BUSINESS PLAN

PARTNER MKO

SPREADING TO THE REIGON OF THE

REPUBLIC OF SERBIA

SARAJEVO
April, 2012
 List of Tables
Table 1.1 Comparative overview of the unemployment and
employment rates in April and October 2010. and 2011
Table 1.2 Overview of the most significant macro economic
indicators for the period 2007- January 2012
Table 1.3 Overview of the most significant business indicators for
the year 2011

Table 2.1 List of commercial banks in Serbia

Table 2.2 Representative offices of foreign banks

Table 6.1 Overview of the interviewed clients' satisfaction with

the bank services per place of residence

Table 6.2 Overview of the interviewed clients' satisfaction with

the bank loans per place of residence

Table 6.3 Overview of credit use by the interviewed clients per

place of residence

Table 6.4 Overview of credit use in MCO by the interviewed

clients per place of residence

Table 7.1 Market potential for three year period

Table 11.1 General conditions for Partner Plus projections

Table 11.2 Productivity of loan officers and credit portfolio

parameters
Table 11.3 Structure of operating costs

Table 11.4 Planned investments in fixed assets

Table 11.5 Income Statement Partner Plus

Table 11.6 Balance Sheet Partner Plus

Table 11.7 Credit sources 2013. – 2016.

Table 11.8 Ratio Analysis Partner Plus

 List of Figures

Figure 2.1 Number of participants in finance sector

Figure 2.2 Overview of the approved credits (end of year in billion
dinars )
Figure 3.1 The most frequent purpose of credit taken in micro
credit organizations

Figure 3.2 The most frequent reasons for indebtedness at micro

credit organizations
Figure 3.3 Sources of subsidised credits

Figure 6.1 Structure of interviewed clients per place of residence

Figure 6.2 Structure of interviewed clients per educational degree

Figure 6.3 Structure of interviewed clients per employment status

Figure 6.4 Income structure of the interviewed clients

Figure 6.5 Number of bank services used by the interviewed clients

Figure 6.6 Name of bank that the interviewed clients cooperated

with

Figure 6.7 Reasons of dissatisfaction with bank services

Figure 6.8 Satisfaction with the bank offer

Figure 6.9 Satisfaction with the bank loans

Figure 6.10 Determination of the clients to use domestic /foreign

banks

Figure 6.11 Reasons for selection of bank

Figure 6.12 Factors affecting the choice of bank

Figure 6.13 Determination for use of loan in MCO

Figure 7.1 Segments of target clients in the region of Serbia

Figure 7.2 Average net income in Serbia (Euro)

Introduction

This project presents the plan for future activities of Partner micro credit foundation
(hereinafter referred to as: Partner MCF) within the region of the Republic of Serbia
(hereinafter referred to as: Serbia).
Using primary and secondary sources of data, the situation in country, banking and
micro credit sector, sector of micro enterprises, legal and regulatory framework as
well as current financial supply in Serbia were analysed.
Based on the analysis of the current situation at the finance market of Serbia, it may
be concluded that banks credit only the registered businesses, registered agricultural
households and citizens who are officially registered. The supply of the business
banks is non-stimulating and unreachable for many micro and small enterprises due
to high interests, difficulties in obtaining the credit security tools (guarantees), bank
fees, limited credit amounts and long credit approval procedure.

The main reason why the banks may not provide service to micro and small
enterprises are high transaction costs in combination with small amount of
transaction, which makes it difficult for the banks to cover the costs. At the same
time, many banks are not willing to provide services, partially due to the perception
of high risk funding of poor clients and entrepreneurs – beginners, but also because
they would have to invest lots of resources into the change of their business models,
to provide services to such clients.
The biggest obstacles to business operations are in the lack of favourable funding
sources for micro and small enterprises. On the other hand, despite high
unemployment rate and problems that micro and small enterprises are faced with in
term of funds provision, the government of Serbia has not adopted yet the
appropriate laws in fact regulatory model for micro crediting, which would enable
provision of financial services to micro and small enterprises as well as to the low
income population. Adoption of the law on micro credit organizations would also
reduce the proportion of unregulated sector of private credit providers, who are
usually the only option for micro enterprises in terms of crediting. If such a model is
defined adequately, it will alleviate entering of the micro credit sector clients to
formal economy, which will increase tax collection.
Legally regulated micro crediting model for micro and small enterprises and low
income population is available in Bosnia and Herzegovina and it is one of the most
successful models in the world.
Partner MCF as one of the leading micro credit organisations in BiH, with 15 year
experience in micro crediting and educated staff, intends to apply such model and
terms of work in Serbia as well. Partner will also apply the gained experience based
on the leading world standards in the microfinance sector to the micro crediting
model in Serbia.
 1. General information about the Republic of Serbia

Balkans. By its size, it is a medium

sized country, bordering at the north
with Hungary, at the west with
Croatia, Bosnia and Herzegovina and
Monte Negro, at the east with
Romania and Bulgaria, and at the
south with Macedonia and Kosovo.
The capital is Belgrade. Republic of
Serbia became independent country in
2006 after the citizens of Monte Negro
decided at the referendum to leave the
state community of Serbia and Monte
Negro.
Serbia (official name: Republic of
Serbia) is a continental country at the
 1. Analysis of the environment

Overview: Based on the last census from 2011, Serbia has 7 565 761 citizens,
majority of whom are the Serbs, and other national communities – from Albania,
Hungary, Slovakia, Russia, Romania, Croatia, Monte Negro, Bulgaria, Macedonia
and others. Serbia is medium populated European country with average population
density of 111 citizens/km2. 20% of total population lives in the capital. Of total
population, 56% are urban. There are 2.497.187 households in Serbia, and every
household has 3 members in average.

As a consequence of different natural conditions and historical development,

distribution of population is diverse. Looking at geographic areas, the most densely
populated area is peri Pannonian Serbia (mainly due to the city of Belgrade).
Vojvodina and mountainous – valley area is populated below the state average. In
mountainous – valley area, there are big differences in population density.

Economy: The main measure of total economic activities, gross domestic product in
period 2005-2011 was increasing according to the average annual rate of 2%, but in
2009 it decreased for 3,5%, as a consequence of negative effects of global economic
crisis. Generator of increase of gross domestic product was in the following sectors:

 Electricity supply, gas and steam supply and

 Civil engineering and mining. 

The biggest GDP decrease was recorded in the sector of trade and administrative and
support services. 

Business activity1 in mid 2011 stagnated − GDP value achieved in the first quarter of
2011 was maintained in the following two quarters at almost same level. The
indicators for October 2011 show the decrease of industrial production, slowed down
export and low level of retail trade sales, which indicates that even more
unfavourable movements are possible. In 2011, the export was increased for 20.2%
in relation to 2010, and the import for 20.3%. Coverage of import with export was
58.5%. Serbia was doing more than half of total foreign exchange with EU countries
(in 2011 participation of these countries in total Serbia's foreign exchange totalled
57.8%). The main Serbia's import partners were the European Union countries
(Germany, Austria, Italy), USA, National Republic of China. Serbia exports its
products the most to the former USSR, Bosnia and Herzegovina and Macedonia.

Industry is the most important business sector affecting the entire economy.
Industrial production in 2011 was higher for 2.1% in relation to 2010. In the structure
of industrial production, the following take the biggest part: food products, metal
complex, energy and chemical industry.

1
Quarterly monitor of economic trends and policies in the Republic of Serbia, number 25 and 26,
April-September 2011. Fund for development of economic sciences (FREN) Republic of Serbia.
The basis of economic reforms during the transition period so far includes
stabilization policy focused on decrease of inflation. However, inflation is constantly
present and inflation rate in 2011 totalled 7.9%.

In 2012, it is expected that the growth of business activity will be lower than in 2011.
Although the analysis of macro economic trends shows several internal weaknesses
of the economy in Serbia, which could have negative impact to the economy growth,
the decisive factor that will determine the movement of the business activity in
Serbia in 2012 will probably be the slow down / recession in Euro zone.

Obligations based on repayment of already taken loans by private and public sector
significantly increases from year to year. In 2012, according to rough estimates, over
seven billion Euro will be needed to service the existing debt and interests abroad. In
the first wave of crisis, in 2009, annual obligations based on this were almost double
– about four billion Euro. Therefore, the economy of Serbia needs bigger inflow of
foreign currency, which would alleviate the payment balance, although the current
deficit has been stable since 2009. Certain assessments done by the relevant world
agencies show that in 2012, capital outflow is possible from the East European
countries towards the home countries, since they need bigger capitalization at local
markets. According to these analyses, Serbia belongs to the countries which may be
moderately affected by capital outflow from the banking sector.

Unemployment is still the biggest problem of economy in Serbia, with high

registered unemployment rate, which according to information 2 from November
2011 totalled 23.7%. In 2012, further continuation of negative trends at the labour
market is expected.

 Table 1.1. Comparative overview of unemployment and employment rate in

April and October 2010. and 2011.

Indicators April  2010 October 2010 April 2011 November 2011

Unemployment rate 19.2% 19.2% 22.2% 23.7%
Employment rate 38,1% 37.7% 36.2% 35.3%
Unofficial employment rate 19.8% 19.6% 19.9% 17.8%

Table 1.2. Overview of the most significant macro economic indicators for
period 2007- January 2012:

2
Republic statistic department, Assessment of labour, November 2011
 Q1 Q2 Q3 Q4 Jan
Key macroeconomic indicators 2007 2008 2009 2010
2011 2011 2011 2011 2012

Real GDP growth (in %) 5,4 3,8 -3,5 1,0 3,7 2,5 0,5 0,8

Consumer prices (in %, relative to the same month a year earlier) 11,0 8,6 6,6 10,3 14,1 12,7 9,3 7,0 5,6

Exports (in EUR million) 8.686 10.157 8.478 10.070 2.586 2.883 2.985 3.016
- growth rate in % compared
25,0 16,9 -16,5 18,8 28,7 15,5 11,5 4,4
to a year earlier
Imports (in EUR million) -16.016 -18.843 -13.577 -14.838 -3.873 -4.100 -4.243 -4.606
- growth rate in % compared
33,8 17,7 -28,0 9,3 20,5 12,0 8,2 14,0
to a year earlier
18,1 13,6 16,1 19,2 / 22,2 / 23,7
Unemployment according to the Survey (in %)
347,6 358,4 337,9 330,1 338,3 380,9 381,4 389,4 345,4
Wages (average for the period, in EUR)
31,5 29,2 34,6 42,5 41,9 42,0 45,1 45,8 46,5
RS public debt (external + internal, in % of GDP)

RSD/EUR exchange rate (average, in the period) 79,96 81,44 93,95 103,04 103,95 99,80 101,95 102,09 105,04

RSD/EUR exchange rate (end of period) 79,24 88,60 95,89 105,50 103,60 102,46 101,17 104,64 106,06

GDP (in EUR million) 28.468 32.668 28.883 28.984 7.129 8.081 8.307 8.886

Table 1.3. Overview of the most significant business indicators for the year 2011

Indicator Period Value

Quarterly gross domestic product IV qt. 2011. / IV qt. 2010. Real growth 0,8%

January 2012. / growth 0,1%

Price index
December 2011. 
January 2012. / January 2011. growth5,6%
Index of industrial production January 2012. / January 2011.   Decrease 2,7%

Foreign trade commodities exchange January - December 2011. 31916 million dollars

Average income gross: 462 euro

January 2012. net: 333 euro
Unemployment rate total: 23,7%
(Questionnaire about labour) November 2011. 15 - 64 years: 24,4%
Average monthly consumption Third quarter 2011. 424 euro
per household 2010 386 euro
96% companies in Serbia are small enterprises, with 1 to 10 employees. Agriculture
and mining are the most important branches of economy in Serbia. Majority of
workers is employed in the production concentrated in big industrial zones of Serbia.

