Is BoA lying to itself? The other truth of the money market in Albania

Is BoA lying to itself? The other truth of the money market in Albania
The head of the central bank says that the Albanian financial market is currently controlled by banks and that this is where the majority of Albanians invest their money. But, a different reality exists in the daily lives of Albanian people, who are in urgent need for cash: The informal financial market. A market where loans are given at interest rates ranging from 10% to 50%. Here are the details that Albanian Free Press has managed to find out…

The Bank of Albania says that most of the country’s financial activity is conducted within the banking system, a reality which for many people doesn’t seem to be true.

For the governor of the Bank of Albania, “banks still represent around 90% of the total assets of the financial system, an equivalent of 92% of GDP, while the other part of the financial sector is smaller and accounts for only 10% of the total assets of the financial system”.

However, some people say that the Albanian financial system also relies on borrowing outside the banking system, mainly on individuals who lend money for short periods of time, mainly to businesses and individuals.

Yesterday, in his speech during the Annual Conference of the Bank of Albania, Mr. Sejko said that “the number of companies which operate in other segments of the financial sector remains low and their contribution in the economy is insignificant”.

But is this the real situation of the financial market in our country? The informal market in Albania not only exists, but it is gaining ground, due to the growing urgent need of individuals and businesses for cash.

The newspaper managed to speak to several people who are involved in lending money in lek and foreign currency, mainly in euros, USD and British pound.

The Albanian financial market is currently controlled by banks. This is where the majority of Albanian people invest their money in the form of deposits or accounts. This claim was made by the governor of the Bank of Albania, Gent Sejko. “Over 80% of the investments that people have made were in the form of deposits and current accounts. Only 12% are in the form of government T-bills, while the remaining 6.5% have been invested in investment funds and private pensions”, he said. Meanwhile, the head of the central bank said that the number of companies which operate in other segments of the financial sector remains low and that their contribution in the country’s economy is insignificant. But is this the real situation of the financial market in our country? Officially, yes, as the representative of the country’s central bank has puts it, when he offers statistics which come out of his office. But, it doesn’t seem to be the case in the informal sector, which not only it exists in the country, but it is also gaining ground, assisted by people’s growing need for money.

…He has just lent 15 million lek to someone who was in urgent need of that money and who could not wait until the bank issued a loan. He was saved by this person who turned out to be very “generous”, although his “generosity” had a price, an interest rate which started at 10% a month. It’s true that this rate is high, but when someone is in need, that person is ready to pay a large interest every month. It’s the emergency for cash which is forcing many people to deal with people who offer them access to instant cash, without going through tiresome bureaucratic banking procedures and without the constant rejections that banks often make. To better understand how such situation works, Albanian Free Press asked several informal lenders, who said that the number of cases when they have to lend money are increasing. They also explain this with the fact banks are increasingly confiscating people’s properties or business properties, for failing to pay back their loans. “I am unable to pay a bank loan and needed urgent cash for my business. I had no other way out. I found that money through a friend of mine. Interest rate was 10%. It’s true that it’s a little expensive, but they solved my problem”, says A.K, the owner of a small business. “The person, who obtains the loan, leaves his home or his car as a guarantee. We go to the notary’s office, we sign the sale contract, which we revoke once he pays back his money”, explains one of the informal lenders. Meanwhile, this lender also explains that in most cases (80%), the money that they lend is paid back along with the interest rate. But, he also admits that there are cases when people have difficulties in paying back. Nonetheless, these are not many. On the other hand, he also admits that the lower the amount of loan is, the higher is the interest rate charged on this amount. “There are even cases when people are in need of as little as 30 thousand lek. In this case, we apply a 50% interest rate”, he says. These are shocking figures, which not only confirm another existing financial market, different to the one that the central bank confirms, but at the same time, it also points out to the poverty and the urgent need for cash that people in this country have.


“Do you want a loan?”

“Do you want a loan?” This is an absurd expression at first, but it can often be heard on the streets of the Albanian capital by people who offer informal loans. And they do this in the very heart of the capital, not far from the headquarters of the Bank of Albania. “We offer loans”, says another one. Another one is selling unregistered phone cards and another one trades in currency, although this is an open violation of the laws of this country. As the Prime Minister says, this country has many laws, but nobody respects them.


Report: 62% of households in the country obtain loans through informal sources

“In 38% of cases, households in search of a loan, have addressed to banks and nonbanking institutions, while in 62% of cases, they have addressed to informal sources”. This is stated in the Financial Stability Report of the Bank of Albania for the second half of this year. In a way, the report admits that there’s a simpler way to obtain a loan than to go to the bank: An informal source. This source may be a relative or an acquaintance. This phenomenon doesn’t apply only for individuals, but for businesses too. “Around 89.3% of companies declare that they have addressed to banks for a loan, while informal sources account for 7.9% of the borrowing”, Bank of Albania confirms in the abovementioned report.


BoA: Careful when you invest your money on the internet

We must be very cautious when making a financial investment, especially through the internet. This was the public appeal launched yesterday by the Governor of the Bank of Albania, Gent Sejko, according to whom, while the rapid technological evolution has facilitated access to electronic investment platforms, this has also made it harder for authorities to oversee them. “Informality, combined with the speed of innovation in the domain of financial instruments, is a real threat for each investor who is naively driven by profit, without thinking too much about the nature of risk that he exposes himself to”, he appealed. Meanwhile, Mr. Sejko added that “in each case, people should be cautious” and trust their money to specialized intermediaries, the activity of which is regulated and overseen by a legal authority in Albania or abroad.

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