Microcredit in Serbia: Is it (Really) Necessary?

This paper assesses the provision of microcredit in Serbia as an alternative source of financing to start-up entrepreneurs and poor people.

Microcredit demand is high in Serbia due to lack of appropriate commercial bank lending products and restrictive central bank requirements. Government-subsidized credit programs have a beneficial impact on the target population, but come at a large cost to the state budget. Results from desk-top research and surveys conducted during the study reveal that microcredit provision would:

• Ease financial burden on the state because microcredit providers would be funded by social investors and international donors;
• Result in higher credit access for job creation and entrepreneurship activities;
• Encourage a more competitive and efficient credit market for micro and small businesses;
• Enable low-income borrowers to access finance;
• Enable banks to gain new clients as microentrepreneurs graduate to the formal banking system;
• Reduce the extent of unregulated private money lenders.

A regulatory framework that allows nonbank and non-depository microcredit can increase the level of foreign direct investment into the sector and increase access for those who lack access to bank credit in Serbia.