Intensive vineyard production presents Serbia as one of the main vineyard

production regions in Europe, which becomes more interesting to the investors and
foreign partners, due to significant growth of plum and raspberry, which are
excellent export product of Serbia. Serbia is a leading exporter of raspberry in the
world / In 2009, 63.300 tons of best quality raspberry were exported from Serbia.

2. Analysis of finance sector

2.1. Regulatory environment

Regulatory environment – banks: Legal, regulatory and supervisory framework for

banking sector is integrated in the supporting Bank laws and bylaws. Banking sector
is continuously subject to reforms aimed at compliance with guidelines and
recommendations described in Basel II and III. Business operations of the finance
sector was regulated by 18 laws, including: Bank Laws, Capital market law, Law on
protection of finance service users, Law on National Bank of Serbia, Law on
development fund of Republic of Serbia and others. Regulator of business banks in
Serbia is National Bank of Serbia, which is independent in performance of the
functions stipulated by the Law on National Bank of Serbia and other laws, and
which reports for its work to the assembly of the Republic of Serbia.

Regulatory environment – microcredit organisations: Micro creditting is

available in Serbia – at low level – more than ten years, mainly supported by
international donors and social investors. Since 2005, organisations involved in
micro credits approval had to implement its activities in partnership with authorised
banks, pursuant to the Law on Banks and other regulations pertaining to this sector.
Currently in Serbia there is no law regulating the micro credit sector. Right now,
there is only a draft law on micro credit companies, which should be adopted during
2012. The mentioned draft law proposes in details the arrangement of micro credit
sector in Serbia. Law on micro credit companies stipulates that micro credit company
is limited liability or closed sharehold company with the seat in the Republic of
Serbia, which has a licence for work issued by the ministry in charge of the finances
and performs micro credit operations, but also may perform other businesses
pursuant to this Law, excluding deposit operations. Micro credit company may be
established by one or several legal entities.

The Law also foresees that micro credit may not exceed the amount of 25.000 €
equivalent in dinars, using the medium exchange rate of the National Bank of Serbia
on the date of funds payment.
Pursuant to the draft law on micro credit organizations in Serbia, to establish micro
credit organization, it is necessary to pay minimum capital in cash in the amount of
200.000 € and single fee for the association of micro credit organisations in the
amount of 50.000 €. The main activity of micro credit company is disbursement of
micro credits (micro credit is the loan in maximum amount of 25.000 €).
Microcredit company may give guarantees and other types of security, but may not
perform deposit operations, disburse loans to related entities, receive loans from
natural entities, rent its investments and shares. Ministry of finances issues and
terminates the licence for MCC work. Ministry may terminate the licence for work if
the company does not start disbursing loans within four months from the date of its
registration or fails to approve micro loans within six months in continuity.
Credit bureau: Credit bureau is an institution whose existence and use of database
eliminates the credit risk at the finance market. In the report of the Credit Bureau
used by the banks in provision of their services to the clients, there is all information
about the use of finance services by the clients. In the following period, it is expected
that the database of the credit bureau in Serbia is supplemented with the data
obtained from other institutions with the receivables from citizens.

2.2. Overview of finance sector

Stakeholders at finance services market of Serbia are: commercial banks (33),

insurance agencies (27), leasing companies (17), stock market (1) and brokers (44).
In addition, 6 companies for pension funds management operate at the market, as
well as 9 companies for investment funds management. Due to the strict supervision
of the National Bank of Serbia and HOV Commission, finance system in the
Republic of Serbia is completely stable. 

Figure 2.1 Number of stakeholders in finance sector

Banking sector: Banking sector has a dominant role in finance system of Serbia
with participation of 92% in total balance. Insurance sector participates with 4%, and
other stakeholders at this market participate with the same percentage.
The banks with foreign capital dominate at the market: 21 banks have major foreign
ownership, 4 banks have domestic entities are majority owners, and 8 banks have the
Republic of Serbia as majority, in fact minority owners of foreign owned banks, the
biggest participation in the total assets have the banks owned by shareholders from
Italy and Austria, followed by Greece and France.

Market concentration in banking sector is lower than in the region, but is present.
Looking per amount of balance amount, five banks with the highest balance sum
have market participation of 45%, and ten banks of 69%. Banking sector of Serbia
has high level of average indicator of capital adequacy (over 20%) and is
satisfactorily capitalized.

Table 2.1 List of commercial banks in Serbia

Number Name of commercial bank

1 Agro industrial commercial bank AIK bank a.d. Niš

2 Alpha Bank Serbia a.d. Belgrade
3 Banca Intesa a.d. Belgrade
4 Bank Poštanska štedionica a.d. Belgrade
5 Crédit Agricole bank Serbia a.d. Novi Sad
6 Credy bank a.d. Kragujevac
7 Čačanska bank a.d. Čačak
8 Dunav bank a.d. Zvečan
9 Erste Bank a.d. Novi Sad
10 Eurobank EFG a.d. Belgrade
11 Findomestic bank a.d. Belgrade
12 Hypo Alpe-Adria-Bank a.d. Belgrade
13 JUBMES bank a.d. Belgrade
14 Jugobanka Jugbanka a.d. Kosovska Mitrovica
15 KBC bank a.d. Belgrade
16 Komercijalna bank a.d. Belgrade
17 Marfin Bank a.d. Belgrade
18 Moskovska bank a.d. Belgrade
19 NLB bank a.d. Belgrade
20 Opportunity bank a.d. Novi Sad
21 OTP bank Serbia a.d. Novi Sad
22 Piraeus Bank a.d. Belgrade
23 Agricultural bank Agrobanka a.d. Belgrade
24 Privredna bank Belgrade a.d. Belgrade
25 ProCredit Bank a.d. Belgrade
26 Raiffeisen bank a.d. Belgrade
27 Development bank of Vojvodina a.d. Novi Sad
28 Société Générale bank Serbia a.d. Belgrade
29 Srerbian bank a.d. Belgrade
30 Unicredit Bank Serbia a.d. Belgrade
31 Universal bank a.d. Belgrade
32 Vojvođanska bank a.d. Novi Sad
 33 Volksbank a.d. Belgrade

Table 2.2. Foreign bank branches:

Name of bank
AKB „Euroaxis Banka“ Moskva
Atlas Bank AD Podgorica
Bank of Cyprus Public Company Limited
Citibank N.A. Las Vegas
Commerzbank AG Frankfurt/Main
Deutsche Bank Aktiengesellschaft, Frankfurt/Main

Figure 2.2. Overview of approved credits (end of year in billion dinars)

Microcredit sector: Currently in Serbia there are three non-banking micro credit
institutions (AgroInvest, Mikro-razvoj and MikroFinS) operating through one local
bank and with joint credit portfolio over 16,600.000 € approved to 19.500 clients.
These institutions were founded in period 1999 − 2002, and the funds were provided
by the donors (UNHCR, ICRC, and others) or international non government
organisations (World Vision). They service the clients such as refugees or internally
displaced persons, as well as those with no access to the loans in the business banks.

The main features of non-banking micro credit institutions operating in Serbia and
providing micro credit services are:

 Microcredits are credits for entrepreneurship or production, in the amount

from 300 to 3.000 €, with average credit amount between 800 and 1.100 €.

 Credits are approved in Serbian dinars, without additional currency clause.

 Credit repayment rate in micro credit institutions in Serbia is high and

exceeds 95%.

 In addition to provision of micro credit services, micro credit institutions

provide training, education and support services, due to which their products
 are more expensive than bank products. Generally, theses institutions have
better control over the clients and better repayment rates than formal banking
sector.

 Microcredit institutions may not directly disburse the loans to clients, but
must work over partner banks charging high mediation fees. Therefore, the
credit price is additionally increased for interests charged by these
institutions.

Three non-banking micro credit institutions (AgroInvest, Mikro-razvoj and

MikroFinS) service together 19.500 clients with the credit portfolio of 19.9 million
Euro and assets of 22.8 million Euro.

AgroInvest is a multi-country (Montenegro, Serbia), for-profit, non-bank financial

institution focused on providing services to rural population. It started as a
microfinance programme of NGO World Vision in September 1999 in Montenegro,
and two years later in Serbia. In its business AgroInvest uses "Village Association"
model. Village Associations are organised community structures on one
geographically defined rural area. By working through Village Associations the
whole village is able to participate regardless of gender, religion, ethnicity or social
status. The model enables AgroInvest to build strong and trusting relationships with
families, understand their needs and respond promptly.

MDF is microfinance focused organization established to support improvements in

the social and economic living standards of economically active and poor people in
Serbia. The AIMS of MDF are to reduce poverty through enhancement of the
economic situation and general living conditions of socially and economically
disadvantaged people. MDF works in area of central and south Serbia which is
considered as the poorest part of the country.

MicroFinS-DBS was established in October 2007 as a Limited Liability Company.

The main objective of MicroFinS-DBS is to provide entrepreneurs, who are not
eligible for official bank loans due to small size of their businesses, with micro loans,
as well as to provide the vulnerable categories of society with housing micro loans.
The mission of MicroFinS-DBS is to assist disadvantaged and largely marginalized
groups such as refugees, internally displaced persons (IDPs) and local vulnerable
population in Serbia.

