Growing a furniture manufacturing business in Bosnia & Herzegovina

Kovac Mirsada in her new warehouse purchased with a loan supported by USAID’s Development Credit Authority. / Bobby Neptune, USAID

Ms. Kovach Mirsada has worked hard to establish and grow her furniture manufacturing business, BK Linea, in Sarajevo, Bosnia and Herzegovina. It is difficult to start a business in Sarajevo, where most banks are conservative and hesitant to lend to new borrowers. High collateral requirements remain one of the major obstacles to entrepreneurs accessing needed capital to start or grow their businesses.

Ms. Mirsada discussing her business and access to credit. / Bobby Neptune, USAID

This is where USAID’s Development Credit Authority (DCA) steps in and with USAID/Bosnia & Herzegovina and the The Swedish International Development Cooperation Agency (Sida) shares risk with Ms. Mirsada’s local bank. Sida has partnered with DCA to co-guarantee this and many similar guarantees. This partnership between Sida and USAID was pioneered in Bosnia and Herzegovina and has since been employed to mobilize credit across several additional countries, as well. Many guarantees have been made possible through Sida’s co-guarantor partnership.

Ms. Mirsada’s local bank was encouraged by Sida and USAID’s DCA risk sharing (i.e. guarantee) partnership to lend to Ms. Mirsada, thus equipping her to grow her business. By sharing risk with banks, a DCA guarantee is often treated as a substitute for collateral, leading to lower collateral requirements for the borrower. This partnership addresses one of the primary obstacles to obtaining credit, and has been very helpful in increasing access to finance in Bosnia and Herzegovina.

Initially, Ms. Mirsada’s business was limited to renting a small space from the municipality, but quickly outgrew it as the business continued to increase its revenues. Ms. Mirsada then rented a larger space until she could secure an additional loan to purchase a large warehouse needed to scale their production.

A part of the new warehouse purchased with a loan supported by USAID’s Development Credit Authority. / Bobby Neptune, USAID

The larger warehouse enabled the company to increase inventory and save money through investing in ownership of the space rather than paying rent. This allowed the company to centralize the storage of all products and increase production. The centralization has been crucial in reducing cost, cutting waste, and increasing revenue. The extra space and consequent increase in production, including the installation of an entire new production line, also led to the hiring of several new employees.

Ms. Mirsada continues to repay loans on time and build up a strong credit history. Her strong repayment record allowed her to secure several additional loans with the bank.

Ms. Mirsada with her husband. / Bobby Neptune, USAID

Ms. Mirsada — Director for 23 years alongside her husband, the company’s engineer — built the successful company that has enabled them to establish a secure life for themselves and their three children. The Mirsadas beam with joy when discussing the future and education of their three children. They have dreams to continue growing their business, hiring more employees, and saving for their children’s university education.

About the Author: Navgeet King Zed provides communications support to USAID’s Development Credit Authority.