Access to finance is crucial for developing the private sector in all economies. This chapter, along with three sub-dimensions, explores the necessity for businesses to be able to access financing sources to start up, grow, diversify and ultimately contribute to overall competitiveness. The first sub-dimension, bank financing framework, assesses the regulatory framework of bank financing, including the quality of banking industry legal framework, registration and information systems and the policies making bank finance inclusive. The second sub-dimension, access to alternative financing sources, focuses on the various means that businesses can get financing, encompassing access to capital markets, private equity as well as factoring and leasing. The third sub-dimension, digital finance, delves into the effects of digital solutions on payment services and the emergence of new avenues for business finance.
Western Balkans Competitiveness Outlook 2024: Bosnia and Herzegovina
4. Access to finance
Abstract
Key findings
Bosnia and Herzegovina’s performance in access to finance has slightly improved since the 2021 CO assessment, from 2.3 to 2.5. This follows a substantial increase observed between 2018 and 2021 (Table 4.1). Both the entities covered by the CO assessment, i.e. the Federation of Bosnia and Herzegovina (FBiH) and Republika Srpska (RS), have undertaken substantial measures to align their banking framework with international standards. Moreover, RS has initiated efforts to develop alternative financing sources, leading to score improvement in the related policy area.
Table 4.1. Bosnia and Herzegovina’s scores for access to finance
|
Dimension |
Sub-dimension |
2018 score |
2021 score |
2024 score |
2024 WB6 average |
|---|---|---|---|---|---|
|
Access to finance |
3.1: Bank financing framework |
3.2 |
3.5 |
||
|
3.2: Access to alternative financing sources |
2.6 |
2.4 |
|||
|
3.3: Digital finance |
1.3 |
2.3 |
|||
|
Bosnia and Herzegovina’s overall score |
1.9 |
2.3 |
2.5 |
2.8 |
|
The key findings are:
Bosnia and Herzegovina has made significant regulatory changes to align its banking industry’s legal framework with international standards. In October 2021, the European Commission confirmed that the two entities’ supervisory and regulatory frameworks comply with the EU acquis, which addresses credit institutions' capital requirements and related regulations.
Although no legal progress has been recorded in the FBiH, active efforts are under way in RS to establish comprehensive capital market legislation. The legal framework has been amended to improve the functioning of the securities market and provide a specific legal framework for private equity. Further harmonisation with the EU acquis is currently ongoing in RS as the Republika Srpska Securities Commission (RSSC) started drafting a “Capital Market Act”.
Equity finance is nonexistent, and no venture capital funds operate in Bosnia and Herzegovina. These activities currently lack a legal framework in the FBiH and RS, although RS is making strides towards aligning with the EU acquis in this area, as demonstrated by the amendment of the Law on Investment Funds in July 2022.
Business angel networks and crowdfunding platforms are nonexistent in Bosnia and Herzegovina. These activities currently lack a legal framework in both the FBiH and RS, and there are no ongoing legislative or policy initiatives to develop regulations for these financing forms.
Despite recent progress in RS, neither the FBiH nor RS has implemented the EU acquis for digital payment activities. Another hurdle is the limited adoption of digital payments; two-thirds of adults in Bosnia and Herzegovina (BiH) reported using digital transactions in 2021, significantly lower than the EU average of 93.0%. Despite this discrepancy, no strategic framework has been implemented to promote the adoption of digital payment methods.
State of play and key developments
In Bosnia and Herzegovina, the financial sector heavily relies on banking, as banks control 88% of total financial assets as of June 2022 (Central Bank of Bosnia and Herzegovina, 2022[1]), similar to levels seen in December 2019 (European Banking Authority, 2021[2]). This contrasts with the euro area, where the banking sector comprises only 50% of total financial assets in 2022 (European Central Bank, 2023[3]). Despite a decrease in commercial banks to 22 in 2022 from 28 in 2013, competitive pressures have remained stable. Notably, the top three banks in Bosnia and Herzegovina collectively held around 41.7% of assets in 2021, compared to 61.1% in 2013 (World Bank, 2022[4]). However, this percentage remains considerably lower than the averages observed in the Western Balkans (68.8%) and the EU (71.5%).
