Georgian State Development Bank heading the wrong way
08 May, 2014
Georgian State Development Bank heading the wrong way
The Georgian government is setting up a Development Bank to fund projects important to the state. However, the suggested model falls far from the best world practice and many sector pundits think it is doomed to a failure. According to the bill on the State Development Bank, the bank will be established on the basis of a state-owned Partnership Fund set up by the previous authorities in 2011 with the aim to promote investment in the country by co-financing maximum 50%
(equity, mezzanine, etc.) in projects at their initial stage of development and leave it 3-7 years after the investment. After the power shift in 2012, the new authorities added a couple of other state funds also aimed at attracting investments for projects of strategic importance to the state. Sector analysts found three funds excessive for a small country like Georgia. The FP was particularly criticized as an ineffective and redundant structure duplicating the functions of Ministry of Economy and Sustainable Development of Georgia which is in charge of managing state enterprises. Last spring the government decided to rebrand the FP into a sovereign fund to make it more effective, however, the reform recently ended up in the consolidation of all funds . Finally, the State Development Bank was created instead of the FP which is in line with international practice.
According to the bill, 49% of the Bank will be redistributed through private investors and the state will hold the controlling 51% package. The Bank will be mandated to issue credits, state securities and act as a guarantor. On the other hand, it is not allowed to disburse credits to commercial banks, accept deposits and perform banking operations for financial transactions. Therefore, the bank cannot disburse credits independently but can only issue credits with the support of commercial banks. These restrictions make sector analysts believe that the Georgian State Development Bank will be ineffective and at risk of corruption.
According to Lia Eliava, a financial analyst, the Georgian State Development Bank is a castrated version of the internationally accepted model of a similar bank. Usually, the Bank issues credits independently and commensurately performs financial transactions, also accepts deposits from its stakeholders in order to enhance the Bank’s capital, and equally handles financial transactions implemented by the stakeholders. The involvement of commercial banks in the scheme is a big mistake, she believes that because the chain of state money circulation consists of the State Bank-commercial banks-borrowers monitoring will be hard and non-transparent.
“Commercial banks’ participation will make things very complicated. I have always been negative about disposing state finances through commercial structures, it has never been effective and the Development Dank becomes dependent on commercial banks,” she said. “As for the deposits, even credit unions are allowed to accept deposits from their members while this State Bank is to be deprived of this right. And how will the Bank pay back its investors if it cannot perform financial transactions? Via commercial banks? This is not correct and will complicate the monitoring process on how reasonably state funds are spent.”
Soso Archvadze, an economic analyst, is also skeptical toward the sophisticated money lending mechanism that leaves state budget-based finances at the disposal of the private sector. He fears that the suggested state bank model is a fusion of state and private sector management while such bled always leads to corruption deals as the Georgian reality has witnessed many times before.
Archvadze cannot understand why there is a State Bank if commercial banks will be handling the credits disbursement and banking operations. “Looks like the fifth wheel of a car,” he said. “And the more complicated the mechanism is, the easier corruption is.”

Print
Other Stories
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.
Mziuri Park in Tbilisi to be renovated soon
It was the dream of prominent Georgian writer Nodar Dumbadze that when the original Mziuri park was constructed and opened in 1892 that it should be a park for children,
Winemakers to produce Kvanchkara in its place of origin - Racha
Khvanchakara is a semi-sweet Georgian red wine which originates from Racha, in the western part of Georgia. Kvanchkara is made of two types of grape Mujuretuli and Aleksandrouli.
The level of Georgian wine and Chacha exported has increased
The National Wine Agency of Georgia has recently published statistical information about the level of Georgian wine and Chacha exported between January and July, 2018.
New fire engines to be Manufactured in Georgia
The Acting Head of the Emergency Management Agency Shalva Khutsishvili said that the old Zili fire engines (which were made in the USSR) will be phased out and replaced with new ones, manufactured in Georgia.
Georgia witnesses a record number of tourists
The Georgian National Tourism Administration publishes statistical information about international visits to Georgia.
Canadian businessman plans to build a hotel in Bakhmaro
Canadian businessman Vadim Malishev plans to build a hotel in Bakhmaro resort, Guria, in the western part of Georgia.
Coffee Factory will open in Tbilisi in October
The first coffee factory (which will be located on the Kakheti highway) in Tbilisi will open in October.
Places in Georgia where real estate is the most expensive
The real estate market in Georgia is growing annually. In Tbilisi as well as other regions of Georgia new developments are increasingly taking place.
How much does a vacation cost in Tbilisi?
It is the middle of summer and those who have not yet taken a vacation are looking for an appropriate place for sure!
The price for extreme sports in Georgia
Georgia offers a variety of options to extreme sport lovers.
The number of Georgians who own property abroad increases
The number of foreign properties owned by Georgians is increasing.
How much does Taxi cost in Tbilisi?
Stories how Taxi drivers try to deceive passengers and charge them with more money than they should pay are known for everybody all over the world.
What are the highest paid areas in Georgia
According to the data collected by the National Statistics Office of Georgia in the first quarter of 2018 the highest paid jobs in Georgia are found in the financial and insurance fields.
PHOTO OF THE DAY
Exchange Rates
GEL Exchange Rate
Convertor
17.09.2018
18.09.2018
USD
1
USD
2.6128
2.6156
EUR
1
EUR
3.0578
3.0498
GBP
1
GBP
3.4296
3.4259
RUB
100
RUB
3.8669
3.8379
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
USD
1
USD
2.6156
EUR
1
EUR
3.0498
GBP
1
GBP
3.4259
RUB
100
RUB
3.8379
September 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