Georgian Micro-Finances Outrun Banks
23 August, 2012
Georgian Micro-Finances Outrun Banks

eorgian micro-finance sector flourishes as banks yield positions. The entire sector assets almost doubled since 2010 while banking sector grew only by 20%. Weaker banking sector means weaker economy - sector pundits worry and appeal to regulatory body to implement more in-depth reforms in banking sector.

According to the Association of Young Financers and Businessmen (AFBA), Georgian micro-finance sector is growing fast since 2010 that bespeaks of limited credit access at banks which impels potential banking clients to go to micro-finance

organizations. Based on official statistics, the entre assets of micro-finance organizations grew by GEL 200 million in the first quarter of 2012 compared to 2010 and made GEL 474 million totally. The figure translates into 180% growth in 2 years. Its credit portfolio more than doubled in the reported period as it increased by 212% from GEL 180 million in 2010 to GEL 382 million by first quarter data of 2012. The sector’s rapid growth is largely defined by high interest rates that by 7-fold exceeds the European rates.

According to AFBA research, the average yield at Georgian micro-finance sector makes 37% [31.9% on business loans, 28.9% - on consumer loans, 58.7% on auto loans, 34.8% on mortgage, 40.1%   - pawnshop loans and 29.8% - on agriculture credits] while the average interest rates stands at 5% in Europe. At a glimpse this kind of growth can be assessed as the success of micro-finance sector but AFBA experts believe micro-finances took advantage out of banking crisis of 2008 and questioned the moral sides of such success.

As a matter of fact, Georgian banks faced losses of GEL 215 million and GEL 65 million in 2008 and 2009 respectively as a result of double impact of global financial crisis and the short-lived war with Russia in 2008. Commensurately there emerged a large group of black-listed bank clientele to whom banks. doors were shut for a long time and who had no way-out to solve their financial problems other than taking loans at micro-finances. They queued toward the less regulated micro-finances able to disburse credits at “milder” lending terms but for higher yield. This milder regulation coupled with the underdeveloped financial market also did their tribute to micro-finance sector success.

According to Georgian regulation, micro-finances unlike banks can stretch loan-taking period over years while banks are obliged to reflect the disbursed loans in next month balance sheet immediately. Micro-finances can allow themselves not to require collaterals to back-up credits and therefore eagerly disburse loans to riskier clients shunned by banks.  But the “easy” terms cannot offset the bondage interest rates. However insolvent borrowers who need new loans to clear banking loans generally had no other way than accept this single option for the underdeveloped financial market offers no alternative funding ways unlike the best word practice that provides with multiple financial instruments.

To AFBA experts the doubled credit portfolio of micro-finances shows the alarming trend that the bigger and bigger part of society has problems with banks.

Success of micro-finance sector makes Lia Eliava, a financial analyst to think that banks fail to implement their function of crediting the economy. She believes the problem trails down to high profit margin of banks. The cumulative yield on credits averages 24.2% on banking loans that is one of the most expensive worldwide. According to the World Bank’s data, only seven countries fix interest rates higher than Georgia.

On the other hand, banks are the channel where micro-finance sector gets money in fact. And as banks fix high rates micro-finances add their profit margin thus blowing the yield burden up.

“The point is that banks  prefer to disburse credits to micro-finances that are more guaranteed to pay off loans rather than credit businesses, especially smaller entrepreneurs, as far as crediting of the economy includes higher risks. And the business goes to micro-finance sector. This is the reason micro-finance sector enhances on expense of banks in fact,” Eliava elaborated to Georgian Journal.

She fears that as banks yield their positions to micro-finances it may lead to economic stagnation for banks are the key financial channel to economy crediting and its drive force and micro-finance sector cannot supplant their function. Only banks can disburse large credits while the cap credit line available at micro-finances crosses GEL 50 thousand limit line. Bank is the mechanism that provides state with large resources and it is the only institution allowed to attract deposits.  “Therefore it is of crucial importance that banks restore the function of crediting the economy and one of the effective tools for that is cutting down interest rates,” Eliava said. She believes Georgian central bank is responsible for solving this issue properly.

“It should carry out more in-depth reforms in the sector to make credits more available rather than apply just cosmetic remedies like disbursing huge amounts of refinancing loans to banks to keep them floating [artificially] while certain banks obviously face bankruptcy problems,” she stated.

