Quick Trap

Behind the flashy promises of quick cash lies a troubling reality: the financial stranglehold of so-called “money shops” on the population, a system not only unsupervised but actively enabled by the state. With shockingly high costs legally sanctioned and minimal oversight in place, these companies operate in a regulatory gray zone rife with opportunities for manipulation and exploitation. How did this unchecked financial tyranny become the norm—and who is paying the price? 

Reported by: Aleksandar Janev

 

“Borrow a little, repay up to five times more.”

You won’t hear this slogan in any glossy advertisement advertising a finance company. Instead, it’s a telling excerpt from an internal document of one such company dated late 2023. This document outlines a request from one of the country’s largest quick loan providers to a marketing agency to design a media campaign aimed at salvaging the company’s public image. The company in question operates not only in Macedonia but also in neighboring Albania, offering “money shop” services that approve payday loans. Over the years, these companies have garnered a reputation for saddling borrowers with exorbitant costs, leaving many financially trapped and unable to recover.

The document candidly reveals the company’s core target audience: lower- and middle-class citizens aged 25 to 55. It highlights the supposed benefits of their services—an expedited loan approval process and minimal documentation requirements, with nothing more than an ID card needed to access funds.

The campaign’s ambitious goal is threefold: to double the number of loan applications, to improve the company’s tarnished image, and to position itself as the go-to provider for quick loans in Macedonia. We cannot tell whether the outcome of the company’s requested marketing campaign for that particular year reached its ambitious goals. However, critics argue that campaigns like these merely sugarcoat a deeper issue—hidden costs that turn a quick loan into a long-term financial burden.

According to data obtained by IRL from the annual accounts of all finance companies for the last year, one can witness that altogether they spent around 3 million euros on advertising. This makes them one of the largest marketing advertisers on the market, since for every 1,000 euros spent on electronic media advertising, 150 euros came from these finance companies.

Their radar is finely tuned to lock onto the most vulnerable—poorer citizens who struggle to qualify for traditional bank loans. In a country where poverty dominates, this is a market ripe for exploitation. The sheer size of the opportunity is hard to ignore.

Macedonia, a poor country with weak institutions and ongoing struggles with the rule of law—issues frequently cited in both domestic and international reports—together with some of the countries in the region have become fertile ground for the expansion of fast-credit businesses. After cementing their presence here and in neighboring countries, many of these firms have already begun shifting their focus to the African continent.

Originally, microfinance was designed to provide an alternative to traditional banking, fostering greater competition and creating opportunities for citizens and businesses to access loans on better terms. Yet, over the years, this vision has been completely upended. Today, these companies have pivoted their focus, targeting those least able to shoulder the financial burden: citizens excluded from the banking system.

The potential client base for microcredit companies paints a sobering picture. Over 100,000 unemployed citizens form the first tier of their target group. They’re followed by 172,000 workers earning the country’s minimum wage of just €365 per month. The third group includes 242,000 individuals earning an average wage of €640—barely enough to cover the minimum consumer basket. Together, this creates a staggering pool of at least half a million citizens—half the population—who are prime targets for microfinance companies.

The question remains: is microfinance here to help—or to trap?

The dawn of the fast credit business

In a developing country like Macedonia, the social and economic struggles of its citizens have created the perfect environment for wealthy tycoons to grow even richer—by lending money to the poor at exorbitant costs. The concept of “take a little, give a lot” isn’t new; it has long been synonymous with usury, an illegal practice operating in the shadows.

Fifteen years ago, authorities promised to crack down on usurers. Instead of stamping out the practice, they gave it legal legitimacy. With the assurance of regulation, the concept of lending at high costs was brought into the open, and the era of small, fast loans officially began.

In 2010, the government at that time led by VMRO-DPMNE introduced the Law on Finance Companies, a piece of legislation that allowed the creation of non-bank credit institutions. This move marked a turning point for the microfinance industry. Today, 27 such companies are actively operating in the country, offering quick loans to a population increasingly dependent on borrowing to survive.