Over the past decade, the financial sector has experienced a notable decline in credit provision, indicating a contraction in the economy’s primary source of finance. Total credit provided by the financial industry in BiH has significantly decreased. In 2022, domestic credit to the private sector amounted to 48.1% of GDP, down from 60.8% in 2013. This figure is comparable to the Western Balkan region (46.4% in 2022) but falls short compared to the European Union (69.5%) (World Bank, 2022[4]).
Sub-dimension 3.1: Bank financing framework
In Bosnia and Herzegovina, banking industry regulation is overseen by the banking supervisory authorities of the respective entities. Since the last assessment cycle, substantial legal progress has been achieved to strengthen the reliability of the bank finance supply for businesses by harmonising banking regulation with Basel III standards. In May and June 2021, the Banking Agency of the Federation of Bosnia and Herzegovina (FBA) and the Banking Agency of the Republika Srpska (BARS) each adopted the "Decision on Liquidity Risk Management in Banks". The decision outlines minimum liquidity risk management requirements for banks; covers qualitative standards and quantitative measures such as the liquidity coverage ratio and net stable funding ratio; and introduces additional mechanisms for liquidity risk assessment. A noticeable outcome of the efforts in harmonising the banking legal framework with international standards was the European Commission’s confirmation in October 2021 that the Bosnia and Herzegovina two entities’ supervisory and regulatory frameworks comply with Regulation (EU) No. 575/2013, which addresses credit institutions' capital requirements and related regulations.1 This overall legal progress has been supported by the United States Agency for International Development’s (USAID) Financial Reform Sector Activity (FINRA) project, which was implemented between September 2017 and September 2022 in both entities. Implemented by the consulting firm Financial Markets International, technical assistance has been provided to the Central Bank of Bosnia and Herzegovina, the Bosnia and Herzegovina Deposit Insurance Agency, the BARS and the FBA. Finally, the economy’s banking industry also made progress in preventing systemic risk as, in December 2023, both the BARS and the FBA adopted the Decision on Capital Buffer for Systemic Risk, which defines requirements to maintain a buffer for structural, systemic risk, making the banking system less vulnerable to bankruptcies of systemically important banks (SIBs).
Despite this progress, the banking industry in BiH remains subject to systemic risk, which could cause substantial perturbations in the bank finance supply for businesses. The legal framework for SIBs in Bosnia and Herzegovina is not yet harmonised, making the banking system more vulnerable to major bankruptcies and generating risks of adverse shocks on bank finance supply.2 Moreover, both entities have implemented all Basel III recommendations, especially those related to credit risk (internal ratings‑based approach, securitisation framework), market risk (internal model approach) and operational risk (advanced measurement approach). Finally, the complexity of the institutional setup contributes to hindering adequate banking supervision as the Central Bank of Bosnia and Herzegovina does not have jurisdiction over the supervision of banks. The FINRA project's second pillar, aiming at strengthening banking supervision, obtained very limited results in this regard. For instance, the Standing Committee for Financial Stability, pivotal for the supervision of the financial system in BiH, does not convene regular meetings and has not met since March 2022 (European Commission, 2023[5]).3
Regarding lending requirements, these are determined at the entity level by the FBA and the BARS and are relatively stringent, limiting access to bank finance. In both entities, the legal framework permits secured creditors to establish and enforce their rights over non-fixed assets like securities, movable assets, and stocks. However, fixed assets such as real estate and land continue to serve as the predominant collateral for loans, posing challenges for firms with fewer fixed assets. Additionally, micro-, small and medium-sized enterprises (MSMEs) face stringent requirements as there are no loan thresholds below which collateral criteria are flexible, limiting their access to bank finance.
In Bosnia and Herzegovina, registration and information of assets are operated at the state level, apart from the cadastre, administered by each entity. These cadastre systems have not experienced any legal change since the last assessment cycle. They cover both entire territories, are updated automatically (for each transaction), and are publicly available on line. Regarding the ownership of pledges on registered fixed and non-fixed assets, the registry is kept at the state level within the Ministry of Justice of Bosnia and Herzegovina. The ownership registration for pledges on fixed and non-fixed assets is incomplete, as fewer than 50% of non-fixed assets are documented. This share is estimated at between 75% and 99% for fixed assets. Moreover, the available information for non-fixed assets is very limited, as it does not include the valuation of these assets. This incomplete coverage may impact the assessment of collateral values for banks in BiH, potentially restricting access to bank finance for owners of unregistered assets.