3. Key results of the assessment of finance market

3.1. Supply
Banking sector. Majority of commercial banks in Serbia is less inclined to risk and
focused on clients with good bonnity, located mainly in urban areas. Besides, banks
in Serbia are traditionally focused on population with full time employment and
stable income. In the category of credits for citizens, banks offer earmarked loans
(student loans, loans for education, loans for purchase of vehicle, agricultural loans,
etc.), non earmarked loans, mortgage loans and housing loans. In the category of
legal entities, they offer the loans for business purposes, as well as other bank
services such as payment transaction system, standing order, card operations and
similar.

Average active interest rates for 2011, for housing loans totalled 4.29%, while the
average active interest rates for the loans for other purposes totalled 16.86%, and for
business 8.69%.

Interests to loans per credit cards for citizens totalled 24.60%.

The analysis of supply of the banking sector shows that banking and micro credit
sector markets are even more differentiated. While MCO stick to their missions and
target population, banks are trying to minimize the risk with safe disbursements, in
both target segments: citizens and legal entities.

Appendix: Overview of interest rates of commercial banks for new and existing
businesses.

MCO sector: Microcredit organisations offer their credit by much higher interests
(to 6−8% higher interests than the average interests to commercial loan in
commercial banks). Loans disbursed by non-banking micro finance institutions aim
the clients who have to access to the banks, but who wish to start up or spread their
businesses or improve their living conditions. Since the data on credit terms are not
published for all micro finance institutions, this study uses the data of only one micro
finance institution. Credits range from 800 to 5.000 €, with repayment deadline to 60
months and monthly interest rate of 2.1% to 2.4%, which annually totals 25.2% to
28.8%.

Government sector: The main government tools for increase of funding and
development for individual, agricultural households and small and medium
enterprises are:

- Development Fund of Republic of Serbia,

- Ministry of agriculture,
- Subsidized credit lines approved by the banks with the support of the
Ministry of economy and regional development and National Bank of Serbia.

Services are provided to the unemployed by the National employment bureau and
other institutions. Funding through the mentioned institutions is available to small
and medium enterprises, registered agricultural producers, households and the
unemployed. The government of Serbia funds these programmes by very low interest
rates from its own budget. The expectations are that the level of this type of state
support to crediting will decrease, and that in the following year, micro crediting in
Serbia could have an important role in funding of micro and small enterprises, as
well as low income population.

3.2. Demand

Beside the fact that commercial banks, government subsidies programme

implemented through the banks, National employment bureau offer cheaper loans, a
significant number of clients in Serbia is serviced by micro credit institutions, which
shows that there is a demand at the market for this type of loans. Since micro credit
providers are subject to extremely strict audit, they offer credit products pursuant to
the Law on Banks and other legal regulations in Serbia.

Existence of the demand for micro credits in Serbia is demonstrated by the results of
the research of micro credits’ use done with the clients.

The field assessments show that micro credit institutions may not respond to the
demand for this type of loans, particularly in more isolated communities of Serbia. In
addition to high costs of such loans, and with the assumed lack of credit worthiness
of the debtors, there is still a great demand for these products3.

The research done in September and October 2010 included 500 households which
were using the micro credit in minimum one micro credit institution in Serbia. This
research was supplemented with additional desktop research, and individual
interviews with clients and interviews with economic policy designers and makers in
Serbia.

The aim of the research was to give answers to the questions why the clients mostly
address micro credit institutions, do they have access to official banking sector, and
in what purposes do they use the micro credits.

The questionnaire was done with the clients who met the credit terms in micro credit
institutions and who used the loans for business purposes aimed at their self-
employment, agricultural production, business start up or similar purposes. The
research done in the villages around Čačak, Kraljevo, Užice, Leskovac, Prijepolje,
Vranje, Kruševac, Pirot, Zaječar, Jagodina, Valjevo and Novi Pazar. Of 500
interviewed clients, 43.2% were male and 56.8% female.

Sample structure per employment status was as follows:

 unemployed: 34.7%

 small business owners: 16.6%

3
Daniel Gies, „Micro crediting in Serbia: is it (really) needed“; Quarterly monitor No: 22, July-
September 2010.
  state officials: 15.7%

 Registered agricultural households: 8.9%,

 Others: 24.1%

The research results are presented below:

Goal of micro credit: Of 500 interviewed candidates who got the loan from some
micro credit provider in Serbia, the most frequent purpose of credit is presented in
the following grant:

Figure 3.1. The most frequent purpose of credit taken in micro credit
organisation

Of 500 interviewed clients, 75.4% said that they would use the bank loan if the terms
and prices met their opportunities. The remaining 26.65% interviewed clients said
that they would not ask the bank for credit.

Reasons for approaching micro credit organisations: Of 439 clients who replied
to this question, 54% said that micro credit organisations were the best way to meet
their needs for credits. 35% said that they could not get the credit in commercial
bank, while 11% said that the location of micro credit organisation was the primary
reason for use of micro credit services.
Reasons for taking loan in micro credit organisations: 42% of clients said that the
reason for their indebtedness at micro credit organisations is possibility to get loan
since those clients are unemployed. 22% of clients said that the reason for use of
loans is visit of the loan officer to their house, which confirms that the methodology
used by micro credit organisations is different than the one used by banks, so this
aspect of business is highly appreciated by the clients.

Figure 3.2. The most often reasons for indebtedness at micro credit
organisations
Eligibility for the bank loan: Of 377 interviewed clients who said that they would
approach the bank for credit, 43% clients did that, in fact asked one or more banks
for credit. The reasons for approaching the bank in majority of the cases are the
lower credit prices than in micro credit organisations. The remaining 57% clients did
not approach the bank due to complex credit approval procedure, lack of bank in the
neighbourhood, or simply because they considered that they do not meet the credit
eligibility criteria.
Getting the bank loan: Of the clients who approached the bank with credit request,
the bank approved the loans to 63% of them, while 37% of clients were rejected.
Bank loans with government subsidies: Of 102 interviewed clients using bank
loans, only 18.63% got the loan with government subsidies. By the priority order,
programme or institutions that approved the subsidised loans were the Ministry of
agriculture (63%), Ministry of economy and regional development (21%), National
employment bureau (10%) and others (5%).

Figure 3.3. Sources of subsidised loans

The leading three factors identified by the interviewees as advantage of the loans
taken in micro credit organisation in comparison with the bank loans were:
(a) Availability. According to the micro crediting methodology currently valid in
Serbia, credits for rural areas are propagated by the village advisers, who contact and
train the clients, so that the petitioners for credits are very well introduced with terms
and procedures.
(b) Credit currency and amount. Micro credit providers in Serbia approve the
credits only in dinars and they take 100% currency risk.
(c) Quality of service. Many users of micro credits said that they appreciated the
relationship with loan officers. In most of the cases, loan officers enjoy enormous
confidence of the clients due to specialised training related to micro crediting
methodology.

3.3. Conclusion

Results of this research show that micro credit are interesting for specific population
segments in Serbia, including unemployed population and low income population
using the loans for self-employment purposes, regardless the higher credit price.
The implemented research showed that the banks in Serbia are not successful in
terms of crediting the low income population and unemployed population. The
research also showed that the micro crediting model used successfully in the
environment (Bosnia and Herzegovina) may be the example to the developers of
legal regulations on how to successfully decrease the unemployment and generate
new employments.
This way of crediting is more and more used in developed EU countries, particularly
due to the availability of specialised micro credit institutions in Belgium, Finland,
France, Germany, Hungary, Ireland, Italy, Poland, Romania, Slovakia, Spain,
Sweden and United Kingdom, which currently service over 1.500.000 micro-clients.4
This research also supports the assumption that Serbia needs micro loan and that the
country, economy and citizens would benefit from those loans as well.
Introduction of micro credit organisations would lead to expansion of institutional
basis for micro loans approval and would significantly stimulate the more
competitive and more efficient market loans for micro and small enterprises and low
income population or unemployed population. Expansion of micro lending will
enable the low income population to access the funds, and banks will get new clients
who benefit from micro credit organizations and look more for more official bank
and payment services.
Results of this research also show that micro lending, which is already available in
Serbia, partially responds to the demand of credit users in Serbia and low income
households, which do not have access to official banking sector. Increase of the
number of micro credit organisations may significantly increase the inflow of foreign
direct investments into this sector, which would result with bigger access to the
credits for those persons in Serbia who do not have access to bank loans.

4
European Commission, „Report of expert group: regulation of micro crediting in the European
Union “, 2007.
 4. Partner Microcredit Foundation (founder of Partner Plus)

4.1. Historical and current status of Partner MCF

Partner MCF is multi ethnical organisation, performing its credit operations in 56

offices within 122 municipalities of both entities and Brcko District. The founder of
Partner is American non government organisation Mercy Corps with the seat in
Portland, Oregon. Partner started working in April 1997 as economic programme of
Mercy Corps. In 2000, it was registered as local micro credit organisation, which
officially started working under the new name Partner microcredit organisation.

Partner is a member of MicroFinance Centre for East Europe and NIS in Warsaw,
Poland and the Association of micro finance organisations (AMFO) in Bosnia and
Herzegovina. Partner is also the first micro credit organisation from Bosnia and
Herzegovina, which became the associated member of the European microfinance
network (EMN), in 2005.

Partner transparently published its finance reports in the MicroBanking Bulletin, as

well as information for micro credit stock market Mix Market, www.mixmarket.org.
According to information published in 2009 in “MIX Global 100 Composite
Ranking” Partner ranked 38th among 100 leading microfinance organisations in the
world, according to the election of “Microfinance Information Exchange”, global
provider of information about this segment of finance market. Partner is one of first
institutions in the world that supported the initiative of Microfinance Transparency,
international non government organisation, to facilitate the market transparency
through distribution of true information about costs to all interested parties. In the
beginning of 2009, Partner participated in the project titled “Beyond Codes” within
which the application of 6 principles in business practices was tested. It included the
following: prevention of over indebtedness, transparent and fair pricing, appropriate
loan collection practices, ethical behaviour of staff, mechanisms for suggestions and
complaints by the clients and protection of clients’ data. After the testing, Partner
obtained very high scores regarding the compliance with all the mentioned
principles.
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4.2. Mission, vision and values

Mission statement

Partner provides financial services to economically active population who has

difficult or no access to commercial funding sources, for start up and development of
business and improvement of living quality. We support micro entrepreneurs,
promote participation of women in business and offer easier access to finance
services in rural areas. Within the entire BiH, with door to door service, we provide
good quality products and technical support, help the increase of living standard, and
increase the employment by stimulating the transition to market economy.