Other Stories
Doing business in Georgia has become easier than in America
According to the Doing Business 2019 report published by the World Bank, Georgia ranked 6th among 190 countries in terms of simplicity of doing business. This was an improvement over two ranks compared to last year.
Problems that foreigners frequently face in Georgia
The importance of Georgia as a tourism hub is growing year after year.
Tbilisi TV Broadcasting Tower – Better than the Eiffel Tower?
It is planned to renovate the Tbilisi TV Broadcasting Tower, one of the landmarks in the capital.
Georgian Fusion Menu by The Biltmore Hotel Tbilisi
5,895,914 international visitors have visited Georgia between January and August of 2018. Compared to the previous year the number has increased by 12.2 per cent.
Advertising of gambling and lucrative games may become banned in Georgia
Advertising of gambling and lucrative games may become banned in Georgia. Those who violate the new rule would be fined GEL 10 000.
Lebanese café-lounge Beirut opens in Tbilisi
What is necessary to organize an unforgettable event? – Fun, emotions, lots of surprises, good music and delicious menu.
Georgia second among the fastest growing tourist destinations in Europe
Georgia is among the fastest growing tourist destinations in Europe. The data is published by the UN World Tourism Organization.
Bitmain launches world digital mining summit in Tbilisi, Georgia
Bitmain CEO Jihan Wu and Roger Ver, CEO of Head Speaker List featuring Circle, and Genesis Mining when Digital Mining Leaders Convene In Tbilisi on September 21-23
TBC Bank and Gazelle Finance have teamed-up to support Medical City, a leading healthcare provider in the western region of Georgia to launch the Western Regional Center Of Modern Medical Technologies.
Equivalent to buried treasure – resources that are underused in Georgia
For 2018 the IMF Commission has forecast an annual economic growth for the Georgian economy of about 5,5%.
Does the quality of Georgian wine increase and how the export affects it
If we look at the data collected about modern Georgian wine, we will find out that the Georgian wines produced between 2015-2017 are much better in terms of their quality and Oenologic features rather than the wines produced between 2009-2011.
Japan simplifies the visa requirements for Georgian citizens
Diplomatic and economic relations between Georgia and Japan are now moving to a new phase. Recently Japan has decided to simplify the visa requirements for Georgian citizens.
M&S (Marks and Spencer) and H&M collections to be produced in Georgia
Garments manufacturer MGMTEX will start production of the M&S and H&M trendy collections from this September.
The World Digital Mining Summit to be held in Georgia
The summit is scheduled to take place between 21st-23rd September in the Hualing Hotel, Tbilisi, Georgia.
Galt and Taggart - Tourism Boom Continues in Georgia
Tourism has become one of the key drivers for the Georgian economy. Galt and Taggart has recently published research about the Georgian tourism sector in the first half of 2018.
"The worst dream for Putin is that Russians want to live in Georgia"
This year, visitors to the Adjara region would notice that there is a boom in construction in and around Batumi.
Underground gas storage facility to be built in Georgia
KfW, a German government-owned development bank signed a EUR 150 million promotional loan with the state-owned Georgian Oil and Gas Corporation (GOGC) for the construction of the first underground gas storage facility in Georgia.
New gambling rules for Georgia
Georgian lawmakers are preparing a new draft law relating to online-casinos and gambling that will seek to curb gambling addiction in Georgia.
How expensive is it to visit Georgia?
The Georgian Lari (GEL) is the official currency of Georgia and is the only legal means of payment in the entire territory of Georgia.
Trade with the EU and the Commonwealth of Independent States (CIS) has grown significantly
Trade with the EU and the CIS has grown by 26% and 33.5 % respectively, says GeoStat, the Georgian National Statistics Office.
The unemployment rate decreases in Georgia
The unemployment rate decreased in Georgia by 1,9% and amounted to 12.1% in the 2nd quarter of 2018 compared with the previous quarter,
Memorandum of Understanding to be signed between Georgia and Malaysia
According to the Georgian Ambassador to Malaysia Nikoloz Apkhazava, Georgia plans to sign a Memorandum of Understanding (MoU) with Malaysia.
“Blauenstein Georgia” due to expand in Georgia
“Blauenstein Georgia” is planning to open more shops in Georgia. It is an agriculture company that sells meat products, meat and convenience food.
The amount of Direct Foreign Investment rises in Georgia
According to the information of the National Statistics Office of Georgia, the amount of direct foreign investment in Georgia has risen
It’s going to get  harder for foreigners to get residence permit in Georgia
It’s going to get harder for foreigners to get permit of residence in Georgia.
Exchange Rates
GEL Exchange Rate
Other Stories
Recently Toyota rolled out Global Campaign under this slogan that reflects the Olympic and Paralympic Spirit of Encouragement,
A couple from Switzerland combines Swiss tradition and technology with Georgian products. Their cheese is made in the Georgian mountains and sold in local stores and hotels.
It has been more than five years since the residents of Lilo village, near Tbilisi, cannot open their windows.
63 000 GEL was received by the Georgian Agro Export Group which is just a small part of the European Neighbourhood Programme for Agricultural and Rural development.
Georgian entrepreneur Guka Tavberidze, who runs his own business in the UK and does it quite well, has been invited by BBC
The grand opening of 7-star The Biltmore Hotel Tbilisi took place in Georgia’s capital on July 31.
DUSHETI, Georgia – The Georgian government and the World Bank will allocate USD 5.6 million (12 million GEL) to fund
A new Georgian clothing brand named Person has emerged in Georgian market.
Georgia is in the midst of an economic maelstrom, Euronews reports.
Situation at Georgia’s mineral water market is interesting: over the last year, the volume of export has grown by 56 percent. According to “GeoStat”, over $114 million worth of mineral water was sold
GEL Exchange
November 2018
Mon Tue Wed Thu Fri Sat Sun
1 2 3 4
5 6 7 8 9 10 11
12 13 14 15 16 17 18
19 20 21 22 23 24 25
26 27 28 29 30