A public credit information system, the Central Registry, is in place and governed by the Central Bank of Bosnia and Herzegovina.4 Credit data are collected directly by the Central Bank from all banks, leasing companies, microcredit organisations and other financial institutions operating in Bosnia and Herzegovina. However, credit bureau coverage remains limited, with the Central Public Credit Registry covering only 47.1% of the population and private bureaus covering just 14% (World Bank, 2019[6]). Financial institutions offering loans must report the comprehensive history of individuals' or businesses’ credit and loan-related activities, and financial institutions can request online data with written borrower consent. The implementation of the Decision on Amendments to the Decision on the Central Register of Loans of Business Entities and Individuals in Bosnia and Herzegovina in January 2022 introduced additional macroprudential measures on credit data protection, such as the interdiction of reproduction and diffusion of personal data, or the right to protect sensitive information.
The complex institutional structure of Bosnia and Herzegovina and the subsequent lack of a single financial market continuously impede access to bank finance, especially for smaller firms (OECD, 2022[7]). In detail, loans from commercial banks directed to SMEs accounted for only 44.1% of the total loans in Bosnia and Herzegovina in 2022, which outperforms the Western Balkan average (39.0%) but is substantially lower than in comparable economies from the EU, such as the Slovak Republic (60.5%) or Latvia (76.0%) (OECD, 2022[8]). Specific policy schemes helping SMEs to access finance, such as credit guarantee schemes and credit lines, are active in both entities of Bosnia and Herzegovina. However, especially in the FBiH, they suffer from efficiency issues (OECD, 2022[7]). In detail, the FBiH Development Bank provides financial support for private investments targeting digitalisation but without a specific focus on SMEs. Moreover, information on the actual uptake remains unclear, which raises concerns about the effectiveness of the FBiH Development Bank’s schemes (OECD, 2022[7]). These effectiveness challenges are noteworthy given the significant activity of the FBiH Development Bank, which remained substantial in the aftermath of the COVID-19 pandemic. In 2022, its total activity amounted to EUR 187.5 million (Development Bank of the Federation of Bosnia and Herzegovina, 2023[9]), EUR 183.8 million in 2020, and EUR 164.7 million in 2019 (Development Bank of the Federation of Bosnia and Herzegovina, 2021[10]). In RS, the Republic of Srpska Investment-Development Bank (IRBRS) is substantially smaller as its activity has been equivalent to EUR 70.4 million in 2023 (Republic of Srpska Investment-Development Bank, 2024[11]).5
However, several international programmes are still running and others have been implemented in the aftermath of the COVID-19 pandemic, aiming to prevent a substantial deterioration of access to finance conditions in Bosnia and Herzegovina. Running from December 2020 to December 2024, the still ongoing “BiH Firm Recovery and Support Project” has been implemented under the international agreement signed by the International Bank for Reconstruction and Development (IBRD) to support SMEs in both FBiH and RS with a total budget of USD 65.3 million (World Bank, 2024[12]).6 Between April 2021 and February 2022, the European Investment Bank (EIB) launched three programmes providing a total of EUR 100 million in credit lines operated by ProCredit Bank, Intesa Sanpaolo Banka BiH, Raiffeisen Bank BiH, Unicredit Bank Banja Luka, and Raiffeisen Leasing to finance SME investment (European Investment Bank, 2024[13]).7 Launched in May 2022 by the EBRD, the EU and the Gesellschaft für Internationale Zusammenarbeit (GIZ), the “Go Digital in Bosnia and Herzegovina” programme is a EUR 40 million credit line channelled to local banks to support SMEs’ investments in digital transformation (European Bank for Reconstruction and Development, 2022[14]).8
