Promoting Responsible Finance: A Key Response to the Financial Crisis

A conference on responsible finance, hosted by the Central Bank of Bosnia and Herzegovina and organised jointly with KfW Entwicklungsbank (Development Bank) and the microfinance investment fund EFSE, was held on December 8, in Sarajevo, Bosnia and Herzegovina. During the event, representatives of the Bosnian and Herzegovinian financial sector, including Dragan Vrankić, Minister of Finance and Treasury of Bosnia and Herzegovina and Kemal Kozarić, Governor of the Central Bank of Bosnia and Herzegovina, donor agencies and international finance institutions, as well as microfinance practitioners discussed the importance of promoting responsible business practices in the financial sector of Bosnia and Herzegovina and the Southeast Europe region.

In his opening remarks, Vrankić said: »Responsible finance also means establishing a financial structure that will strengthen economic effectiveness. State institutions will request this and will be involved in forming this structure. We are aware that monetary and financial stability are important preconditions for successfully running an economic policy. Only under such conditions it is possible to improve the total rating of a country and facilitate the implementation of state plans in realizing large-scale development projects.»     

Responsible finance has been an increasingly important topic in the financial services industry - especially in light of the recent turmoil that has hit financial markets around the globe, caused in part by irresponsible banking practices. Therefore, disseminating responsible finance principles is considered to be one of the primary responses to the financial crisis. This is of particular importance to the region of Southeast Europe, including Bosnia and Herzegovina, where financial sectors HHhHhave experienced enormous growth rates, over the past years.

Underlining this, Kozarić stated in his opening remarks: «The global financial crisis has proven that the principle of responsible finance has not been sufficiently developed with banks and with clients. It has now become evident that the liquidity risk of banks in Bosnia and Herzegovina is rather low, and that the main problem is the quality of loans.»

Enterprises and the overall population now have significantly better access to financial services. This has contributed to economic growth and greater prosperity, including among poorer groups of the population.

»Yet, despite these positive impacts, the upward trend has also shown its downside - non-transparent and ambiguous lending practices have put many customers at the risk of over indebtedness, particularly through uncontrolled marketing of consumer lending», said Doris Köhn, Senior Vice President at KfW Entwicklungsbank.

»Responsible lending principles must be adhered to during the entire lending cycle, starting with a prudent assessment of the creditworthiness of individual clients and continuing with a fair and transparent lending relationship», Sylvia Wisniwski, Chief Operating Officer of the EFSE, emphasised in her presentation »Best Practice in Responsible Lending in Times of Crisis».

The panel discussion included further presentations on responsible management of foreign currency reserves by the central bank, the role of stakeholders in responsible finance, post-crisis interest rate revision and the role of the Association of Microfinance in Bosnia and Herzegovina.

The event in Bosnia and Herzegovina has been the third panel discussion on responsible finance supported by KfW and the EFSE, organised in joint cooperation with the central banks of EFSE's partner countries. Previous events were held in Serbia and Kosovo.

The Central Bank of Bosnia and Herzegovina, together with financial intermediates and clients, makes the pillar of the financial system, therefore the maximum engagement of everybody is needed in order to maintain financial stability. Along with the independence, credibility and confidence in the Central Bank, responsibility is one of the standards, which regulates the role of the Central Bank. Responsibility of the Central Bank is mirrored in running of monetary policy in a manner, which will provide monetary and financial stability, low inflation, confidence in the local currency.

KfW is the acknowledged leader in promoting responsible business practices in transitional and developing countries; not limited to the microfinance sector. KfW Entwicklungsbank finances investments and accompanying consulting services in developing countries. KfW Entwicklungsbank is committed to the primary goal of German development cooperation, namely to sustainably improve the economic and social conditions of the people in developing countries. Through its Financial Cooperation (FC) it contributes to reducing poverty, protecting natural resources and securing peace worldwide. By hosting and participating in international conferences and in an intensive and continuous dialogue with relevant stakeholders, KfW contributes to the principles established by the German Federal Ministry for Economic Cooperation and Development (BMZ) for a social and ecological market economy.

As a responsible investor, EFSE actively promotes responsible banking practices in its partner countries and urges partner lending institutions to provide their services in a responsi manner. Among the projects supported by the fund specifically in Bosnia and Herzegovina, was the production of an educational booklet on financial literacy and transparency, developed in joint cooperation with ProCredit Bank Bosnia and Herzegovina and presented during the conference. With an investment portfolio of EUR 559 million (as of 30 September, 2009), the EFSE is the world's largest microfinance investment fund. Aimed at fostering economic development and prosperity in the Southeast Europe region and neighbouring countries, the Fund offers long-term funding instruments to qualified local financial institutions for on-lending to micro and small enterprises (MSEs) and low-income private households. Since its inception in December 2005, the Fund has facilitated approximately 200,000 loans to MSEs and private households, totalling over EUR 1 billion. In addition to the investment fund, EFSE has a Development Facility. By giving grants, it funds technical consulting and training measures to institutionally strengthen the partner finance institutions. EFSE is active in Albania, Bulgaria, Bosnia and Herzegovina, FYR Macedonia, Kosovo, Moldova, Montenegro, Romania, Serbia, and Ukraine.

Presentations held at the function can be downloaded as PDF files from: http://www.efse.lu/

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