Vision statement

Partner sees the future of BiH where the finance services will be available to all who
are entrepreneurial and willing to work. Our role will be to help our clients to start
and develop small businesses, to assist in development of employments, and as agent
of change to contribute to the sound transition of the country to market economy.

Values

Values and beliefs that we cherish and develop we integrate into our relations with
all relevant stakeholders in business operations: towards clients, organisation and its
assets, work, tasks and obligations, associates and environment. Our main
determinations are proactivity and orientation towards the action.

Equality: We respect the rights of all individuals and we are not limited by
prejudices.

Team work: We believe that as a team we can achieve mutual goals.

Transparency: We support the transparency of information.

Persistence: We do our best and we never give up.

Naturalness and simplicity: We believe that simple solutions are the best solutions.

Development: We believe that we develop and become stronger with constant

learning.

Responsibility: We are responsible service provider at the market.

Action oriented: We are action oriented and proactive.

 4.3. Organisational structure of Partner MCF

Board of Directors

Partner Board of Directors has five members and it manages all the operations
pursuant to the Statute of Partner micro credit organisation. In addition to the Board
of Directors, Partner has the Audit Board including three members, assigned by the
Board of Directors.

Management structure
Management includes director, executive support director and executive credit
director. Management team supervises 146 loan officers and 124 other employees.

Considering the specific business operations and dynamic environment constantly

striving for learning and development, Partner provides to its employees continuous
education aimed at application of new knowledge and skills.

Internal and external audit

Organisation has a department for internal audit, comprising of the main internal
auditor and three professional associates for internal audit. The main internal auditor
directly reports to the Board of Directors, and control of the internal audit work is
done by the Audit Board. Internal audit controls legal, finance and business
compliance of organisational units' operations with the agreed criteria, principles and
standards, in order to understand and confirm the accuracy of the organisation's
operations. Internal audit monitors the implementation of all credit, finance and
administrative policies through random audit of files, clients and reports, as well as
through routine monitoring procedures.

Partner also regularly implements the annual external audit of the institution, which
is done by the leading external audit agencies (Delloite, PriceWaterhouse Coopers,
KPMG, etc).

4.4. Organisation of business activities of Partner MCF

Partner micro credit foundation has a registered main office in Tuzla. In addition to
the main office and educational centre in Tuzla, Partner has 53 branch offices within
the entire Bosnia and Herzegovina.

Support activities

Considering the strategic goal of Partner to establish Partner bank, Partner focused
on centralization of all business processes except for credit operations. Functions of
internal audit, finances, accounting, plan and analysis, legal aid, credit administration
and credit risk, human resources, marketing, administration, IS and IT are fully
centralised. This enables higher productivity and efficiency of business processes in
Partner, thus significantly decreasing operating costs.
Organisational structure, network of organisational units and employees

Partner performs its business operations through three levels of organisational

structure: central office, regional centres and organisational units. Central office is
located in Tuzla. Business premises of the central office are owned by Partner and
they meet all formal conditions for business operations.

Support to credit operations is located in Tuzla, and it will service the regional
centres in all operations except in receipt and processing of requests, as well as part
of the activities pertaining to the loans collection. Loan disbursements management
regarding receipt and processing of requests and loans collection will be done
through 4 regional centres, including 19 regional offices covering 53 offices.
 5. Key success factors, SWOT analysis and strategic goals of Partner
5.1. Key success factors

In the achievement of mission and goals, Partner relies on the following key success
factors:

 Quality of provided service to the client,

 Orientation of the whole organisation to the client,
 Commitment to the mission,
 15 year of expertise in micro crediting,
 Service distribution channel through own sales network and own loan
disbursement and collection channel,
 Size of capital enabling new credit sources and growth,
 Educated staff,
 Good business relations with non government sector and international
organisations and
 Recognisable Partner image in micro finance industry.

5.2. Summarised SWOT analysis

Summarised SWOT analysis aimed at identification of internal and external factors that
could influence the future of organisation includes the following:

ANALYSIS OF THE INSTITUTION

Weaknesses Strengths:

 Insufficiently developed system  Good relations with the founder

for the assessment of the clients’
capacities (for new market
segment such as SMEs – small
and medium enterprises).
 Connection between sale and
credit collection functions.
 Information system (software
solution)
 Reputation in the world and good
relations with non government sector in
country and abroad
 Good relation with creditors and rating
among them, as possibility to raise funds
with competitive interest rates
 Size of capital enabling further growth
 Several year expertise in micro crediting
 Transparent and socially responsible
operations
 Organisation’s orientation towards the
client
 Provision of additional values to the
clients (technical support)
 Own distribution channel through
 developed network of field offices and
window tellers
 Good management with credit risks –
portfolio quality among the best in the
sector
 Educated staff, and provision of
continuous education and development
Analysis of the environment

Threats: Opportunities:

 Unstable economic and political  Possibility for spreading to new

situation in country,
 New economic crisis,
 Big unemployment rate with trend of
increase,
 Decrease of living standard,
 Increase of inflation,
 Overloaded market,
 Increased indebtedness of citizens,
particularly in urban regions,
 Competition – many providers of
finance services in small area,
 Negative media campaign focused at
finance sector,
 Low level of population’s finance
literacy.
markets (Serbia),
 Legal opportunities for work outside
of BiH,
 National strategy about development
of small and medium enterprises,
 Agricultural and rural development,
 Transition to market economy
(occurrence of entrepreneurial spirit),
 Unemployed population, particularly
young and educated people,
 Transformation into profit form –
introduction of new products and
services,
 Consolidation of sector (merging,
joining, association),
 Stable currency.

5.3. Strategic goals

The following goals will enable that Partner to achieve its vision and mission in the
planned period of five years:

1. Be socially responsible service provider.

2. Be financially stable institution.
3. Maintain the highest clients' satisfaction level.
4. Be reliable, process oriented organisation focused on client.
5. Be the institution adopting new knowledge

Goal 1: Be socially responsible service provider.

Specific objectives:
a) Increase the positive influence to clients.
b) Established programme of corporative social responsibility.

Goal 2: Be financially stable institution

Specific objectives:
a) Increase the income and provide the most favourable credit sources.
b) Improve the efficiency adjusting income and expenditures.

Goal 3: Maintain the highest clients' satisfaction level

Specific objectives:
a) Be the first by the number of clients through increase of market participation,
b) Modify existing and develop new credit products pursuant to the clients'
needs.

Goal 4: Be reliable, process oriented organisation focused on client

Specific objectives:
a) Expand the area of work outside of BiH and assortment of supply.
b) Implement standardization of business processes utilizing international
standards and best world practices.
c) Ensure compliance and efficient internal audit system
d) Establishment of the CRM system - Customer Relationship Management
System

Goal 5: Be the institution adopting new knowledge

Specific objectives:
a) Implementation of new technologies.
b) Trained and motivated staff through implementation of well designed human
resources management strategies.

6. Strategic decision on expanding to the area of Republic of Serbia

Strategic decision of Partner is to expand its business operations in the following

period to the area of the Republic of Serbia, applying the same micro lending model,
which proved to be successful in Bosnia and Herzegovina. In this regard, Partner
MCF plans to establish a new legal entity in Serbia, that will operate under the name
Partner Plus and that will be registered as L.L.C (Limited Liability Company).
Partner MCF will transfer the founding capital in the amount of 200.000 € and will
provide funds in the first year of work of this legal entity.

According to this decision, Partner conducted a market research among the

population of Sandžak and four municipalities located in border area with Bosnia and
Herzegovina.
Aimed at expanding of operations to the area of the Republic of Serbia, Partner
assessed the market potential of target area, which is used as a basis for evaluation of
the credit product disbursement opportunities, as well as to determine the potential
locations for field offices. The assessment was done utilizing the random selection
method in five municipalities of Sandžak: Novi Pazar, Prijepolje, Sjenica, Tutin and
Priboj, as well as in bigger centres within the border area: Mali Zvornik, Loznica,
Sremska Mitrovica and Užice.

The assessment was designed in way to cover the following fields:

- Habits in use of finance services

- Satisfaction with presence and current bank supply
- Habits and intentions for credit use
- Credit security methods
- Preferences between foreign and domestic banks
- Factors affecting the selection of bank
- Issues of micro credit supply
- Intention to use micro credits in future
- Other demographic data about the assessees

The sample comprised of 930 assessees and individual interview method was used
with the assessees. As for socio demographic features of sample, over half of the
assessees were female. Majority of the interviewed population was from Sremska
Mitrovica region.

Figure 6.1. Structure of interviewed clients per place of residence

Almost 70% of the interviewed clients had high school degree.

Figure 6.2. Structure of interviewed clients per educational degree

No reply=0,86%; faculty=8,39%; primary school=6,67%; post graduate=0,11%; high school=68,49%; degree of
associate=15,48%
66% of the interviewed population were employed.

Figure 6.3. Structure of the interviewed clients per employment status

No reply=0, 07%; unemployed=19,46%, Pensioner=7,20%; Entrepreneur=2,37%; Student=3,98%; Employed=66,02%

Major part, about 40% of the interviewed clients generate income from salaries,
which is not enough to ensure eligibility of this population for bank credits.

Figure 6.4. Income structure of the interviewed clients

No reply=38.17%; abroad=0,22%; other=0,32%; pension=4,41%; salary=34,84%; agriculture=7,10%; private business=7,74%;
grey economy=4,41%; parents=2,04%; seasonal works=0,75%.
Below are given the most important results of the research:

Current account - 82% of the interviewed clients had open current account in one
of the banks.

Savings – 13% of the interviewed clients had saving accounts.

Credit – 32% of the interviewed clients used the loan in one of the banks.

Credit cards – 24% of the interviewed clients used credit cards.

Funds transfer – 11% of the interviewed clients used funds transfer service.

Over half of the interviewed clients used more than one bank services.
Figure 6.5. Number of bank services used by the interviewed clients

The interviewed clients mainly used the services of Intesa bank (25%) and
Commercial bank (20%).

Figure 6.6. Name of bank that the interviewed clients cooperated with
About 57% of the interviewed clients were dissatisfied or very dissatisfied with
current bank supply, mainly due to high interest rates and complicated procedures.

Figure 6.7. Reasons of dissatisfaction with bank services

Foreign currency loans are not favourable=2%; Do not meet the credit conditions=8%; Long and complicated procedures=34%;
High interest rates=56%

As for the market supply of credit products, only 15% of the interviewed citizens
were satisfied or very satisfied with the offered credits due to the above mentioned
reasons.