The smallest businesses in BiH can also rely on microfinance to access finance, with 27 institutions operating in 2022 (compared to 18 in 2013) across Bosnia and Herzegovina. Still, the total number of microfinance institutions has not increased in Bosnia and Herzegovina since 2019 (International Monetary Fund, 2023[15]). With a robust and tailored legal framework, Bosnia and Herzegovina stands out in the Western Balkans for having among the most advanced microfinance sectors, constituting 2.4% of GDP in outstanding loans (2.1% in 2013). The existing legal framework has not experienced any change since the last assessment cycle, and it is still based on the Law on Microcredit Organisations (European Microfinance Network, 2019[16]). The two separate banking agencies supervise the lending activities of microfinance institutions in both entities, and the microcredit supply is ensured by both foundations, i.e. nonprofit entities focused on social impact and microcredit businesses. It should be noted that only microcredit businesses are subject to the Law on Microcredit. However, foundations fund smaller amounts as they can provide up to EUR 5 106 microcredits, while a microcredit business can lend up to EUR 25 532 (European Microfinance Network, 2019[16]).9
Sub-dimension 3.2: Access to alternative financing sources
Capital markets in Bosnia and Herzegovina remain underdeveloped. The overall market capitalisation of Bosnia and Herzegovina’s stock markets is about 17% of GDP in 2022 (European Commission, 2023[5]) , which significantly lags behind the EU (75.4%) (World Bank, 2022[4]). Both entities in Bosnia and Herzegovina have their stock markets: the Sarajevo Stock Exchange (SASE) in the FBiH and the Banja Luka Stock Exchange (BLSE) in RS, with specific rules (Table 4.2).
Table 4.2. Listing rules in Bosnia and Herzegovina
|
Federation of Bosnia and Herzegovina |
Republic of Srpska |
|
|---|---|---|
|
Minimum duration of business operations |
3 years |
2 years |
|
Financial statements |
Audited financial report for the minimum last 3 years |
Positive or unqualified audit report |
|
Minimum amount of market capitalisation |
BAM 1 million |
BAM 1 million |
|
Minimum number of stakeholders |
150 |
50 |
Source: OECD (2021[17]).
The regulatory framework concerning bond markets is in place in both entities; however, the market is shallow and illiquid, especially relating to corporate bonds. The legal framework of both entities allows the emission of treasury securities, municipal bonds, corporate bonds, and zero-coupon bonds, with comprehensive information for investors (maturity, liquidation preferences, coupon rate, tax status and call provision). However, no institution provides a credit rating, not allowing investors to evaluate investment risks. Moreover, no measures are in place to promote the use of the corporate bond market, such as tax subsidies or legislation allowing the issuance of tailored bonds for SMEs’ needs.
Although no legal progress has been recorded in the FBiH in strengthening the capital market’s legal framework since the last assessment cycle, several changes have been implemented in RS to improve the functioning of the securities market, with two series of amendments to the Law on the Securities Market. The amendments implemented in July 2021 focus on the primary market, where companies raise capital, to simplify the process for them to raise funds through the public issuance of securities and ensure that investors receive transparent and accurate information.10 The amendments implemented in August 2022 regulate the duration of public securities offerings to streamline the process and provide more flexibility for companies seeking capital through public offerings.11 Finally, further harmonisation with the EU acquis is in preparation as the Republic of Srpska Securities Commission (RSSC) started the drafting of the Capital Market Act, the Act on UCITS I. Especially the alignment to the Undertakings for Collective Investment in Transferable Securities (UCITS) directive is expected to develop the fund management industry in BiH by facilitating cross-border investments stemming from the EU capital market in RS. The alignment to the EU acquis should be realised before the end of the year 2026.12 Alongside these legal advancements, data indicate growth in the corporate bond market in RS, with 11 corporate bond issuances recorded in 2021, surpassing the levels seen in 2019 (9) and 2013 (2).