Hailed as fintech pioneers, these companies were introduced with promises of innovation and progress in the financial market. Yet, in practice, they have focused more on devising ways to extract as much money as possible from clients. Leveraging the weak financial literacy of citizens, they impose hefty commissions, hidden fees, and other dubious charges—all approved and legalized by the state.

Too Small in Theory, Too Big to Ignore

While finance companies account for just 1.3% of the domestic economy, their rapid growth has made them impossible to overlook. They have already outpaced the leasing sector and savings banks, with credit portfolios exceeding loans issued by some smaller banks in the country.

To put this into perspective, citizens now owe more in quick loans to these finance companies than in loans issued by Kapital Bank, TTK, Silk Road, Stopanska Banka Bitola, and Central Cooperative Bank. By the end of 2023, over 222,000 quick loans have been active. This is equal to every resident, officially registered at the last census, of Kumanovo, Tetovo, and Bitola—the three largest cities after Skopje—to each hold at least one quick loan from these companies.

As of September this year, financial companies had issued loans worth just over 170 million euros.

The numbers reveal a booming business.

What began as a modestly profitable sector in 2018 has since exploded. After breaking even that year, profits skyrocketed tenfold in 2019 and have climbed steadily ever since, reaching €21 million in 2023.

When viewed in the context of their total assets—both equity and liabilities—finance companies reveal an astonishing level of profitability. For every €1,000 in assets, these companies generate €150 in profit. To put this into perspective, that’s six times more than what banks earn, despite banks being widely regarded by the public as some of the most profitable institutions.
In 2023, the financial sector experienced a striking concentration of profits, with nearly half of all profits generated by a single company. That company, “Flex Credit,” reported an impressive profit of nearly 9 million euros. Joining it among the top five most profitable companies were “Finmak,” better known to the public as “Tigo,” followed by “M Cash,” “Financial Credit Center BS,” and “Credisimo.”
However, a stark contrast emerges when examining the largest company in terms of interest and commission income. “Iute” reported profits much lower than the sector average. According to its detailed income statement, “Iute” incurred consulting and interest expenses amounting to 6.7 million euros. This figure—representing nearly a third of its total income—was paid to an equity-related company.

Astronomical Costs Legalized by Law

The sector’s profitability stems largely from the high interest rates and fees imposed on customers i.e. the citizens, rates that can legally soar to as much as 130%. Almost every second borrower according to the National Bank, (57% of loans are paid late or overdue) is unable to pay on time which effectively doubles or even triples costs for borrowers who struggle to meet their obligations.

But how do these institutions calculate such exorbitant costs and end up with an estimated cost of 130% for a single loan?

When a citizen takes out a consumer loan from a bank or financial company, the total cost rate (TCR)—the maximum allowable cost—can soar to as high as 70% per year. To put it plainly, the penalty interest rate for borrowers has increased fivefold.

These costs typically include interest, which is almost always within the legal threshold, currently capped at about 14% annually. However, additional fees and commissions for administration and approval inflate the total loan cost to the staggering maximum of 70%.

But here lies a troubling discovery: the state, rather than protecting its citizens, appears complicit in this financial oppression and burden.

When amendments to the Law on Finance Companies were enacted last year, the public was led to believe that the costs associated with quick loans would be capped at 60%. However, this cap excludes a host of legalized additional charges for services such as financial counseling, express processing, VIP privileges, or urgent loan handling—pushing the financial strain on borrowers even further.

However, when the total cost rate (TCR) is factored in, the actual cost of loans can escalate to a staggering 130%.

This practice directly violates the Law on Obligations, which mandates that all loan-related costs in the country cannot exceed 100% of the principal amount.

The National Bank’s Financial Stability Report has also raised red flags and it states:
“Despite legal restrictions, the debt burden on borrowers from these companies remains high because the total costs, including interest, often equal the loan’s principal amount.”

Moreover, one of the most blatant violations of the law remains widespread—loan refinancing by the same company. Though explicitly prohibited by the latest amendments, and punishable by license revocation, companies continue this practice. They refinance existing debts of borrowers who cannot repay their loans by issuing new, larger loans. With each refinancing or so-called closing of one debt, all associated costs are recalculated, deepening the borrower’s financial distress.

