Microfinance organizations overtake banks
17 March, 2011
Microfinance organizations overtake banks

Micro-financial organizations will be handling USD 4 million-worth credit portfolio that banks failed to disburse in the frames of The Rural Development Project aimed to support agriculture sector.
To support Georgian scarcely funded agriculture, the World Bank (WB) disbursed a USD 16.2 million-worth preferential credit to banks and microfinance organizations in frames of The Rural Development project (RDP) out of which USD 10.4 million was redistributed on four Georgian banks [TBC Bank, BasisBank, Kartu Bank and Bank Republic], and USD

5.8 million on four micro-finance organizations [Credo, FINCA, Finagro, and Lazika Capital]. 
The credit maturity period is ten years however Georgian financial institutions have to disburse it completely till July of this year or the remained money will be diverted on other countries supported by the World Bank and it will be lost for Georgia.
Microfinance organizations joined the RDP project launched in 2007 only during the last two years of its implementation but succeeded [unlike banks] to handle with more than required volume of credits [they disbursed USD 7. 3 million instead of USD 5.8 million demanded by project timetables] within a year-and-a half period.
But banks failed to use the World Bank’s targeted credits completely. They could handle with disbursement of USD 5.6 million alone before financial crisis of 2008. But they stopped crediting in 2008 due to crisis impact as far as economic activity reduced and it was impossible to meet credit demands. According to the World Bank credit terms built in contract with the banks, the target of the bank-financed credits was focused on funding investment projects and the questioned credits were allocated on procurement of main technical means. And now banks are stumbled by a task how to use the remainder USD 4 million in fixed timetables unless they will be lost forever.
Based on calculations of the Microfinance Organizations Development and Support Association reported by GHN, the loss can be even higher than that. In frames of the RDP project banks disbursed 24 credits totally in 2007-2008, failed to use the World Bank supported credit line in 2009-2010 and returned USD 3.2 million on the circulation account of the RDP project. Therefore the total sum that must be used for crediting agriculture by July of 2011 makes USD 6.5 million not USD 4 million in fact.
The sum looks impressive to be lost if we take into account the yet scantly funded Georgian agriculture sector. To save the money for Georgia project participants negotiate microfinance organizations to take the remained sum off hands of banks and use it before the scheduled deadline. Initiators of the idea believe it will be easier to microfinance organizations for they unlike banks are not restricted by World Banks crediting terms and can disburse credits on different purpose including purchase of circulation sources. 
However microfinance organizations also face certain restrictions in frames of RDP project. According to project terms, microfinance organizations cannot disburse more than a USD 2 million worth loan, on the other hand they have to co-finance the World Bank’s credit line by 50%.
But statistics and practice speak in favor to microfinance sector that is an indispensible part of financial system globe over and facilitate to small business development in urban and rural area alike by funding small and start-up farming businesses. In Georgia this sector apparently appears more willing to finance agriculture snubbed by banks that finds funding agriculture too risky.
In 2010 agriculture made just 3% in total banking credit portfolio, while its share makes 27.2% in credit portfolio of microfinance sector. Meantime all the 19 banks operating in Georgia disburse agriculture credits, when out of 51 microfinance organizations operating in Georgia only 11 is crediting agriculture sector.
The volume of credits lent to agriculture accounted for GEL 47.2 million in banks’ credit portfolio while total volume of loans lent to agriculture makes GEL 62.2 million. Meantime total assets of microfinance sector make just 2.9% of total assets of banking sector. In 2010 microfinance sector disbursed credits to 49 526 borrowers.

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