Equity finance is nonexistent and no venture capital funds operate in Bosnia and Herzegovina, while existing regulation is heterogeneous across the two entities. In the FBiH, these activities are currently regulated by the Law on Investment Funds, which is not a specific legal framework for private equity. On the other hand, RS amended the “Law on Investment Funds” in July 2022 to provide a specific legal framework for establishing and operating alternative investment funds (AIFs). This adjustment aims to broaden and diversify the investor base, potentially enhancing liquidity in securities. The amendments create a tailored framework for AIFs, allowing them to attract capital from investors and strategically deploy these funds in investments. Further steps involve complete harmonisation with the EU acquis, with upcoming amendments to the Law on Alternative Investment Funds to reach complete alignment with the EU Alternative Investment Fund Managers Directive (AIFMD). This directive will introduce specific rules to regulate and standardise the operations of AIFs, bringing them in line with EU legislation.13 This initiative is expected to encourage the development of private equity in Bosnia and Herzegovina by attracting investments from the EU capital market. Finally, regarding Business Angel Networks (BAN), no legal framework or policies foster their development, helping to explain the fact that no BAN currently operates in Bosnia and Herzegovina.
Factoring is regulated at the entity level in Bosnia Herzegovina. In the FBiH, the FBA is drafting amendments to the Factoring Law to enhance the comprehensiveness of the legal framework, although a specific timeline has not been communicated. Additionally, under the Law on Corporate Income, interest on factoring is deductible, and value added tax (VAT) is only applied to service fees, reducing the overall cost of factoring and thereby supporting market development. However, foreign factors business agents face limitations in operating directly in the local market, restricting their potential penetration. In RS, significant legal progress has been made on factoring following adoption of the Law on Factoring in December 2020 and five associated bylaws implemented in April 2021, making the existing legal framework comprehensive. Overall, the recent legal progress achieved in Bosnia and Herzegovina is expected to further develop the factoring market in the early stages of development. In 2022, factoring activities stood for 0.30% of GDP in 2022 (0.28% in 2020) (Facilitating Open Account, 2023[18]), while factoring turnover was equivalent to 12.6% of GDP in the EU in 2022 (EU Federation of Factoring & Commercial Finance, 2023[19]).
Leasing is also regulated at the entity level in Bosnia and Herzegovina, as it is governed by the Law on Leasing in the FBiH and the Law on Leasing in RS. To foster the development of leasing, both entities intend to exclude interests calculated under financial leasing contracts from the VAT calculation base. In terms of market development, all four leasing companies currently operating in Bosnia and Herzegovina are registered in the FBiH, primarily due to its status as the largest market in the region. Additionally, these companies have extended their operations by establishing branches in RS. In total, leasing activities generated a turnover of EUR 58 million in 2021 (0.29% of GDP), a very slight increase from EUR 53.7 million in 2019 (0.28% of GDP) (OECD, 2022[7]), while this figure was close to 2% of the GDP of the EU in 2022 (Leaseeurope, 2023[20]).
Sub-dimension 3.3: Digital finance
Bosnia and Herzegovina’s two entities have not yet implemented a dedicated legal framework for digital payments. In detail, the FBiH currently lacks any regulation in this regard. However, in January 2024, RS adopted the Law on Electronic Money, with its implementation scheduled for June 2024. Following the implementation, the legal framework would be partially aligned with the EU's Second Electronic Money Directive (EMD2), allowing the operation of e-money institutions and the issuance of electronic money. Implementation of the Law on Electronic Money would also partially align the legal framework with the Second Payment Services Directive (PSD2), therefore extending banks' payment services to third-party payment service providers (TPPs).14 Additionally, to prepare for future integration into the Single European Payment Area (SEPA), RS plans to fully align with EMD2 and PSD2 by drafting amendments to the Law on Internal Payment Transactions initiated in 2024. However, no specific timeline has been communicated for future adoption and implementation. These regulatory changes are expected to allow the emergence of firms in the digital payments sector in RS, although as of 2022 no such firms exist.
Despite the economy not having implemented a dedicated legal framework for digital payments, 66.5% of the adult population reported having made or received a digital payment in 2021 (World Bank, 2022[4]). This figure surpasses the Western Balkan average (61.7%) but lags behind the EU average (93.0%). The data suggest that Bosnia and Herzegovina may struggle with a digital skills deficit, hindering the widespread adoption of digital payment methods.15 The overall moderate penetration of digital payments poses challenges, ranging from increased business transaction fees to hindered financial accessibility and higher citizen remittance costs. This is particularly crucial for Bosnia and Herzegovina, considering the importance of remittance inflows standing at 12.9% of GDP in 2022 (World Bank, 2024[21]).
