Microfinance organizations in Georgia see GEL 80 million loss in 2019

Georgian microfinance organizations ended the first half of the year with GEL 80 million-loss. The information was released by the National Bank of Georgia (NBG)

The national Bank says that the number of such organizations has been reduced by 19 in the first half of the year. At present, the number of microfinance organizations in the country is 53.

In parallel with the decrease in the number of these companies, the amount of assets and revenues in this area has also decreased and instead of making a profit, these firms suffer multimillion losses.

In the Quarter 2, 2019, the assets of these companies amounted to GEL 1,334,164,316, which is less than GEL 200 million compared to the previous year, with total loss of these organizations at GEL 79,927,000 for the six months of 2019.

The decline in the microfinance market was primarily caused by the introduction of a responsible lending model that has changed the rules for the banking and microfinance sector. The changes apply to all kinds of microfinance organizations and banks, which envisages lending only after studying and assessing the solvency of the client, in order to eliminate future risks.

Also, as a result of the changes, a 50% interest rate ceiling has been set, the obligation to certify the income of physical person has been determined, and the income categories that all credit institutions are obliged to meet have been defined.

A common ceiling has been set for different types of loans. For example, maximum mortgage term is 15 years, a transport loan term of 6 years, a real estate consumer loan term of 10 years, and a maximum term of any other type of loan is 4 years.

Tightened banking regulations took effect in Georgia on January 1, 2019, meaning that people will not get loans from banks if there are no solid guarantees that they will be able to pay it back on time.

They read that it is unacceptable that the financial institution issue a loan without a detailed analysis of the revenue, expenses and liabilities of the borrower in order to assess if the borrower is capable of paying back the debt.

To note, Business Ombudsman of Georgia Irakli Lekvinadze stressed that softening the regulations is necessary to prevent a dramatic influence on the business sector.