Figure 6.8. Satisfaction with the bank supply

Are you satisfied with the bank supply?
 No reply=1,40%; very satisfied=1,94%; mainly satisfied=9,46%; neither satisfied nor dissatisfied =30,54% ; mainly
dissatisfied=41,51%; very dissatisfied=15,16%

The most satisfied interviewed clients were from Loznica and Užice, which can be
seen in the table below.

Table 6.1. Overview of the interviewed clients' satisfaction with the bank
services per place of residence

Are you satisfied with the bank supply? *

Mali Novi Sremska

Town Loznica Priboj Prijepolje Sjenica Tutin Užice
Zvornik Pazar Mitrovica

No reply 15,38% 7,69% 0,00% 0,00% 53,85% 0,00% 0,00% 0,00% 23,08%

1 33,33% 16,67% 0,00% 5,56% 0,00% 5,56% 16,67% 0,00% 22,22%

2 10,23% 19,32% 17,05% 5,68% 4,55% 2,27% 37,50% 0,00% 3,41%

3 26,41% 5,28% 4,58% 10,21% 14,08% 3,17% 22,18% 2,46% 11,62%

4 16,84% 6,22% 6,48% 14,51% 5,44% 6,74% 23,58% 3,89% 16,32%

5 20,57% 12,77% 4,96% 13,48% 0,71% 12,77% 10,64% 4,96% 19,15%

Regarding the credit supply of the banks, the most satisfied clients were in Loznica
and Mali Zvornik, while the most dissatisfied clients were in Užice and Sremska
Mitrovica

Figure 6.9. Satisfaction with bank loans

Are you satisfied with the credit supply of the banks?

No reply=3,44%; very satisfied=4,73%; mainly satisfied=10,43%; none of the mentioned=42,26% ; mainly

dissatisfied=32,80%; very dissatisfied=6,34%
 Table 6.2. Overview of the interviewed clients' satisfaction with the bank loans
per their place of residence

Mali Novi Sremska

Town Loznica Priboj Prijepolje Sjenica Tutin Užice
Zvornik Pazar Mitrovica

No reply 12,50% 9,38% 6,25% 3,13% 18,75% 0,00% 9,38% 6,25% 34,38%

Very
34,09% 22,73% 4,55% 6,82% 0,00% 2,27% 11,36% 2,27% 15,91%
satisfied

Mainly
12,37% 12,37% 12,37% 6,19% 6,19% 6,19% 32,99% 3,09% 8,25%
satisfied

Neither
satisfied nor 20,10% 6,36% 5,85% 14,76% 11,96% 4,83% 20,87% 3,31% 11,96%
dissatisfied

Mainly not
20,33% 7,21% 5,90% 12,46% 4,59% 7,54% 23,93% 2,30% 15,74%
satisfied

Very
13,73% 10,17% 5,08% 6,78% 0,00% 11,86% 16,95% 5,08% 20,34%
dissatisfied

More than half of the interviewed clients never used the loan. Majority of the
interviewed clients used the loan in urban areas, in fact in Sremska Mitrovica and
Loznica.

Table 6.3. Overview of credits use by the interviewed clients per place of
residence

5. Did you use the loan?

 Town Loznica Mali Novi Priboj Prijepolje Sjenica Sremska Tutin Užice
Zvornik Pazar Mitrovica

No reply 0,00% 9,09% 27,27% 0,00% 36,36% 9,09% 9,09% 0,00% 9,09%

YES 16,88% 9,61% 10,65% 10,13% 6,23% 3,38% 28,05% 2,60% 12,47%

NO 22,66% 7,49% 3,00% 13,30% 8,43% 7,87% 17,98% 3,56% 15,73%

The interviewed clients who used the loan, mainly used residential and unearmarked
loan. Those who used the loan, mainly used their own verification as a security
(administrative ban) and guarantors are loan security measure.

On question whether they rather used services of domestic or foreign banks, there
was no significant difference in terms of banks selection.

Figure 6.10. Determination of clients to use domestic / foreign banks

Would you rather use services of domestic or foreign banks? (No reply=16,45%; domestic=43,33%; foreign=38,71%;both=1,51%;)

During selection of the bank, the most important things for the interviewed clients
are staff, followed by favourable bank terms and lower interests.

Figure 6.11. Reasons for selection of bank

What is decisive factor during bank selection?

(no reply=18,82%; staff=18,8%; other=16,77%; favourable terms=16,56%; lower interests=10,65%; security=5,27%; simplicity=4,62%;
location=4,30%, speed=4,19%)
When asked what some banks would have to do to make someone become its client,
the interviewed clients said that the new bank would be expected to provide better
terms and lower interests.

Figure 6.12. Factors affecting the selection of the bank

What would some bank have to do that you become its client?

(no reply=30,32%; better terms=30,22%; lower interests=24,09%; other=3,12%; kind staff=2,90%; simplicity=2,37%; I would not
change the bank=2,37%; vicinity of branch=2,04%; speed=1,51%; security=1,08%)

Almost 60% of the interviewed candidates would use the loans in micro credit
organisations.

Figure 6.13. Determination for use of credits in MCO

 Would you take the loan in MCO?

(No reply=4,73%; Yes=59,25%; No=34,95%; I do not know=1.08%)

Table 6.4. Overview of credits use in MCO by the interviewed clients per place
of residence

The table below shows the overview of the answers to the question: Would you use
the credit in MCO per municipalities.

Loznica Mali Novi Priboj Prijepolje Sjenica Sremska Tutin Užice

Column1 Zvornik Pazar Mitrovica

YES 69,35% 64,10% 65,00% 37,27% 64,38% 96,43% 59,51% 93,10% 30,77%

NO 25,27% 35,90% 28,33% 59,09% 35,62% 3,57% 31,22% 3,45% 56,92%

Maybe 1,08% 0,00% 3,33% 0,91% 0,00% 0,00% 0,49% 0,00% 3,08%

Conclusion:

 General impression of the interviewers is that the standard is a bit lower in

Serbia than in Bosnia and Herzegovina
 Based on the assessment results, market of the Republic of Serbia is still not
too indebted.
 32 % of the assessed clients used credits.
 Citizens do not trust a lot to the banks (only 15% were satisfied with the bank
supply).
 The assessees were not satisfied with high interest rates and complicated
procedures in the banks.
 Regarding the credit supply of the banks, the most satisfied clients were in
Loznica and Mali Zvornik, while the least satisfied were in Užice and
Sremska Mitrovica
 Most of the assessees used the credit in urban environments, in fact in
Sremska Mitrovica and Loznica.
 Of the assessees who used the loan, most of them used housing and
unearmarked loans.
 To decide to use other bank, the assesses expect to be offered better terms and
lower interests.
 43% of the assessees trust more to domestic banks, while minor percentage,
in fact 38% of the assessees trust more to the foreign banks.
 59% of the assessees would use the loans in micro credit organisations.
 7. Market segments in Serbia

In Serbia, Partner Plus will use individual credit methodology. Clients of Partner
Plus will still be economically active micro entrepreneurs and households with
difficult or no access to commercial funding sources (banks). The focus will be on
the clients involved in agriculture, trade, services and production, who wish to
improve their housing conditions and quality of life. Since Partner MCF, within its
business operations so far, has mainly serviced the clients from rural areas, the focus
in Serbia will also be on the clients living in rural areas.

Based on the detailed analysis of market in Serbia as well as based on the results of
the research done among the potential clients, Partner Plus defined two most
significant segments of potential clients, as follows:

- Low and moderate income households

- microenterprises (SZR, STR, SUR and similar)

Figure 7.1. Segments of target clients within Serbia region

KEY SEGMENT: KEY SEGMENT:

Micro enterprises Low and moderate income households

SUBSEGMENT: SUBSEGMENT:
STR, SZR, SUR Agricultural producers

Registered agricultural Households that wish to improve their quality

households of life

Within the segment of micro enterprises, Partner Plus will fund two subsegments,
including: microenterprises5, registered businesses / entrepreneurs (STR, SZR, SUR,
etc.) and to lower extent registered agricultural households. In Serbia, 318.540 small
and medium business enterprises are registered, of which 96.3% microenterprises
(306.669), 3% small enterprises (9614) and 0,7% medium enterprises (2257). 6 Small
and medium enterprises employ in total 814.585 employees, of which 47% in micro
enterprises, 24% in small enterprises and 29% in medium enterprises.

In Serbia, there are 490.000 registered agricultural households, which is estimated as

unrealistic, because many families with over 100 hectares of land registered several
households in order to get subsidies of 100-120 € per hectare.7
5
Definiton of micro enterprises: micro enterprises are defined as enterprises with less than 10 employees and with annual
turnover and/or total annual balance sheet equal or lower than 2 million € - EU definition.
6
Chamber of Commerce of Serbia, statistics small and medium enterprises (data on 31.12.2010).
7
Ministry of agriculture of Serbia; www.stips.minpolj.gov.rs
Based on the census from October 2011, there are 2 497 187 households in Serbia,
with 3 members per household in average. The surface of rural areas in Serbia totals
65.952 km2 with 3904 settlements populated by 4161660 citizens. In rural area, 67%
of population belongs to the category of able to work population. Based on these
data, Partner determined the market potential, which is divided further in two
categories: urban and rural.

On the other side, number of registered STR, SUR, SZR and registered agricultural
households are another market segment for which potential was separately
determined in a way that all micro businesses (306.669) are potential credit users,
while registered households would be less presented. Household segment comprises
of three subsegments: households involved in private business, unregistered
agricultural producers and household that wish to improve their quality of life.

Since Partner has extensive micro credit experience in Bosnia and Herzegovina,
market potential has been determined for the period of the following 3 years, as
presented in table below:

Table 7.1. Market potential for three year period

HOUSEHOLD POTENTIAL TARGET NUMBER OF CLIENTS

  Total Rural Urban 2013 2014 2015 2016

PARTNER Plus 2. 497. 187 1.373.452 1.123.735 432 1052 1712 2372

Micro enterprises
Profile of clients: In Serbia, Partner Plus will focus on micro enterprises, STR, SUR,
SZR and to some extent to registered agricultural households and other registered
businesses within the municipalities bordering with BiH. Priority in crediting will be
given to the clients coming from rural areas.

Current situation: According to currently available data, 318.540 small and

medium enterprises are registered in Serbia, of which 96.3% microenterprises
(306.669), 3% small enterprises (9614) and 0.7% medium enterprises (2257).8
Small and medium enterprises employ in total 814.585 persons of which 47% in
micro enterprises, 24% in small and 29% in medium enterprises. In addition to micro
enterprises, there are 490.000 registered agricultural households in Serbia. These
enterprises and agricultural households belong to the group which needs financial
support for their growth and development. Since registered agricultural households
currently have access to subsidized loans given by the Ministry of agriculture and
other government institutions, Partner Plus does not plan to credit this market
segment in larger extent.

