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A model rotten to the core/ Usury sold as financial innovation

2023-09-03 14:58:00, Ekonomi Klodian Tomorri

Kredo Finançë is a company that classifies itself in the category of fintech ventures. In the modern world this category means innovative firms, which use technology to improve traditional financial services. But behind the word fintech, in the case of Kredos, a problematic business model is hidden. And this model is simple.

The company has a portfolio of money, provided by its shareholders or through borrowing from various investors on certain platforms such as Mintos. It lends this money to Albanian citizens or businesses in the form of quick microloans, without collateral. Their amount can reach up to 600 thousand ALL, or 5 thousand and 500 euros. This is the business of Credo and its ilk.

According to data from the balance sheet, at the end of last year the total stock of loans that Kredo Finance has given to Albanian citizens reached 3.3 billion lek or 30.5 million euros. For this loan portfolio, the company collected last year 2.5 billion lek income from interest, fines, commissions and loan deferral fees. So 76 percent income on the stock of loans.

In short, Kredos' business model is this. For every 100 Lek that the company has given loans, it generates 76 Lek of income per year from interest and other costs charged to borrowers. It is officially called fintech. It really is predatory lending.

BSH who sits and watches

Debates about high interest rates and unethical practices by fast microcredit companies forced the Bank of Albania to set a ceiling on their interest rates in 2021. For loans with installments up to the amount of 200 thousand ALL, the effective 1-year interest was limited to 118.96 percent. Credo navigates the limits of this border.

According to the data published by BSH for the month of August this year, the effective rate applied by Kredo was 115 percent, 108 percent, 103 percent and 108 percent per year respectively for the 1-year loan, the 2-year loan, the 3-year loan year old and 4 year old.

Specialized institutions and international financial experts have determined that the maximum rate of a loan to be considered affordable should be up to 36 percent per year. Credo is charging Albanian citizens more than 3 times more than this interest. In short, the intervention of the Bank of Albania has not really solved anything.

Fast microcredit in Albania is actually "predatory credit" disguised under the phrase fintech. And the Bank of Albania is watching. This is nothing but usury legalized by law. And finally the question that naturally arises is; who needs this business model?

Microcredit advocates say these companies serve a segment of consumers who don't have access to banks. While the high rates are due to the fact that loans are given without guarantees and have a high risk of non-return. According to them, this business model is such. But the Bank of Albania has no study on which categories of consumers receive loans in these institutions. What do they do with this money and how are the people who enter the spiral of quick debts, who offer microcredits, financially affected?

Furthermore, what does the economy gain from this business model, which is rotten to the core and which today is allowed massively in Europe only in 3 or four countries? They are Albania, North Macedonia, Moldova and Bosnia. Nowhere in the European Union. Does the Bank of Albania feel comfortable watching, as thousands of citizens sink into the miserable spiral of predatory loans, which are sold to them as a financial innovation?/ Oligarkia.al