Past development of Serbian enterpeneurship: the case of privately-owned banking corporations

Amidst XIX century, Principality of Serbia was still a country of small landowners with 73% of territory dedicated to agriculture, divided into fiefs up to 5 hectars in size. Owing to her geographic position, Serbia was simultaneously a transit area for trade caravans coming from South and Central Balkans as well as for those travelling from outhwest via N. Pazar. Therefore, trade has always played a rather important, vital role in development of the Principality of Serbia. hence, thriving and ever richer class of merchants quickly supported passing the Trade Bill for Principality of Serbia with authorisation of “Miloš Obrenović the First Serbian Principal along with agreement of the Council following proposal of the National Assembly” 26th of January 1860 A. D. The fact that this bill had been passed three years ahead of the Austrian and full fifteen years before hungarian Trade Bill is definitely noteworthy (Niketić, 1923, pp. 147). Serbian Trade Bill strongly drew from the French Code Commerce, especially in articles regarding establishment and day to day functioning of business entities, but also from the Civil Code of the Principality of Serbia (brought about 1844) whose author was Jovan Hadžić (Đorđević, 2008, pp. 62-84). The very passing of the Trade Bill for the Proncipality of Serbia indicated gradual build-up of political atmosphere which enabled breakthrough of fresh ideas in all aspects of social life. So, for instance, backed by §38 of the Trade Bill, in February 1869 Ministry of Finance issued licence for founding the first private money fund in Serbia. The First Serbian Bank was projected to start with capital of one million ducats. Nevertheless, once opened for business, on the 2nd of October 1869, it turned out that it’s IPO managed to amass only 120,000 ducats (1,440,000 French francs at the time) [Mitrović, 2004, pp. 33]. As it happened, legislation in the Trade Bill was insufficient for establishment of such complex business entities. Therefore, already in 1871 not only its shareholders went bankrupt, but also its creditors and the state itself - demise having been speeded up by the bank’s attempt to act both as a comercial bank and engage in a purely speculative investment. Bankrupcy of the First Serbian Bank was an important if stressful financial experience for the young Serbian state. The downfall of Prva Srpska bank was an important financial experience for young Serbian State. That is supported by the fact that in 1871 during incorporation of first joint-stock banks with domestic capital (Beogradski kreditni zavod, Smederevska kreditna banka i Pozarevacka banka) the State decided to enact special decrees, specifying their activities, as well as their rights and responsibilities. Given that in number of existing provisions of Serbian commercial law relating to incorporation of public companies (31-38, 41 and 44) there had been no provisions sanctioning unconscionable business dealings, it was decided that a special Decree on trading of banks dated 24 September 1871 will in its first provision state that ‘false creation as well as imitation of any document which the mentioned institutions would issue, will be punishable equally as false creation or imitation of public documents. During following years, until creation of Privilegovana Narodna banka 1884, apart from the mentioned three, only four additional (mainly local) banks were formed with the total founding capital of modest 3.2 million dinars. On the other hand, until the beginning of the 1880s, Serbia did not have either a private or a public financial institution for poorest classes of tradesmen and craftsmen. The only source of loan capital was loanshark capital from rich city tradesmen and high public servants. As well as Serbian peasants, small tradesmen and craftsmen used to paid yearly interest to loansharks between 24% and 50%, with lower amounts on short term carrying a yearly interest of up to 120%. The Serbian authorities on number of occasions attempted to create publicly managed funds to address the issues of lending and loansharking, mostly without success. The more serious attempt of the State to secure lending capital for public was the creation of the Funds Directorate at the Ministry of Finance, in 1862 commencing with work in 1864. Funds Directorate provided long term loans with 6% annual interest by taking a mortgage over up to 50% of estimated value of immovable property. Tradesmen and craftsmen could grant a mortgage over their houses and land, which meant that loans were available only to relatively better off tradesmen and public servants. Newspaper “Belgrade Daily” (“Beogradski dnevnik”) wrote in 1882: “It is known to every Belgrader that money is very scarce. however, our people, as everywhere else, often need money. What happens? Richer tradesmen and capitalists easily help themselves, as in case of need, on their land and on their signatures, they secure money with moderate interest. What happens when a poorer tradesman, craftsman or a public servant gets into the financial need? What? Let’s be honest and say the truth: less well-off class can only turn to loansharks, who, seeing him in the need, fleece his skin off, charging 20, 30, 40, often 50% interest. What is the consequence of that? That class becomes overindebted and goes under” (Aleksić, 2012, pp. 108-133)