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The law on banks and microfinance institutions, which has been passed by Kosovo parliament few weeks ago, and silently approved by the President of Kosovo yesterday goes against Council of Europe recommendations and damages civil society in Kosovo.
This is because this law creates a precedent: when donors give money to registered non-governmental institutions, NGOs, in Kosovo, it is now legally possible for NGOs to ‘transform’ that money into the personal stock of someone who runs that NGO in the future.
Seventeen microfinance institutions that exist in Kosovo are registered as NGOs. These microfinance institutions have been lobbying for years to change the law in Kosovo in a way that would allow them to legally enrich themselves from the enormous profit they have created giving loans to the poorest people in Kosovo society.
Hashim Rexhepi, the former bank governor, confirmed to BIRN that microfinance institutions have put pressure on the Central Bank since 2007 to allow them to transform into banks, but two of the former central bank directors have rejected these requests on the basis that it was against the law on NGOs, under which microfinance institutions functioned.
In 2010, as a civil society member, I was a member of the government commission for re-drafting the law on freedom of association where I directly faced this microfinance lobby. At that point, these organisations wanted to change an article in the NGO law, which said that all the profit, capital and assets created by an NGO needed to stay in the civil society sector.
If an NGO decided to dissolve, it needed to donate the capital it had created to an NGO with similar objective.
They tried to change that article but they were unsuccessful as the civil society representatives in that group stopped them because it was clearly going to damage the whole sector by scaring genuine donors who give grants for specific purposes and did not want to enrich the people who run these NGOs.
However, we couldn’t stop them for long. Now this lobby has found friends in high places, including it seems friends in the US treasury, friends in IMF and the Central Bank and no doubt, friends in Kosovo government, parliament, as well as friends with Kosovo president, who had an opportunity to turn this law back but did not do this.
All of the above-mentioned institutions were involved in drafting this law and made sure it was passed in the parliament the way they wanted it. The 100 million euros of capital that microfinance institutions have accumulated for more than a decade, feeding on the poor, will no doubt have come in handy for lobbying for a change in the law.
This law has been essentially drafted by bankers and financiers in the Central Bank and advisors of the US Treasury and the IMF in Kosovo. None of these parties care much about the effects that this law may have on the civil society sector. I should not be so surprised because the financial crisis in the world has shown us that bankers and financiers have little regard to their impact on wider society as long as they are getting richer.
On top of this, the opposition parties in Kosovo, for the first time, were united against the law, with more than 50 members of parliament leaving the assembly room as it was being voted through.
The question is: why are so many ‘advisors’ pushing Kosovo to become a country with a legal structure that goes against Council of Europe recommendation and against its own institutions?
Do they know that Article 9 of the Council of Europe recommendation, number (2007)14 on the legal status of non-governmental organisations, says that “NGOs should not distribute any profits which might arise from their activities to their members or founders but can use them for the pursuit of their objectives’?
A similar provision is also included in the CoE’s Fundamental Principles on the Status of Non-governmental organisations in Europe, namely in Article 4, according to which NGOs should ‘not distribute profits arising from their activities to their members or founders, but use them for the pursuit of their objectives”.
The law on Banks is in contradiction to this principle as it clearly allows for profits to be distributed to private stock-buyers rather than to be used for the good of the public.
In addition, this law contradicts directly with Kosovo’s constitution. Article 46 of the Constitution of Kosovo says that ‘no one shall be arbitrarily deprived of property’. In this case, civil society is being directly deprived of its property by these microfinance NGOs.
The capital of NGO microfinance institutions, according to the Law on Freedom of Association in NGOs, belongs to those NGOs, and in case of a dissolution or closure, such capital should be distributed to other NGOs operating in similar areas.
This capital, according to the precedent of the Strasburg Court, should be under the possession of a “nonprofit holder”, as any other action would be in contradiction with the standard of Article 4 of the Law on Freedom of Association in NGOs.
Now they simply want to take this capital away from the civil society sector. Poor Kosovo sees yet more capital (similar to its pension fund and privatisation fund) being taken not only out of the civil society sector, but probably out of Kosovo financial market altogether.
Maybe I am wrong and this capital will be used in Kosovo. But maybe the urgency to approve this law in such a hurry is connected to an early election in one of the most important cities in Kosovo and the need of political parties to secure funding for their political campaign and buy votes.
Moreover, article 115 paragraph 4.2 of this law on banks allows the Central Bank of Kosovo to be the ultimate authority in ‘approving’ the plan in how ‘the Surplus Capital’ of microfinance institutions is distributed for charitable purposes ‘according to the plan approved by Central Bank’. Last week, in an interview for Jeta ne Kosove, I asked the Central Bank what other central bank in the world deals with distributing funds for charitable purposes?
Where have they based this new ‘mandate’ that the central bank gave to itself, the mandate of intervening in the civil society sector by distributing its funds? Civil society should be free from any influence, including being free from financial institutions such as the Central Bank, which has a board composed of four members, two of which are appointed by the government.
So, considering the central bank is not free from government influence, why should it have the right to distribute charitable funds which do not belong to the bank, but belong to civil society sector in Kosovo?
The central bank representative had no answer to these questions.
He couldn’t name even one country in the world where a central bank distributes charitable funds.
In the law on freedom of association, the funds of a dissolved NGO would have been distributed through a commission which has, according to the law, civil society representatives. Now that money will be in the hands of people who have no clue about working with charities, foundations or any form of civil society activity. Who would trust the bankers today to do anything smart for the society at large?
Kosovo ends up being an experiment yet again in how it deals with civil-society created capital – despite the fact that it has a constitution that clearly states that no one should be deprived of property and despite the fact that the Council of Europe advises against it.
Or maybe, one aim of the law on banks was to financially weaken an already challenged civil society sector? The passing of the law was, of course, also in aid of the national interest, as it paves the way for the government to sign a stand-by agreement with the IMF, which these financiers think is clearly more important than some concerns of civil society in Kosovo.
It is funny how national interest always comes in handy if you want to get Kosovo institutions to approve something that damages civil society – and it is funny how international institutions in Kosovo yet again overlook how our new country is distancing itself from EU principles.
Jeta Xharra is Director of Balkan Investigative Reporting Network in Kosovo and anchor of Kosovo’s most watched current affairs programme “Life in Kosovo”.
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