tions dispose with the same power in apprehension and improvement of international competence of
individuals and competitiveness of any social and
economic office, be it a commercial or public func-
6 This notion denotes special interest groups, which secure
improvement of their positions in distribution of national product and tion (service), an enterprise, or a state.
wealth by mutual associations, without an adequate personal Existence of distribution-oriented coalitions
contribution to sustainability and increase thereof. The principal social naturally is not the only, but is quite a sufficient rea-
and economic characteristics of such distribution-oriented coalitions are:
(1) proneness to development of monopolistic political, social and son for an overall regression, which most apparently
economic structures, (2) weakening of interest in adaptation to social, appears as a continuous decrease in competitiveness
economic and cultural changes in the surrounding environment, (3)
proneness to (ab)use of administrative and hierarchical mechanisms,
of Serbian economy, and crucially narrows the ability
instead of the market mechanisms of evaluation and allocation; and (4) of development of the most propulsive segment of
proneness to enticement of development of distribution-oriented small business and market of credits for its financing.
coalitions on the lower levels of social and economic organization, aimed
at concealment of actual intentions of players from the key special Surely a part of the said system of value and the
interest groups. Causes and effects of development and actions of the culture supporting such orientation arises from well
distribution-oriented coalitions in Serbia are elaborated in: Adi, S. i back in time, but we are of the opinion that one
Popovi, D. (2005). Fiskalni sistem i fiskalna politika njihov doprinos
unapreenju konkurentnosti privrede: Sluaj Srbije. Ekonomija/Economics, should be very cautious in terms of validity of state-
br 1, 173 200.
Sofija Adzic: THE SMALL BUSINESS CREDIT MARKET
IN THE TRANSITION COUNTRIES THE CASE STUDY OF SERBIA 81

ments that tie the expansion thereof specifically to pects from the ones of the contemporary market
the attempted experiment with socialism. Namely, economies. This is so not only due to the fact that it
one may not disregard the fact that over the period was only in early nineties of the previous century that
of socialism and within its framework, over a relati- the basic institutional principles for its functioning
vely long period of three decades, a very sound rate were created. The causes thereof are much deeper
of economic growth was achieved, and important and complex, and go back to the very foundations of
social and economic changes occurred, much more functioning of the overall social and economic sy-
significant than national independence. It should be stem in Serbia, which reflects in a persistent main-
also said that Serbia currently is far away from the tenance and development of an array of distribution-
previously achieved maximum production and oriented coalitions, which in the long run block pro-
standard of living, and that basically nothing has ductive development, and give a totally different ac-
been done over the seventeen years of restored capi- tual meaning then the ones predominating in con-
talism in terms of renovation of development propu- temporary market economies to phenomena such as
lsion and creation of the culture of living and work, economic freedoms openness, stable currency, low
in line with the criteria of contemporary market taxes and low regulation. It is therefore that the state
economy where trust plays a key role in transactions failed to move forward the development of small
between individual players from private sector. business by its numerous and uncoordinated actions
based upon the (unsuccessful) imitations of institu-
5. Conclusions tional reforms and application of techniques chara-
cteristic for European environment. It is understan-
The banking sector in Serbia experienced a
dable those interests of the lender must be legally
very fast growth over the past few years. The initia-
defended and applied, and that it is not done quite so
tors of changes were the foreign banks, which bro-
in Serbia, but this is not enough. One may draw cer-
ught along a new business culture and a mentality
tain concrete conclusions from this context, which
that spread to day to day operations. The scope of
would be applicable to the current social end econo-
their influence spreads broadly from a deep syste-
mic status of Serbia and development of small busi-
matization, strict business plans and a strong central
ness credit market.
control, to a high proneness to risk, aimed at fast
Primarily, credit to small businesses should
seizure of the market, with a large degree of remitta-
be focused exclusively to small and mid-size produ-
nce of key decision making to the local management,
ction enterprises, oriented towards export.
all in the context of interest for entry into the last
Secondly, the system of credit to small busi-
unoccupied market of South East Europe, which has
nesses should encompass four subsystems: (1) the
a high growth potential. One may expect a new
system for credit to current reproduction. The prin-
phase in development of banking in Serbia, as a
cipal function of this system would be to enable
consequence of the fact that takeover of the almost
small or mid-size enterprises to procure the necessa-
complete national banking system has been comp-
ry raw and reproductive materials, and other inputs
leted, and that the period of fast, easy and high
that would lead to increase in productivity and
return on capital approaches its end, which was
economic efficiency, as compared to the situation
available to a group of (foreign) banks that entered
where the credit would not be disbursed; (2) the
the market first. The hard competitive struggle for
system of credits for circumvention of onset of un-
sustaining and improvement of the market position
foreseen problems in cash flow, which are beyond
begins. Naturally, in such an environment, a greater
control of the entrepreneur-small business owner; (3)
interest of banks for financing of operations and
the system of investment credits, which primarily
development of small business in Serbia was missing.
serve for procurement of new equipment and means
This statement may be substantiated best by the fact
of transportation; (4) the system of credits for an
that the majority of these projects has been furthered
efficient, regular and timely transfer of property
under the auspices of either the government, or the
rights over small and mid-size enterprises.
specialized international financial organizations, the
Thirdly, solutions for development of the
European Bank for Reconstruction and Develop-
small business credit market should be sought on the
ment in particular, which wanted to expand the very
basis of projects of cooperation between the banks
thin social and economic base of capitalism in Serbia
and associations of small businesses, subject to a
by these measures.
minimum public intervention and regulation with
The small business credit market in the tran-
respect to: (1) development of the necessary institu-
sition countries, such as Serbia, differs in many as-
MONTENEGRIN JOURNAL OF ECONOMICS NO 7
82

tional support and business culture and ethics for Fourthly, in order to create conditions for
implementation of techniques of collateralized credit efficient functioning of the small business credit
for equipment and reproduction material; (2) identi- market, the banks that wish to operate on such mar-
fication of solutions to enable rational decrease of ket must significantly improve the appropriate servi-
risk in credit to small and mid-size enterprises, based ces and introduce new techniques for evaluation of
upon generating and implementation of high techno- credit rating. The foundation thereof should encom-
logies (wherein the state should be included, but only pass continuous efforts to educate potential users for
upon the joint initiative and proposal of small busi- application of practical skills in elaboration of busi-
ness players and the banks); (3) promotion of new ness plans, and provision of conditions for efficient
forms of credit for transfer of property rights in evaluation of viability thereof.
small business.

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