Strategies of the Development of Entrepreneurship and SME

3.1.4. FINANCING SMEsProf. Dr. Selami Xhepa and Msc. Mimoza Agolli from Institute for ContemporaryStudies/Albanian Center for International Trade (ISB/ACIT) in their paper “Small and MediumSized Enterprises Development”, (Tirana, 2004), access to finance for SME sector describes asfollowing.3.1.4.1. General description of the banking sectorBanking sector in Albania continues to be underdeveloped primarily due to thelegacies of the pre-transition heritage. With the starting of transition, it was in mid-1992,for the first time a two tier banking system had to be established and a totally newbanking industry had to be developed based on market principles. The reform package onthe banking sector included measures of reforming state owned banking system, througha process of mergers and splits and the encouragement of the entry of new private banks.With the privatization of Savings Bank in January 2004 by an Austrian bank, theGovernment of Albanian totally withdraws from the banking business. Actually thebanking sector is composed of two joint venture banks, 12 privately owned by foreigninvestors and 2 owned by local investors.However, due to the dominant position of the Savings Bank, with 60 per cent oftotal deposits and 80 per cent of T-bill holdings, competition on the banking sectorremains rather limited.Banking legislation was visited frequently during the ‘90s, mostly due to the effectsof the 1997 crisis and the need to strengthen the environment on which they function. Inaddition to establishment and function of the industry, other important legal reformincluded the strengthening of the financial infrastructure. Special attention was paid tolegislation on secured transaction (enacted in 2001); strengthening of the bankruptcylegislation with a new law enacted in 2001. and reviewed (2003.) to comply with the EUdirectives; development of the deposit insurance schemes (2002.) where the deposits ofup to 5,000 USD are ensured by the established agency and development of legislation onmoney laundering, etc. Increasing the banking system transparency has been the focus ofthe reporting requirement procedures developed by the supervisory authority. On thatrespect, the Bank of Albania adopted a new accounting system consistent with theInternational Accounting Standards. Another important area of development is that ofpayment system, with a new RTGS (real time gross settlement) in operation by early..In terms of the funds intermediated through the system to the private sector, therole of banking continues to be very modest, albeit the very impressive dynamicsregistered during the last two years.The total loans to GDP continue to be at very low levels, reaching the highest 7.4%of GDP by end 2003 or a more 14.9% of total deposits on the system. While the depositsof the residents placed in the banking system rose from 29% of GDP in 1995 to 44% ofGDP by November of 2003 they share extended to private sector loans varied between 8-14% during this period.Several surveys of resource financing firms’ economic activities confirm that thebanking system has played a highly limited role. The data obtained from interviews offirms (EBRD, 1999 & 2000) show that more than 20% of the large enterprises interviewedin Albania refer to state funds as their principal resource of financing. 5% of largeenterprises and 2% of the SMEs interviewed confirm that they have got hold of financingresources only through the banking system. 2% of the SMEs list local banks as providing22