Is Any Similarity to Usury Coincidental?

The claim that quick loans resemble legalized usury has circulated for years, sparking heated public debate.

According to Article 129 of the Criminal Code, usury is defined as follows:
“An usury agreement is void, by which someone, taking advantage of the state of need or difficult financial situation of another, his insufficient experience, frivolity or dependence, shall agree for himself or for a third party a benefit that is clearly disproportionate to what he gave or did to the other, or undertook to give or do to him.”

While the state’s legal definition of usury appears to align with the practices of quick-loan providers, these similarities remain unproven in court.

However, IRL’s investigation into court rulings has uncovered parallels between traditional usury cases and modern microloan practices. Specifically, court rulings from the Criminal Court reveal that individuals convicted of usury lent money at interest rates much lower than the total costs associated with quick loans provided by these finance companies.

Two specific court rulings on usury agreements that we came across show that in the first one, a loan shark was convicted for charging 5% monthly interest, “taking advantage of the financial hardship and vulnerability of the borrowers”. Similarly, in the second case, the monthly interest rate charged was 6%. Both cases resulted in fines for the perpetrators under Article 260 of the Criminal Code.

Yet, when examining quick loans, IRL found evidence of costs that far exceed these rates. In fact, the Ministry of Finance confirmed that during their inspections, they frequently uncover cases where companies approve loans with annual total cost rates above the legally allowed threshold.

IRL also reviewed numerous loan agreements and spoke with citizens burdened by microloans. Their stories paint a troubling picture: small loans ballooning into massive debts due to excessive costs.

„I borrowed 30,000-40,000 denars, but the debt has now reached 100,000-120,000 denars,” -said one of the people we spoke to, but he did not want us to reveal his identity.

“In total, all members in my family home loaned about 6,000 euros, for which we currently have to return about 20,000 euros, with bailiffs and interest,” a young girl from Skopje told us at the IRL offices. 

A student from the interior of the country, who lives in Skopje, says: “I borrowed about 200,000 denars, and need to pay back about 630,000 denars.” 

When having in mind citizens with lower incomes, debts laden with unreasonably high costs pose a serious threat to socio-economic stability. Financial experts warn that the burden falls hardest on already vulnerable segments of the population, creating an imbalance with far-reaching consequences.

“The poor are getting poorer, while a small number of individuals are getting richer. This social equation is deeply unfair,” university professor and academic Abdulmenaf Bexheti told IRL. “The state must intervene and regulate this. If it doesn’t, we risk a social explosion among the most vulnerable.”

Bexheti expressed concern that a handful of individuals are amassing wealth through exploitative financial practices, while the majority—already struggling in a fragmented society—face heightened social and economic peril.

“The state must focus on how to protect the population. That is the essence,” Bexheti emphasized. 

Reluctant Oversight: The State’s Fragile Grip

The Ministry of Finance holds the reins of control over finance companies in the country. As both legislator and regulator, the Ministry drafts laws adopts regulations, and supervises the operations of these companies. It also issues licenses, allowing companies with a minimum deposit of €500,000—up from just €100,000 last year—to lend money to the public. This increase in required capital has paved the way for even greater lending capacity, with companies now able to extend loans up to ten times their capital and reserves. In total, this translates to a potential loan portfolio of €680 million.

Since the Law on Financial Companies was enacted 15 years ago, six finance ministers have come and gone. Yet, despite consistent public outcry and numerous complaints, none of them have elevated oversight and supervision to a level that ensures robust protection for citizens, required and deserved for the citizens. In stark contrast to the 12 banks, which operate under strict scrutiny by the National Bank, the 27 finance companies—with more than 220 branches across the country—are overseen by just six Ministry employees.

Unlike the previous Minister of Finance Fatmir Besimi, who presided over what some describe as a “renaissance” in this sector from 2020 to 2024 (the period when many of these finance companies were opened) and who openly acknowledged the Ministry’s lack of capacity to monitor these companies effectively, the new minister believes that she has the situation under control.