8
Chamber of Commerce of Serbia, statistics small and medium enterprises (data on 31.12.2010).
Current supply at the market: Micro enterprises and registered agricultural
households are currently serviced by the banks, ministry of agriculture, Development
Fund of the Republic of Serbia and other non banking finance institutions. Despite
lower credit prices in banks, it is assumed that micro enterprises and registered
agricultural households will be turned more to micro credit organizations than to the
banks due to simple credit awarding procedures and work methodology that is
adjusted to this group.

Future supply to micro enterprises and registered agricultural households:

Considering the defined market potential (306.669 micro enterprises and 490.000
registered agricultural households) and the fact that 59% interviewed potential clients
expressed the need for funding by micro credit organizations, Partner Plus intends to
service, in the following period, 2804 clients.

Considering the number of the loans approved so far to registered micro enterprises
(7.323 loans), defined market potential (140.788 micro enterprises) and the need for
larger amounts of loans, Partner Plus will, in the following period, service 16.450
clients.

Since micro enterprises and registered agricultural households are faced with the
problem of funds provision, Partner Plus intends to support them in order to help the
development of their business processes and increase the competitiveness at the
market.

Currently, to use the subsidized loans, registered agricultural households must go

through very complex procedure of credit approval and must provide several types of
guarantees. Another condition for awarding of these credits is development of
business plan. Due to these reasons, Partner Plus believes that certain number of
registered agricultural households would be interested in micro loans due to simple
procedure and flexible guarantees.

Low income and moderate income households

Profile of clients: Partner Plus will provide services to the low income and moderate
income population, with emphasis on those living in rural areas. Partner Plus will
also finance population without full time employment or population that is not
formally employed and has difficult access to banks.

Current situation: In Serbia, average net salary in 2011 totalled 381 €, while in
Bosnia and Herzegovina it totalled about 400 €. This data contributes to the fact that
lots of citizens in Serbia do not have access to bank loans and they could become
potential clients of micro credit organisations. The average salaries of citizens in
Serbia are lower from 300 to 600 € in comparison with the salaries of citizens in
Slovenia and Croatia, and are almost identical to the salary levels in Macedonia and
BiH. Furthermore, statistic indicators demonstrate that about 60% of Serbia
population has the funds available only to cover the food costs, while this percentage
in EU countries is below 30%. The assumption is that the citizens of Serbia will use
the credits for improvement of their housing and living conditions.

Figure 7.2. Average net salary in Serbia (Euro)

Current market supply: Banks credit the citizens with regular income who meet
bank criteria in terms of income amount, which must be sufficient to cover the loan
obligations. Since Partner MCF mission is to finance low income population aimed
at start up businesses and improvement of living quality, it is assumed that this
population category will be potential client of Partner Plus within the Republic of
Serbia.

Partner Plus supply to citizens: Partner Plus will observe the household segment
through three sub segments:

 households with their own private businesses

 farmers
 citizens who wish to improve the quality of living (housing loans, thermo
facades, education, purchase of household appliances with energy certificate,
computers and other).
 8. Credit products and prices

Credit supply of Partner Plus will be based on three main types of loans, such as:
business loans, residential loans and loans for improvement of residential and living
conditions.

Business loans
This product will target micro entrepreneurs in both, rural and urban areas. The loan
amount will range from 250 € to 15.000 € with maximum repayment deadline of 60
months. To secure the loans, personal guarantee of the clients, guarantors or lien to
movable and immovable assets will be used, depending on the loan amount.

Agro loans
This product will target the farmers (regardless registered or not). The loan will be
used for procurement of fruit and vegetable seedlings, as well as procurement of
greenhouses and other necessary equipment. The loan amount is form 500 to 15.000
€. Repayment deadline is to 60 months, and grace period, depending on the purpose,
to 24 months. The loan will be secured with personal guarantees of clients,
guarantors or lien to movable and immovable assets depending on the loan amount.

Commodity loan for agricultural mechanization

This loan product will enable procurement of the agricultural mechanization. The
loan amount is from 500 to 15.000 € and repayment deadline is to 84 months.
Guarantee for this type of loan will be lien to movable assets.

Loan for improvement of housing conditions – housing loan

Loan for improvement of housing conditions is housing loan, which is used for repair
and reconstruction of residential houses. The loan amount is from 500 – 15.000 €
with repayment deadline to 60 months. Guarantee for this type of loan will be
personal guarantee of guarantors.

Seasonal loan – loan for improvement of life quality

Loan for improvement of life quality is aimed at procurement of the heating fuel,
education as well as other needs contributing to the improvement of life quality. The
loan amount is from 250 – 2.000 € with repayment deadline to 12 months. Guarantee
for this type of loan will be guarantee of the household member.

Loan for energy efficiency and renewable energy

Loans for energy efficiency and renewable energy will target the households as well
as micro entrepreneurs who wish to invest in energy efficient means or renewable
energy. Micro entrepreneurs will invest into replacement of the equipment and
machinery as well as in energy efficient improvements of business premises.
9. Distribution and promotion

9.1. Distribution
Partner Plus will disburse its loans using two distribution channels:

Field offices and sales staff

Partner Plus will offer its products and services directly to the clients through its own
field offices and sales staff.

Business partners (suppliers and service providers)

To disburse the loans, Partner Plus will use distribution channel through business
partners, in fact suppliers and service providers. All the suppliers contracted by
Partner Plus will be the suppliers with good bonnity and reputation and with
professional attitude towards the clients.

9.2. Promotion
In promotion of its products, Partner Plus will use the following types of
communication:

 Personal promotion („face to face“)

 Direct marketing
 Sales promotion (development of sales)
 Economic promotion ( radio, TV announcement and other)
 Public relations and transparency (including new tools of social marketing:
face book, web site and similar)

For each credit product, Partner Plus will use different promotional tools and
activities.

Promotion of loans for micro enterprises

The clients using these loans will be informed about products and services of Partner
Plus, using direct marketing (sales staff, unaddressed mail, phone contacts with
potential clients, etc.). Beside this, Partner Plus will, in order to animate new clients,
use local radio and TV stations, as well as press. Partner Plus will also use the data
about micro enterprises collected and published by specialised companies and
institutions in Serbia.

Promotion of agricultural loans

Beside the above mentioned ways of promotion, Partner Plus will, in order to
animate clients for loans, use databases of various agricultural cooperatives.
Significant part in the promotion of these loans will be promotion at agricultural
fairs, independently or in cooperation with business partners, in fact suppliers.
  Promotion of loan for improvement of living standard
In order to animate the clients, Partner Plus will use the contacts achieved through
suppliers with whom the contract is signed about implementation of the commodity
loans. Partner Plus will also use the promotion through local radio and TV stations,
as well as press.

Promotion of housing loans

Promotion of this product for all potential users will be done through local radio and
TV stations, as well as press. Significant part of promotion will be promotion
through printed material (brochures about energy efficiency, benefits of solar
collectors, etc.) beside the sales staff, Partner Plus will do the promotion through
future suppliers of goods and services. In order to present new credit terms, Partner
Plus will use direct marketing (sales staff, unaddressed mail, phone contacts with
clients, etc.).

Households in fact natural entities will strive to invest in improvement of energy

efficiency in their houses, apartments and replacement of the current way of heating.
The effect will be reduction of energy costs and reduction of CO2 emission. The loan
amount will be from 1.500 to 10.000 €. Repayment deadline will be to 60 months.
Types of guarantees will be personal guarantee of clients, guarantor and lien to
movable and immovable assets, depending on the loan amount.

9.3. Marketing strategy and products

Branding
Partner Plus shall use already available brand within the Republic of Serbia. Partner
brand is recognizable not only in Bosnia and Herzegovina, but in the wider region, so
Partner Plus will try to use this brand in the region of Serbia as well. Beside the focus
of its activities on the brand development, Partner Plus will start several other
activities in order to send a clear picture to the general public about Partner Plus as
socially responsible provider of micro finance services.

9.4. Pricing structure

Microfinance institutions charge generally higher interests than commercial banks.

Reason to this are much higher operating costs per client, due to specific micro credit
methodology, as well as relatively low amount of loans. Partner Plus will have
transparent pricing policy for all loan products and will adjust its interest rates to the
market average of other finance institutions working with the same or similar target
groups of population and micro enterprises.
10. Recruitment and development of human resource policies

10.1. Staff recruitment, training and capacity building

Staff recruitment

To accomplish the strategic goals of Partner MCF, to commence the work in the
Republic of Serbia, in the first year of its work Partner Plus will recruit director,
internal auditor, professional associate for risks, finance-administrative officer and 4
loan officers and credit manager. It is assumed that in the Republic of Serbia, in the
second half of 2012, the Law on micro credit organisations will be adopted in the
same form as the drat law. The draft law foresees mandatory recruitment of internal
auditor and professional associate for risks, as well as recruitment of staff for
performance of businesses planned in the first months of work in Serbia.

Training and capacity building

Training will be essential aspect of Partner Plus success so that the employees could
have necessary skills and knowledge for successful performance of tasks and
commencement of work. Trainings and education at work will be continuously
provided with higher intensity in the first few months of work. Later on, continuous
training is planned to improve the performance of the existing employees. This way,
they will adjust quickly to the new work methodology, business environment and
will be able to face new challenges.

It will be necessary to recruit consultant for training and competence development of

staff. Focus will be on training in sales, promotion, negotiations, collection, business
quality management and risks assessment. Training will hep the employees to gain
the techniques needed for servicing the target clients with good quality and
innovative finance service. Therefore, the staff of Partner micro credit foundation
and other international experts with extensive experience in the mentioned field will
be engaged as needed. This way, they will practically and directly contribute with
their knowledge and experience to the achievement of micro credit goals in Serbia.
11. Finance analyses and projections

Introduction.

Assumptions. The following projections give the estimate of Partner Plus

performance within Serbia. The entire projection period is 4 years. General
assumptions used are presented in this document.

Regulatory terms. Partner Plus operations in Serbia will depend on the adoption of
the legal micro credit regulations as well as application of other relevant laws
(Corporate income tax law, Labour law, etc.).

Currency. The projection was made in EUR and all the reports attached to this
document are presented in EUR.