It should also be pointed out that the greatly increased digitalisation of the financial system can also promote the use of bank accounts (Khera et al., 2021[22]), as 79.3% of the adult population in BiH possessed a bank account in 2021 – a figure still falling below the EU's 95.1% (International Monetary Fund, 2023[15]). Despite the moderate adoption of digital payments and limited bank finance penetration, there is no explicit strategy to promote financial inclusion in Bosnia Herzegovina, and the information provided about potential initiatives does not explicitly address gaps in digital skills. In RS, authorities identified high banking fees as a bottleneck for financial inclusion by implementing the amendments to the Law on Internal Payment Transactions in April 2022.16 Notably, this Law requires commercial banks to provide basic payment accounts to all citizens of RS for a monthly fee that should not surpass 0.15% of the average net salary. Also implemented in April 2022 to limit banking fees in RS, the Law on Interbank Fees for Payment Transactions Based on Payment Cards caps the interbank fee for a debit card transaction at a maximum of 0.2% of the transaction value; for a credit card transaction, the interbank fee cannot exceed 0.3% of the transaction value.17 A new law is being drafted in the FBiH to regulate maximum bank fees, but there is no specific timeline for adoption or implementation.
Both entities from Bosnia and Herzegovina lack comprehensive legal frameworks for crowdfunding and distributed ledger technology (DLT) for financing, which hinders businesses from using digital assets to circumvent traditional banking and regulatory requirements associated with capital markets using digital assets yet (OECD, 2019[23]). Nevertheless, the state-level government of Bosnia and Herzegovina has addressed the DLT security requirements to align them with the security standards specified in the EU Anti-Money Laundering Directive (AMLD5).18 Indeed, complete alignment with the EU AMLD5 has been reached with the implementation of the Law on Preventing Money Laundering and Financing of Terrorism in February 2024.19
Overview of implementation of Competitiveness Outlook 2021 recommendations
Bosnia and Herzegovina has made notable strides in aligning its banking industry's legal framework with international standards and enhancing the legal framework for the capital market (Table 4.3). However, the advancement of alternative funding sources, such as crowdfunding, has been comparatively limited. Additionally, the accessibility of the corporate bond market for all businesses remains challenging. The key developments based on the previous CO Recommendations are elaborated below.
Table 4.3. Bosnia and Herzegovina’s progress on past recommendations for access to finance
|
Competitiveness Outlook 2021 recommendations |
Progress status |
Level of progress |
|---|---|---|
|
Continue to align Bosnia and Herzegovina’s banking regulations with international standards |
Regulation is being harmonised with Basel III standards in both entities, and significant legal progress has been achieved since 2021. In October 2021, the European Commission confirmed that BiH's supervisory and regulatory framework is equivalent to Regulation (EU) No. 575/2013, which addresses credit institutions' capital requirements and related regulations. In RS, the BARS adopted a strategy in 2022 to maintain equivalence with EU banking regulations until 2026. However, complete alignment with international standards remains unachieved. |
Strong |
|
Continue to build a business environment with diverse financing sources. |
Substantial legal progress has been recorded in RS. The regulatory framework for private equity has seen significant development through amendments to the Law on Investment Funds implemented in July 2022. Progress has also been made in the legal frameworks for factoring and leasing. However, no legal progress has been recorded in the FBiH since the last assessment cycle. Finally, no legislative development for crowdfunding in Bosnia and Herzegovina has been recorded in either entity. |
Moderate |
|
Facilitate market-based long-term debt financing for businesses with a more extensive use of corporate bonds. |
No policies or specific regulations were in place to help businesses access the corporate bond market in either entity, and no credit rating mechanism has been implemented. |
None |
The way forward for access to finance
In a fragmented institutional setup where both entities have extensive competencies on access to finance policies, relevant policy makers should:
Achieve aligning banking regulations with Basel III standards. As in the other Western Balkan economies, the banking sector is the primary player in the financial industry. Given the importance of the banking sector in accessing finance, both entities should create a more robust and stable global banking system that can withstand economic downturns and financial shocks. Particular attention should be paid to increasing the co-ordination of supervisory activities between the two entities.