We talked to both of them in different time period this very same year. The question we asked whether they believe that only six people are enough to ensure real control, was answered differently. Besimi, before leaving his position reply to IRL’s question was:

“It is not enough at all, and that is why we initiated the idea of transferring this responsibility to the National Bank.” 

In contrast, his successor, Gordana Dimitrieska-Kochoska, maintains that the current setup is adequate.

“Yes, because even when audits are conducted, they are based on a counted sample. Those who do not comply with the law will certainly be identified,” Dimitrieska-Kochoska assured IRL. She emphasized that the six officials are dedicated exclusively to the auditing and monitoring of finance companies, with no other responsibilities within the Ministry. 

Despite her confidence, Dimitrieska-Kochoska added a notable caveat: “If an agreement is reached, I would transfer them to the National Bank right now because they have many years of experience in this area and will be able to handle it more easily.”

This country stands as a rare exception where the oversight and supervision of such microfinance companies does not fall under the jurisdiction of the central bank. Despite growing concerns about the sector’s practices, the National Bank has shown no initiative to bring these finance companies under its regulatory umbrella. The National Bank justifies its position by arguing that microfinance companies represent only a small fraction of the market, with little potential to disrupt the overall financial stability.

“Assuming such jurisdiction requires a truly deeper, in-depth analysis. It is true that globally there are different solutions in this segment. So as an institution, we are open to discussion, exchange of opinions, support,” explained Governor Anita Angelovska-Bezhoska. 

Another important argument that seems to ignore the danger of financial instability is that these companies are non-deposit institutions—they are not legally allowed to collect deposits from citizens or businesses and use those funds for lending.

However, IRL’s analysis of company balance sheets reveals a different story. While these companies cannot take deposits, they are still financed with citizens’ money, often collected through specialized platforms. These platforms offer loans to the companies at interest rates of 10–15% per year. According to the National Bank’s latest data, finance companies collectively have €26.3 million in such loans.

Researching the practice in the whole region we came to the conclusion that for example in neighboring countries like Kosovo and Albania, central banks have taken a much more proactive approach. The monetary authorities in Tirana and Pristina not only oversee non-banking finance companies but have also scrutinized the extraordinary profits these microfinancing institutions generate at the expense of their poorest clients. Their findings prompted bold regulatory actions aimed at curbing exploitative practices.

“Silk Cord” Tightens Around Albania’s Central Bank Governor

This summer, the Albanian prosecution froze assets worth approximately €10 million belonging to two microcredit companies, Micro Credit Albania (MCA) and Final, as well as several individuals connected to their operations. In response, the Central Bank in Tirana revoked the companies’ licenses and initiated their liquidation.

The Special Anti-Corruption Prosecutor’s Office (SPAK) has expanded its investigation into irregularities within the microcredit sector to include Gent Sejko, the governor of the Central Bank of Albania. Investigators are examining whether Sejko failed to fulfill his regulatory obligations or enabled abuses through lapses in oversight and supervision of these finance institutions.

In particular, they are investigating whether there were any failures in regulatory supervision, which could have contributed to the massive fraud committed by MCA.

Central to the investigation are allegations that companies like MCA and Final used illegal methods to collect debts. These include forging documents, confiscating property without legal grounds, and manipulating credit agreements, entrapping borrowers in long-term debts with exorbitant interest rates.

The investigation also uncovered systematic abuse involving private bailiffs and appraisers, who collaborated with these companies to exploit debtors. Properties belonging to debtors were seized and sold at auctions for below-market prices, often purchased by the creditors themselves or their associates. The scope of the damage is staggering—an estimated 100,000 Albanian citizens were affected by the scandal.

Further details from the research, according to the media reports , revealed that some bailiffs illegally inflated debts by adding unauthorized late-payment interest, driving up the amounts owed.

These actions have led to criminal investigations into at least three bailiffs, who are suspected of conducting improper procedures and engaging in forced debt collection practices that violated laws and the rights of borrowers.

Recent revelations from an ongoing investigation have shed light on alarming practices in Albania’s microfinance sector. Media reports reveal that some bailiffs have been illegally adding late-payment interest to outstanding debts, significantly increasing the total amounts owed.