Table 11.1. General assumptions for projections Partner Plus

Assumptions Rate for Partner Plus Basis

Inflation rate 5,6-7% Statistics Agency of RS
Market price of borrowed funds 7%-8% Analysis of finance market
Annual written off ratio do 3% Conditions based on BiH regulations
Loan provision ratio do 3% Conditions based on BiH regulations
Income tax 10% Valid income tax law in RS

Finance model9 is based on numerous assumptions, which were carefully selected to

present the conservative model and foreseeing maximum possible realistic situations
of finance and operating future environment.

11.1. Projections of finance assumptions

11.1.1. Balance Sheet

Assets

Cash and bank accounts. The assumption is that Partner Plus will open transaction
account in one of well known banks in Serbia, through which it will do all non-cash
payments. The assumption is that minimum liquidity of organisation will total 2% of
total planned portfolio. Besides, of total operating cash costs, 25% should be kept in
cash.

Loan portfolio.

9
Used finance modelling tool is Microfin Version 4.12.
Portfolio size is the result of number of disbursed loans and average loan amount and
maturity. Projected figures for 4 years of operation are determined on the basis of the
estimated market and capacities of the future institution Partner Plus.

Productivity of loan officers and parameters of loan portfolio.

Growth of loan portfolio depends directly on the number of Loan Officers employed
in Partner Plus and their productivity. Based on the size of the projected market
participation, and accordingly on Partner Plus portfolio size, there is a need for 8
loan officers and 2 managers of organisational units, one to be recruited in 2013 and
another in 2015.

Table 11.2. Productivity of loan officers and loan portfolio parameters:

Employees 2013 2014 2015 2016

Branches 1 1 2
2

Total number 2372

432 1052 1712
of credits

Total Loan 10,673.083

586.615 2,285.925 7,768.392
Portfolio

Loan Officers 4 5 8 8

Number of 296
108 210 214
Credits per LO

Loan portfolio 1,334.135

146.654 486.516 971.049
per LO

Number of loan officers is adjusted to the level of loan operations, which increase
from year to year. At the same time, staff productivity gradually increases from year
to year, and in the end of the planned period, it is at optimal level for this type of
credit portfolio.

Loan loss provisions. Partner Plus will classify its credit portfolio according to the
rules and regulations of RS. For the purpose of this projection, regulations valid in
BiH were used. The levels of loan loss provisions are calculated to the amount of
outstanding portfolio. The model assumes that certain percentage of disbursed loans
will have to be written off. Period after which the loans will be written off is after
180 days from the date of last payment.

Fixed assets. This line of the balance sheet covers all investments regarding the
investments into furnishing of business premises. It also includes investments into IT
and office equipment (computers, local networks, copiers, printers), communication
equipment, (telephone switchboard, telephone lines and similar), security
installations (alarm systems, fire systems and video surveillance systems), furniture,
marketing equipment, software, licences, vehicles and similar. Depreciation age of
categorised fixed assets is determined according to the age of each category, based
on experiential estimates.

Long term investments. The projection assumes that Partner Plus will start working
from 01.01.2013., so the long term investment of Partner MCF into founding capital
was assumed in the amount of 200.00 €, as well as new investment in the form of
loan funds in the amount of 1,100.000 € in the first year (2013).

Liabilities

Debt. Estimated need for credit funds taken from local and international finance
institutions is presented in this line.

Capital

Founding capital. Draft Law on micro credit organisations assumes that micro
credit organisation pays minimum capital in cash in the amount of 200.000 €. The
founding capital for commencement of Partner Plus work will be paid by Partner
MCF from BiH.

Retained profit / losses

All the profit accumulated until 2016 is presented under this line.

11.1.2. Income Statement

Total financial income

Interest income from loan portfolio and loan portfolio fees. We assumed the
average nominal interest rate of 24% in the first two years of work, while it decreases
to 23% in fact to 22% in 2015 and 2016. All the loans will be disbursed in EUR. Up
front fee of 2% is planned in the projections for the first two years, and in the
following two years it will decrease to 1.5% and then to 1%. This fee will be charged
to every disbursement, and the attempt will be made that other transaction costs for
clients are kept at very low level.

Income from interest from short term investments. We did not assume the income
from short term investments considering that surplus liquid funds were not foreseen
in period over one month.

Income from interest from long term investments. We did not assume the income
from long term investments.
Income from collection of written off loans. We did not assume the income from
collection of written off loans.

Other income. They were not assumed since this is a new legal entity.

Financial costs

Interest and fees to borrowed funds. For new credit sources to be provided by
Partner MCF from BiH, the assumed average interest rate is 7%, and for all future
sources, the assumed interest rate totals in average 8%.

Loan loss provision costs. Loan loss provision costs are related to the qualitfy of
portfolio and loan write offs.

Operating costs

Operating costs are one of most critical aspects in management of micro finance
institution. Micro finance institutions are traditionally known by high level of
operating costs, because their activities include disbursement of very small loan
amounts, while the scope and number of transactions is big.

Staff costs

Salaries and benefits are calculated on the basis of the number of employees and the
level of their fees increased for taxes and benefits which are presented in the
projection at the level of 62% to net salary. In the first planned year, average monthly
gross salary cost per person is 1.700 €. Salaries and benefits make about half of the
total operating costs during the projection period. All the costs take into
consideration the annual inflation rate, which is expected to be between 5.6% and
7%.

Salary structure of the credit staff ranges from 850 €to 1500 €. Management will
receive their salary pursuant to their obligations.

Note: Values presented in the projection are the salaries including all bonuses, hot
meal allowance, as well as taxes and benefits.

Other operating costs

Other operating costs are communication and transport costs, marketing costs, rent of
premises, utility costs, vehicle maintenance costs and similar. Other operating costs
are related to organisational units’ functioning and proportionally follow the number
of employees, as well as movement of portfolio and income. In case that not all the
costs are precisely covered, the security margin is integrated and added to“ other
operating costs ” in the amount of 1% of total amount of these costs, immediately
from the first year of Partner Plus work.

Depreciation: Depreciation costs of fixed assets include depreciation of furniture,

computers, software, licences, phone equipment, other equipment, vehicles. They are
calculated by using the straight line method to the historical costs. The estimate of
usable age and annual percentage of depreciation may vary depending on the type of
fixed assets from 5 to 14 years and therefore, the annual percentage may vary from 5
to 20%.

Table 11.3. Structure of operating costs

Operativni troškovi u EUR Operating Expenses in EUR 2013 2014 2015 2016
Plate Salary and Benefits 137,74 170,33 248,539 274,851
Plate kao % od ukupnih Salaries as % of total
36% 45% 47% 46%
operativnih troškova operating expenses
Ostali operativni troškovi Other Operating Costs 217,584 173,3 226,245 258,898

Ostali operativni troškovi kao % Other operating exp. as % of

56% 46% 43% 44%
od ukupnih operativnih troškova total operating expenses

Amortizacija Depreciation 30,241 34,843 51,645 58,555

Amortizacija kao % od ukupnih Depreciation as % of total

8% 9% 10% 10%
operativnih troškova operating expenses

Ukupno operativni troškovi Total Operating Expenses 385,565 378,473 523,429 592,314

11.1.3. Investments to fixed assets

Following the strategy of institutional foundation and development, Partner Plus will
invest 323.885 € in procurement of assets in the following four years. 38% of the
investments are related to the procurement of software and licences, while other
investments pertain to procurement of computer equipment, vehicles, surveillance
equipment, office and other furniture.

Table 11.4. Planned investments to fixed assets

Fixed assets 2013 2014 2015 2016 UKUPNO
Office and other furniture 4.520 5.836 7.880 9.034 27.270
Computer equipment 9.041 11.673 15.760 18.067 54.540
Telephone switchboard 1.507 - 3.377 - 4.884
Vehicles 39.177 - 58.536 - 97.713
Air conditions 804 - 1.801 - 2.605
Surveilance equipment 2.511 - 5.628 - 8.140
Marketing equipment 502 - 1.126 - 1.628
Other equipment 804 - 1.801 - 2.605
Software 100.000 - - - 100.000
Licences 4.500 5.500 7.000 7.500 24.500
Total 163.367 23.009 102.909 34.601 323.885

11.1.4. Projections of financial reports

Financial projections:

1. Total assets of Partner Plus in the end of the first year of planned period will
total 733.193 EUR.
2. Capital ratio to the total assets changes during the projection period of four
year. Since Partner Plus achieves negative finance result in the first three
years, capital and assets ratio may not be defined. In the fourth year, this ratio
is unfavourable since the amount of liabilities is much higher than amount of
capital. Since this is a new legal entity, return to invested funds and to
investments may be expected only in the following years of operations.
3. In the first year of operations, gross loan portfolio totals 586.615 EUR and
significantly increases in the following years. In the end of the fourth year,
gross loan portfolio totals 10.673.083 EUR.

Table 11.5. Income Statement Partner Plus

 Income Statement FY13 FY14 FY15 FY16

Financial Income 54.198 348.833 1.188.369 2.238.177

Interest on loan portfolio 40.998 304.833 1.086.309 2.183.577
Commission income 13.200 44.000 102.060 54.600
Financial Expense 32.958 121.081 390.148 771.510
Interest and fees on borrowed funds 32.958 121.081 390.148 771.510
Net Financial Income 21.240 227.752 798.220 1.466.666
Provision for loan losses 5.888 30.156 159.181 297.684
Net Financial Margin 15.352 197.597 639.040 1.168.982
Operating Costs 385.565 378.473 523.429 592.314
Branch Expenses 283.965 271.254 409.697 470.758
Salaries and benefits 57.040 85.111 155.207 178.195
Other operational expenses 217.584 173.300 226.245 258.898
Depreciation 9.341 12.843 28.245 33.665
Head Office Expenses 101.600 107.219 113.732 121.556
Salaries and benefits 80.700 85.219 90.332 96.656
Other operational expenses 0 0 0 0
Depreciation and amortization 20.900 22.000 23.400 24.900
Net Operating Income -370.213 -180.876 115.610 576.668
Net Income (before taxes and donations) -370.213 -180.876 115.610 576.668
Amount of taxes paid 0 0 15.845 63.321
Net Income (after taxes and donations) -370.213 -180.876 99.766 513.347