Continue efforts to harmonise further capital markets' legal framework with EU standards to develop market-based financing. Adopting EU acquis regulations on stock and debt markets can increase investor confidence, strengthening cross-border co-operation. This can create opportunities for local businesses to attract investment and raise capital from a larger pool of investors.
Strengthen the mandates and structure of credit guarantee funds. Considering the ongoing decline in SMEs' access to finance, particularly in the FBiH, it is essential to review the performance of existing funds to pinpoint obstacles. Collaborating with stakeholders, a reassessment of credit guarantee schemes' mandate and design is necessary to ensure targeted measures effectively support SMEs. The United Kingdom’s (UK) experience can provide a relevant example of good practice for ensuring that support schemes respond to the needs of SMEs (Box 4.1).
Continue to align financial market regulation with the EU and enable the exchange of information between the two entities. Building further on the efforts to align both financial markets to EU standards, additional steps should be taken to facilitate inter-entity exchange of information on the financial sector and good practice.
Develop a coordinated approach to making digital finance available for all individuals and businesses. Financial services are increasingly digitalised, and older adults, individuals with low education levels, and those residing in rural areas face more significant financial exclusion because of insufficient digital skills, which should be considered in financial inclusion strategies.
Box 4.1. The United Kingdom Business Support Evaluation Framework
The UK Department for Business, Energy and Industrial Strategy (BEIS) has created a dedicated framework for evaluating business support interventions in the United Kingdom. The tool aims to help policy makers create comparable support programmes and establish standards for all initiatives to provide the highest quality services. The framework focuses on quantitative evaluation and is complemented by qualitative monitoring. The evidence gathered through the evaluation framework is a basis for an impact and cost-effectiveness assessment. BEIS provides numerous support programmes for businesses, which are monitored and evaluated regularly; therefore, the framework compiles the evidence already gathered to identify good practices in the evaluation area. The framework focuses on support programmes’ comparability through standardisation, data collection and reporting.
The framework is designed along a logic model, which accounts for collecting different data components. The key elements include inputs, e.g. resources used for a support programme, deliverables, programme output and impact. The envisioned timeline of the impact evaluation is set at a minimum of three years. The business support interventions are evaluated based on a set of predefined indicators, such as gross value added, turnover, employment, and productivity proxy measures such as turnover/headcount ratio. The indicators are well targeted to ensure programme comparability. BEIS aims to create uniform standards for the support programmes provided and increase the transparency of the evaluation process.
The monitoring and evaluation of business support programmes are uneven across entities in Bosnia and Herzegovina; thus, introducing a common, comparable evaluation framework would improve the quality of the support services provided. Given Bosnia and Herzegovina’s governmental structure, similar programmes and a common assessment framework would reduce the administrative burden for both entities and ensure higher-quality support services for SMEs. Bosnia and Herzegovina can draw on their co-operation with international development co-operation partners, which can assist the economy in developing an evidence-based framework for impact evaluation.
Source: OECD (2022[7]).
References
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[17] OECD (2021), Competitiveness in South East Europe 2021, https://doi.org/10.1787/20765762.
[23] OECD (2019), Initial Coin Offerings (ICOs) for SME Financing, http://www.oecd.org/finance/initial-coin-offerings-for-sme-financing.htm.
[11] Republic of Srpska Investment-Development Bank (2024), Database of Disbursed Loans, https://www.irbrs.net/PlasiraniKreditiBaza/PlasiraniKreditiIzvjestaji.aspx?p=3&lang=eng (accessed on 14 June 2024).
[12] World Bank (2024), BIH Firm Recovery and Support Project, https://projects.worldbank.org/en/projects-operations/project-detail/P174604.
[21] World Bank (2024), Remittances Prices Worldwide, http://remittanceprices.worldbank.org/ (accessed on 17 January 2024).
[4] World Bank (2022), The Global Financial Development Database, https://www.worldbank.org/en/publication/gfdr/data/global-financial-development-database (accessed on 24 November 2023).