As a result, at least three bailiffs are now under investigation for using improper procedures and carrying out forced debt collection practices that violate the laws and rights of debtors.

“This goes beyond any simple economic logic and is driving citizens into great social depression,” said Alban Duraj, a lawyer in Tirana who has been providing free legal assistance to citizens struggling with microcredit companies for years. “We’ve seen cases where citizens, overwhelmed by their inability to pay these obligations, have tragically taken their own lives.”

The high costs associated with suchloans in Albania mirror the issues seen in neighboring Macedonia, highlighting a troubling regional pattern.

Interest rates in Albania reach as high as 170%, as Erion Brace,a member of parliament for the ruling Socialist Party and a member of the Committee on Economy and Finance, stated in the conversation with IRL .

“There are entire families who have lost critical properties for relatively small debts,” Brace told IRL. “For 10 or 20 million old lek, translated into 10–20 thousand euros, people are losing homes worth 100 thousand euros. This is unacceptable.”

In response, the Central Bank of Albania is preparing a new regulation aimed at addressing operational risks in the financial sector including banks, finance companies, and institutions for electronic money. The regulation, set to take effect in early 2025, will require non-bank finance institutions to conduct solvency analyses of individuals applying for loans.

Licenses Revoked in Kosovo

Earlier this year in Pristina, former governor of Kosovo’s central bank, Fehmi Mehmeti, recounted to IRL how two financial companies lost their licenses to operate in the country. These same companies are now active players in Macedonia’s financial market.

“One of these companies, Iute Kredit, charged loan costs exceeding 100%, despite submitting a business plan that predicted an effective interest rate of around 30%, which is already excessively high. In addition, they manipulated cost calculations, failing to compute the effective interest rate as required by existing regulations at that time.”, Mehmeti explained to IRL.

During this period, as Mehmeti described it, an aggressive black campaign unfolded, targeting him personally and the central bank as an institution. The campaign played out both in the media and during public debates, where managers of microfinance institutions sought to undermine regulatory oversight.

What alarmed the monetary authorities most was the information that Iute Kredit had begun collecting money directly from citizens.

“Iute Credit started collecting deposits. The director personally assured me they were loans, not deposits, but essentially, call them what you will, they were deposits. This unauthorized activity, amounting to about half a million euros, led to immediate action. The central bank ordered the company to refund the collected funds to the citizens from whom they were taken”, says Mehmeti.

Despite being given a deadline to rectify its violations, Iute Credit continued to flout the law.

The tipping point came when intelligence reports warned that companies collecting money from citizens under dubious terms could threaten national security if they simply decide to abruptly exit the market.

The central bank responded decisively, revoking Iute Credit’s operating license.

“This case escalated to international arbitration, but in November 2022, the ruling came down in favor of the Republic of Kosovo and its central bank”- adds Mehmeti. 

A similar scenario played out with another company, Monego, which operates under the name Tigo in Macedonia. The operating license was revoked for this company as well.

“These same institutions now operate in Macedonia and Albania, and I’m confident they are engaging in the same practices as they did in Kosovo.”, warns Mehmeti.  

However, Macedonian intelligence services claim they lack evidence of such risks in the country.

Meanwhile, the debate over the existence of finance companies continues to stir public discourse, particularly during the recent elections. The ruling Albanian coalition, Vredi, had even promised to shut down these so-called “money shops” during their campaign.

We asked the Minister of Finance whether she shares this view of the coalition partner?

“If something disrupts the financial stability of the country, a way should be found to slowly get out of it, but nothing is possible overnight.”, responded Dimitrieska-Kochoska to IRL.

Efforts to engage the Group of Non-Banking Finance Companies for their perspective were met with resistance and they did not accept the IRL’s offer for an interview despite our few attempts. Instead of granting an interview, they provided a brief written statement:

“With the adoption of the amendments to the Law on Finance Companies in July 2023, the first results are already evident: reduced growth in total assets, market consolidation, rising standards in operations, and greater transparency of the services and prices offered by the companies.”