Table 11.6. Balance Sheet Partner Plus

Balance Sheet FY13 FY14 FY15 FY16

ASSETS        
Current Assets        
Cash in Bank and Near Cash 19.318 57.279 177.905 241.926
Gross Portfolio Outstanding 586.615 2.285.925 7.768.392 10.673.083
(Less: Loan Loss Reserve) -5.866 -34.289 -155.368 -320.192
Net Portfolio Outstanding 580.749 2.251.636 7.613.024 10.352.890
Sub-total, Current Assets 600.068 2.308.915 7.790.929 10.594.817
Fixed Assets  
Land 0 0 0 0
Buildings (gross) 0 0 0 0
Furniture and Equipment (gross) 58.867 76.376 172.284 199.385
(Accumulated Depreciation) -9.341 -22.184 -50.429 -84.094
Net Fixed Assets 49.526 54.192 121.855 115.291
Other Long-Term Assets  
Long-term Investments 0 0 0 0
Other long-term assets (net) 83.600 67.100 50.700 33.300
Sub-total, Long-term Assets 133.126 121.292 172.555 148.591
TOTAL ASSETS 733.193 2.430.207 7.963.484 10.743.408
   
LIABILITIES  
 Current Liabilities  
Short-term Commercial Loans 3.407 1.881.297 7.314.808 9.581.384
Other Current Liabilities 0 0 0 0
Sub-total, Current Liabilities 3.407 1.881.297 7.314.808 9.581.384
Long-term Liabilities  
Long-term Concessional Loans 0 0 0 0
Long-term Commercial Loans 900.000 900.000 900.000 900.000
Other long-term Liabilities 0 0 0 0
Sub-total, Long-term liabilities 900.000 900.000 900.000 900.000
TOTAL LIABILITIES 903.407 2.781.297 8.214.808 10.481.384
EQUITY  
Accum. Donated equity, prev. periods 0 0 0 0
Donated equity, current period 0 0 0 0
Shareholder equity 200.000 200.000 200.000 200.000
Accumulated dividend payments 0 0 0 0
Accum. Net Surplus (Deficit), prev.
periods 0 -370.213 -551.090 -451.324
Net Surplus (Deficit), current period -370.213 -180.876 99.766 513.347
Equity Reserves 0 0 0 0
TOTAL EQUITY -170.213 -351.090 -251.324 262.023
TOTAL LIABILITIES AND EQUITY 733.193 2.430.207 7.963.484 10.743.408

To support this four year business plan, it is necessary to provide 10.681.384 EUR of
new credit sources, while only in 2013 it is necessary to provide 1.103.000 EUR. The
table below shows the current status of credit funds and foreseen funds structure for
the following four years.

Table 11.7. Credit sources 2013. – 2016.

Credit sources in EUR 2013 2014 2015 2016 TOTAL

PARTNER MCF 1.103.407 0 0 0 1.103.407

EFSE/EBRD 0 1.877.890 5.433.511 2.266.576 9.577.977

Total credit sources 1.103.407 1.877.890 5.433.511 2.266.576 10.681.384

11.1.5. Ratio analysis

1. In the four year period, the number of clients will increase from 432 to 2372
while portfolio will total 586.615 EUR in the first year and will increase to
10.673.083 EUR in the fourth year.
2. Productivity of loan officers will increase in these four years. In the first year, the
number of clients per loan officer will total 108 and will increase to 297 in the
fourth year, while portfolio will total 146.654 EUR in the first year and 1.334.135
EUR in the fourth year.
3. Loan loss provisions in 2013 is planned in the amount of 1% since in the first
year of the organisation’s work, deterioration of portfolio quality is not expected.
In the following three years, increase of loan los provisions is planned, and in the
fourth year it would total 3%.
4. Loan write offs are not planned in the first year of Partner Plus work, and in the
following three years the planned write off is from 0,1% to 1,4%.
5. The average gross return on portfolio (interest and fee) in 2013 totals 30,1%,
while in the following three years it decreases and in 2016 planned return on
portfolio totals 23,2% due to the planned decrease of interest rates.
6. Partner Plus will not be operationally nor financially sustainable in the first two
years of work. Only in the third year, Partner Plus will achieve operating and
finance sustainability.
7. Adjusted return on assets10 is negative in the first two years of work, and from
2015, Partner Plus will achieve positive adjusted return on assets.
8. Return on assets is at low level and is a result of investments into human and
material resources in the first years of work. It is expected that investments made
in period 2013 to 2016 will result with higher return in the following years.

10
Adjusted return on assets = adjustments to inflaiton and price of commercial funding sources.
Table 11.8. Ratio analysis Partner Plus

Income Statement Analysis

FY13 FY14 FY15 FY16
Performing Assets 619.386 2.366.195 7.968.834 10.836.743
Average Performing Assets 283.456 1.233.924 4.471.912 9.447.167
Gross Return on Average Performing Assets 19,1% 28,3% 26,6% 23,7%
- Financing Costs * 11,6% 9,8% 8,7% 8,2%
= Gross Financial Margin 7,5% 18,5% 17,8% 15,5%
- Loan Loss Provisions * 2,1% 2,4% 3,6% 3,2%
= Net Financial Margin 5,4% 16,0% 14,3% 12,4%
- Operating Costs * 136,0% 30,7% 11,7% 6,3%
- Taxes Paid 0,0% 0,0% 0,4% 0,7%
= Operating Margin, after-tax (ROA) -130,6% -14,7% 2,2% 5,4%
- Adjustments to Operations 1,8% 0,7% 0,2% 0,1%
= Net Margin, after-tax (Adjusted ROA) -132,5% -15,4% 2,0% 5,3%
Operational Sustainability, after-tax 13% 66% 109% 130%
Financial Sustainability, after-tax 13% 65% 108% 129%
Quick Ratio 176,1 1,2 1,1 1,1
 
Portfolio Quality        
Reserve Ratio 1,0% 1,5% 2,0% 3,0%
Annualized Loan Write-off Ratio 0,0% 0,1% 0,8% 1,4%
Profitability        
Operational Sustainability, after-tax 12,8% 65,9% 109,2% 129,8%
Financial Sustainability, after-tax 12,6% 64,8% 108,3% 129,0%
Adj. After-tax Return on Performing Assets -132,5% -15,4% 2,0% 5,3%
Solvency        
Quick Ratio 176,1 1,2 1,1 1,1
Efficiency and Productivity        
Yield on Portfolio (annualized) 30,1% 27,2% 25,4% 23,2%
Operating Cost Ratio 213,9% 29,5% 11,2% 6,1%
Borrowers per Loan Officer 108 210 214 297
Portfolio per Loan Officer 146.654 457.185 971.049 1.334.135
Average cost of debt (annualized) 7,6% 7,4% 7,8% 8,0%
Overhead percentage 26,4% 28,3% 21,7% 20,5%
Loan Officers as % of total staff 44% 45% 53% 53%
Branch Other Op Costs / Portfolio 37,1% 7,6% 2,9% 2,4%
Net FA per branch staff person 10.061 9.210 12.421 11.810
Growth and Outreach        
Lending        
Total Loan Portfolio 586.615 2.285.925 7.768.392 10.673.083
Overall growth in portfolio 0,0% 289,7% 239,8% 37,4%
Number of active loans 432 1.052 1.712 2.372
Overall growth in loans 0,0% 143,5% 62,7% 38,6%
12. Risks management

There are several risk factors, which might negatively affect the efficient work and
sustainability of Partner Plus and its operations. Risks may be categorised as
environment risk, operating risk, market risk, capital risk, business and credit risk
Partner Plus is exposed to constant internal and external changes, which might
influence the risky profile of the organisation. Aimed at as good quality management
of business risks, the board of directors and the management will provide resources
for development and implementation of a detailed risks management plan, as well as
establishment of good quality policies and appropriate controls.
Risks management plan will be a framework to warn the management about
increased danger and action plan to overcome the crisis situations. Risks
management will be coordinated and managed through centralised risks management
function, which in cooperation with other managers of them management system will
ensure their mutual synergy and efficiency, particularly from the aspect of preventive
effect to potential or present risks. Consideration or potential and identified risks
with impact and propose measures for proceeding in Partner Plus are presented in the
appendix.

(Appendix xx: Overview of potential risks as well as activities aimed at their

alleviation and monitoring )

13. Conclusion
Based on the implemented market research and determined market potential, finance
projections were made for the period of four years. These projections showed that
Partner Plus as newly established legal entity in Serbia, in the first two years of work,
achieves negative finance results, but positive operating and financial sustainability
already in the third year of work. Important to note is that finance projections of
credit operations were made on the basis of the environment assessment as well as
extensive experience of Partner MCF in micro financing within Bosnia and
Herzegovina.

This project is a basis to start business operations in Serbia and commencement of its
implementation fully depends on the adoption of the law on micro credit
organisations in Serbia. Adoption of this law is expected in the second half of 2012
due to which the planned commencement of Partner Plus work in Serbia is January
2013. Provision of financial services to the clients is planned from March 2013. In
this period, Partner Plus will rent the business premises, recruit the staff and provide
other material assets needed for commencement of work. Loan officers to be
recruited in January 2013 will in two months complete all the necessary trainings and
education, to be able and ready to provide the services to the clients.

Financial projections including the projections of credit operations are made on the
basis of realistic assumptions, which are result of long experience in micro crediting
within BiH. Funds will be provided thanks to good business relationship of Partner
MCF with creditors (EFSE, EBRD, OikoCredit, Triodos and others), who support
development of micro credit sector in BiH. It is assumed that these creditors will also
be interested in development of this sector in Serbia, which will make the access to
funding sources for Partner Plus much easier.

In addition to commercial sources of funds, Partner Plus will try to provide grant
funds from donors related to socially responsible project, such as energy efficiency
projects, increase of finance literacy of population and similar. Besides providing
additional sources of funds this way, to which the finance costs, are not paid, Partner
Plus will strengthen its image in the community as socially responsible institution.
Important to note is that the grant funds after achievement of the project objectives
will be donated to organisation, thus increasing the capital of organisation.

This project and financial projections represent a realistic basis for commencement
of Partner Plus work, and is subject to changes, particularly from the aspect of legal
regulations and legislation, whose adoption directly affects the work and operations
of Partner Plus in Serbia.

References
Quarterly monitor of economic trends and policies in the Republic of Serbia, number
25 and 26, April-September 2011., Fund for development of economic sciences
(FREN) of Republic of Serbia.

Republic Statistics Department, Assessment of labour, November 2011

Daniel Gies, „Micro crediting in Serbia: is it (really) necessary“; Quarterly monitor

number: 22, July - September 2010.

European Commission, „Report of the expert group: regulation of micro crediting in

the European Union “, 2007.

Chamber of Commerce of Serbia, statistics of small and medium enterprises (data

on 31.12.2010).

Ministry of Agriculture of Serbia; www.stips.minpolj.gov.rs