More control over micro-financial organizations
05 December, 2013
More control over micro-financial organizations
“The primary objective of the today’s conference is to discuss in detail the current situation in the microfinance sector, and problems, especially from the perspective of consumers’ protection,” stated Giorgi Kadagidze, Governor of the NBG.
He noted that micro-finance is one of the fastest growing sectors in Georgian business. It is represented by 67 microfinance organizations, with total assets exceeding GEL 600 million. But it lacks proper regulation as of yet. Unlike banks, the NBG is not mandated to regulate
microfinance organizations, who simply present their financial papers to the NBG; the latter cannot supervise their activity.
Meanwhile, 25% of complaints submitted to the NBG from consumers come from the microfinance sector, Kadagidze emphasized. He pledged to carry out all necessary activities in accordance with the NBG’s mandate to reduce potential risks for customers in future.
First and foremost, NBG plans to require the microfinance organizations to standardize agreements and place all-important items of the agreement on its very first page in order to make them easier to understand, and to make transparent the financial costs of the product.
The association of microfinance organizations has already developed an ethics code which reflects the core standards of the relationship between microfinance organizations and clients. To protect consumers, the NBG has already issued a normative act that limits the commission fee for loan refinancing to 2% for the microfinance organizations, similar to that for commercial banks.
Lia Eliava, a financial market analyst, believes the microfinance regulation is still far below par since this sector does not implement its key function – to finance start-up businesses and Small and Medium Enterprises (SME). More than that, the concept of microfinance organizations as disbursers of mortgage loans is distorted in Georgia.
National Bank of Georgia intends to insure better protection of consumers’ rights in their relations with micro-financial organizations. This was the primary goal of the conference on micro-organizations held on 28 November.

“Microfinance organizations’ function in developing countries is to finance start-ups and SME; however, they operate as mini-banks in Georgia and disburse mortgage loans - that is forbidden in the developed world,” Eliava said. “The point is that microfinance organizations cannot take deposits, and have a weaker liquidity position, unlike banks. Therefore they can be shut down any moment.”
She believes the key problem for Georgian microfinance organizations is an excessively high cap on loans that stands at GEL 50 thousand. The high loan ceiling impedes the sector from fulfilling its major task to finance small businesses. 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.
Eliava believes that Georgian micro-financial organizations will experience an increase in clients as soon as this low limit is adopted.
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