Balkan loan guarantors struggle to pay others' debts

Sun Aug 16, 2009 11:05pm EDT
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By Daria Sito-Sucic

SARAJEVO (Reuters) - When Alma, a Bosnian single mother of two, agreed to act as a loan guarantor for a colleague, she never imagined the day would come when she would actually have to pay the debt.

Yet that is exactly what happened to the Sarajevo high school administrator who is among an estimated 100,000 Bosnians paying off loans they secured for friends and relatives to help them rebuild their lives after the devastating 1992-95 war.

"I am paying off a loan of an ex-colleague who has left the job and I don't even see anymore," said Alma, 52, who was too ashamed to give her family name.

"If only there was an end to this nightmare," she added. Alma rented her apartment for extra cash as two-thirds of her 400 euro ($567) salary goes to cover loans.

In the states created after the collapse of Yugoslavia in the 1990s, people readily guaranteed loans for friends or relatives, unaware their backing was no longer a mere formality as during socialist times.

Now, the generosity that helped revive the Balkan country after Europe's worst fighting since World War Two is stinging guarantors as they themselves face the impact of the global economic crisis.

Back then, jobs were secure until retirement and the dinar currency suffered frequent denomination, making loan servicing an easy task. Also, with little private property, guarantors were a key backing mechanism.

While officials say overall indebtedness in Bosnia is relatively low compared with other Balkan countries, financial crisis-induced losses in its microcredit sector could bring poverty to the middle and working class people heavily dependent on such loans. That in turn could add to instability in the ethnically divided country.   Continued...

<p>Munira Babic awaits rare customers in her souvenir shop in historic Turkish quarter of the Bosnian capital of Sarajevo on August 10, 2009. REUTERS/ Danilo Krstanovic</p>