[6] World Bank (2019), Doing Business Project, https://data.worldbank.org/indicator/IC.CRD.PRVT.ZS?locations=BA (accessed on 8 February 2024).
Notes
← 1. These temporary measures aimed to introduce additional rules for expected credit losses and offset the consequences of a potentially significant increase in debt repayment (European Commission, 2023[5]).
← 2. It can also be mentioned that the amount of insured deposits is EUR 35 800, which remains substantially below the EUR 100 000 of the EU acquis.
← 3. The Standing Committee for Financial Stability comprises the banking agencies, the Central Bank, the Deposit Insurance Agency, and the relevant ministries.
← 4. There is also an operational national private credit information system, which is neither recognised nor overseen by a regulator.
← 5. It could also be noted that the Credit Guarantee Fund has operated in RS since 2010. The amendments to the Law on Guarantee Funds in 2019 and 2020 expanded the competencies of the Credit Guarantee Fund to having it issue individual and portfolio guarantees to SMEs. However, its activity is modest, with a total of EUR 32.8 million in 2022 (Credit Guarantee Fund of the Republic of Sprska, 2023[24]).
← 6. The IBRD has not yet communicated any renewal of this programme.
← 7. The three programmes are the “ISP BiH Loan for SMEs and Priority Projects IV” programme (started in April 2021), the “UBBL COVID-19 Response for SMEs & Midcaps Loan” programme (started in June 2021), and the “ISP BiH Impact Incentive Loan for SMEs & Midcaps” (started in February 2022).
← 8. This program received a EUR 10 million extension in November 2022.
← 9. While both foundations and microcredit companies offer microcredits, foundations operate as nonprofit entities focused on social impact, whereas microcredit companies are for-profit institutions subject to financial regulations and seek to generate profits from their lending activities.
← 10. In detail, the Law introduces improved rules for documents such as the prospectus, which companies use to share crucial information with investors. This includes defining the validity period of these documents and ensuring their accessibility. Moreover, rules and costs for companies issuing short-term financial instruments have been streamlined. The law also limits changes to the information companies provide during a public offering to protect investors, ensuring that investors receive reliable and consistent information. Finally, the law grants broker-dealers more flexibility in their operations.
← 11. In detail, the Law establishes a legal basis for ending the public offering of a company's shares before the registration and payment deadline, even if shareholders, exercising their pre-emption right, have registered and paid for at least 60% of the new shares offered in the prospectus. In cases where subscribed shares are not paid for after the public offer is completed, nonpayment will not carry legal consequences and the subscribed shares cannot be legally traded.
← 12. UCITS is designed to create a standardised and secure framework for investment funds, promoting investor protection, facilitating cross-border investment, and contributing to the harmonisation of regulations across the EU (https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32009L0065).
← 13. The AIFMD directive regulates the activities of alternative investment fund managers within the EU (https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32011L0061).
← 14. EMD2 directive: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32009L0110; PSD2 directive: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32015L2366.
← 15. Such data are not available at the entity level.
← 16. No assessment of the impact of banking fees on financial inclusion has been conducted by the authorities in Bosnia and Herzegovina. However, the importance of credit card fees has been underlined by (European Commission, 2023[5]).
← 17. On financial inclusion, the Committee for the Coordination of the Supervision of the Financial Sector of the RS is tasked with organising and implementing user protection in financial services, alongside providing information on and education in these services. The members of the Committee are the Minister of Finance of the RS, the President of the Securities Commission of the RS, the Director of the Banking Agency of the RS, and the Director of the Insurance Agency of the RS.
← 18. In RS the Law on the Securities Market amendments, already entered into force in July 2022 to define virtual currency and wallet deposit services, tasks the Securities Commission with overseeing providers for compliance with anti-money laundering rules, and defines penal provisions in case of infringement. This Law was the first step towards harmonisation with the EUAMLD5 directive (https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32018L0843).
← 19. The Law on Securities Market was amended in June 2022 as a first step towards alignment with the EU AMLD5 directive. These amendments introduce clear definitions for virtual currency and wallet depository services. They also establish rules requiring providers of virtual currency exchange services or wallet depository services to register, share information, and undergo checks.