SME Agency will support start-up projects
28 November, 2013
SME Agency will support start-up projects
To boost entrepreneurship and exports, Georgian Government plans to set up Agency for Small and Medium Sized Enterprises that will somehow enable start-ups during incubation. Development of entrepreneurship will be the top priority for the new economic team of Georgia, Giorgi Kvirikashvili, Minister of Economic and Sustainable Development of Georgia, stated on 19 November at Parliament. Agency for Small and Medium Sized Enterprises (SME) will be set up starting next year, to this end.
In fact the share of the SME
in Georgian business is just 17%, when it should be 60-70% in order to conform to world best practices. Experts in international economics know well that SMEs are the driving force of an economy, and a key job creator.
On the other hand, start-up businesses are less enduring. World Bank research of 2012 reports that out of 42 thousand start-up businesses registered in 2012, only two thousands may survive. The figure may be even lower in Georgia, as far as there is no stimulating mechanism, and financial resources are almost unavailable to beginners. The reasons are simple: beginners frequently lack required skills and knowledge to prepare relevant business projects for banks. SME Agency is expected to raise awareness of fledgling businessmen and improve access to loans.
According to Kvirikashvili, the major function of the Agency will be to support start-up businesses. The Professional staff of the Agency will filter ideas of aspiring entrepreneurs and shape them into viable business plans; and they will work out business projects in order to prepare them for banks, to get financing. Government is intent on shaping a mechanism that will enable it to share risks with banks. Collateral requirements will also be preferential.
Within three years USD 150 million with which to finance start-ups will be at disposal of the Agency.
But Lia Eliava, a financial analyst, disapproves of the Agency idea. She believes USD 150 million will in fact be an aid to banks, not entrepreneurs. According to her, the proposed Agency-supported funding duplicates the preferential agriculture loan program launched this spring. Banks do not cut rates to the target group but the state finances interest rates for agriculture loans and entrepreneurs pay less interest. Thus banks will enjoy a yield as high as it has been in the past.
As a result of the agriculture credit program, the volume of agriculture loans doubled since May (when the project started), from around GEL 55 million to around GEL 120 million. However, the number of enterprises that started operation based on these credits is few.
Eliava expects similar results from the suggested SME Agency idea. She believes the state has to address other well-probated mechanisms: to set up state banks disbursing preferential credits to the SME and start-ups; or simply reduce the ceiling of micro credits from the currently active GEL 50 thousand to GEL 15 thousand. This will bring results in a week, she believes.
“According to the best international practice, micro-finance organizations, not banks, are financing SME and start-ups. The reason this tool does not work in Georgia is the high cap on micro loans. The UN formula of calculating micro loans suggests that the upper limit of this loan should not exceed the tripled amount of GDP per capita in the country. For Georgia this comes to around GEL 15 thousand. Let’s introduce this limit, and micro-financial organizations will be finding clients in a week,” she said, and also noted that the reduction of micro loans does not require any support from the state budget.

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