Microcredit offers a unique opportunity for many people in developing countries to start a business or create an enterprise. These small loans are aimed at people who do not have the resources, collateral and even less collateral to access a bank loan.
Even so, microcredits are sometimes provided, albeit at a high interest rate. This is reason enough for Islamic aid organisations to introduce their own concept of microcredit. This is the case in Kosovo, where the poorest can access credit through the organisation Islamic Relief.
The government does nothing
Ahmet Bubalku has a farm in the village of Zabel i Ultë with nine chickens and a cow. Thanks to a microcredit from Islamic Relief, he was able to set up a small rural enterprise. He received a total of 3,400 euros, which he will have to repay in a couple of years. With this money he bought seeds to plant potatoes, tomatoes and onions. Ahmet admits that "without this loan I don't know how I would have been able to feed my three children. The government does nothing to encourage agriculture".
Ahmet is one of the 1,375 inhabitants who have benefited from a microcredit grant.
This region is the poorest in Kosovo. The war, which ended ten years ago, left not a single house standing. Against this bleak backdrop, Islamic Relief decided to finance microcredits but not only to set up businesses but also to rebuild houses. Small sums of money are invested in the purchase of new windows and doors. Micro-credit is very popular, says Islam Hasani of Islamic ReliefThe financial institutions in the vicinity of the site offer higher loans:
"Their interest rate is however very high. The origination fee is 22 per cent. We do not charge interest on the loan. We only charge a small administration fee of 60 euros for each loan, irrespective of the amount of the transaction. We grant loans ranging from 400 to 5,000 euros".
Ordinary microcredit vs. Islamic microcredit
But this is not the only difference between an ordinary microcredit and an Islamic microcredit. In Hasani's view, the relationship between the financier and the micro-entrepreneur is much more personal in the Islamic world than in an ordinary bank. Before someone is considered for a loan, they are visited by Islamic Relief consultants at their home. What does the borrower need? Will he or she be able to repay on time? In this way, they are fully aware of the situation and can intervene if problems arise with repayment, says Ahmet:
"When my daughter broke her leg, I had to use part of the loan to pay for the hospital. I needed a few more months to pay back the money. Of course, if it had been a commercial bank, they would have seized my assets by now, but I knew that Islamic financial institutions would understand my situation.
One hundred percent depreciation
The repayment rate is almost 100 per cent. In fact, even if Ahmet has only one euro left to make ends meet, he makes sure he pays back every penny of his loan. In the future, he hopes to get another loan to install a greenhouse. Ahmet is certainly not alone in meeting his obligations, says Hasani:
"The repayment rate here is very high. People may be poor, but they are very honest!