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The Bosnia & Herzegovina microfinance market turned from exemplary to risky after the global financial crisis revealed an over-indebtedness problem in the country. The downward trend in number of active borrowers and loan portfolio continued into 2011, but that trend has started to ease as growth is slowly returning to the market. Although, the worst is likely behind, the recovery might be rocky. Details of Bosnian market realities and recovery expectations after years of crisis can be found throughout the Bosnia & Herzegovina Country Briefing:

• Overview:  The Bosnian market was hit hard by the financial crisis intensifying the problem of over-indebtedness of microfinance clients.
• Supply & Demand: The number of active borrowers and GLP decreased through 2010. Due to rising delinquency , MFIs experienced contraction of lending services and wrote off over 5 percent of their loan portfolio.
• Funding:  As many loans matured in 2010 and as the sector continued to experience contraction, MFIs generally did not roll over short term debt from local commercial banks or raise new debt from international investors, resulting in a decrease of over BAM 200 million in total borrowings.
• Performance:  After a number of years of high returns, most Bosnian MFIs registered negative ROA and ROE in 2009 and 2010 due to high losses from delinquent loans and rising operating costs. The biggest driver of negative returns was the sharp increase in loan loss provisioning.
• Quarterly Update:  Finally, it appears that the microfinance market in Bosnia and Herzegovina is turning around ending years of decline; active borrowers, loan portfolio, and portfolio at risk are improving. MFI forecasts in the MIX Barometer also show relatively positive expectation of MFIs in terms of growth and portfolio quality. Nevertheless, lingering concerns over client-indebtedness still persist.

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