Bankers who are part of the community, who know their customers personally and make sure they don’t take on more debt than they can afford – surely that went out with the 1950s? Not in Kosovo. “We say to our staff: ‘If you give this man too much money and he can’t pay it back, you might ruin his life and his family,’” says Philip Sigwart, head of ProCredit Bank in Pristina, capital of the tiny statelet.

Yet Sigwart – unlike most foreigners in Kosovo – is not an NGO employee with a development mandate and no commercial imperative. Although Frankfurt-based ProCredit Group is partly owned by the International Finance Corporation and Germany’s KfW, it is also backed by private investors and its 21 operations in developing economies from Moldova to Mexico are expected to turn a profit.

Fortunately, in Kosovo at least, good ethics turn out to be good business. In the 10 years since ProCredit set up in what was then a breakaway province of Serbia, the local division has consistently been the most profitable of the group’s operations, with an annual return on equity of around 35%.

This is partly down to first-mover advantage. ProCredit was the first bank to be licensed in Kosovo after the withdrawal of Serbian forces in 1999 – and two years later, when Kosovo adopted the euro, it was the only operation with sufficient scale to manage the conversion of Kosovars’ savings from deutschmarks to the single currency. Consequently, ProCredit was able to build a dominant position in the state that has survived competition from both local start-ups and international organisations such as Austria’s Raiffeisen and Turkey’s TEB.

Sigwart readily acknowledges that being the market leader gives economies of scale. He is also keen to stress the general health of both the economy and banking sector in Kosovo – annual GDP growth has come in at around 4% in recent years, while the current overall 4.5% ratio of non-performing loans is encouragingly low for a frontier economy post-crisis.

He is, however, being modest. Neither size nor external factors can entirely explain ProCredit’s remarkable record in Kosovo, particularly through the financial crisis. Last year, the operation’s net profit of €22m accounted for nearly 90% of all banking profits in the country and its NPL ratio is around 2.5 percentage points below that of the sector average.

So what is the secret of ProCredit’s success? Pressed, Sigwart admits to some very unfashionable banking practices. “We really try to know our customers,” he says. “When we do loans to small businesses we don’t do credit scoring, we analyse the cashflows of the business and the prospects of the company – and, of course, the character of the borrowers. It’s very traditional banking.”

Such due diligence is all the more necessary given the problems surrounding the local legal system. In the World Bank’s 2010 Doing Business league tables, Kosovo ranked 157th out of 183 countries for enforceability of contracts; even more alarmingly, for investor protection it was at number 172. Measures are in hand to address the issue but few locals expect a resolution in the immediate future. “They know what needs to be done but it’s taking time,” says Sigwart.

And in some respects, as he points out, this backwardness protected Kosovo from the shocks sustained by more advanced economies. The lack of a legal framework for registering mortgages may have been frustrating for upwardly mobile Kosovars but it potentially saved them from the horrors of a housing bubble and negative equity – property prices have stayed steady over the past two years and levels of personal indebtedness are low.

It has also prompted a more creative approach to personal lending at ProCredit. With the mortgage sector still in its infancy, the bank has focused on offering loans for renovating apartments and last year introduced energy efficiency loans to enable customers to insulate their apartments. Similarly, while ProCredit’s approach to credit decisions may be traditional, there is nothing old-fashioned about its use of technology – the bank has pioneered the use of ATM machines to pay utility bills and has developed a sophisticated web platform, despite ongoing problems with internet penetration in much of Kosovo.

The big question mark now is over whether ProCredit Kosovo can sustain its recent pace of expansion. Sigwart’s response is a characteristic mixture of modesty and confidence. As he points out, with banking assets now around 35% of GDP, the sector is unlikely to maintain the stellar growth of recent years.

Nevertheless, annual growth of 10–15% is entirely realistic, he says, citing mortgages and agriculture as the sectors with most potential. He is also optimistic that the wave of foreign investment, expected to arrive after Kosovo’s declaration of independence in 2008 but forestalled by the financial crisis, will materialise within the next two years.

Sigwart’s employers are clearly impressed with both his methods and his results. Staff from the Kosovo division are in strong demand from ProCredit headquarters to give the benefit of their expertise in other frontier economies such as Congo and Mozambique. It might seem a long way from sub-Saharan Africa to the Balkans, but Sigwart insists that SMEs across the globe frequently have far more in common than their larger counterparts.

“The way small business operates is very similar wherever you go, whether it’s in China or Ukraine,” he says. “I have talked to many entrepreneurs in Congo for example and, although culture plays a role, they have the same priorities as small businessmen everywhere – they just want to build their business and maybe hand it over to their family later.”

With the results of imprudent lending only too evident in western Europe and the US, bankers in developed countries might also want to take a few leaves out of Sigwart’s book.