In 2017-2019 new regulations on microfinance institutions (MFIs) entered into force in Georgia, which significantly altered the landscape of the industry. Between Q1 2017 and Q4 2020, the number of MFIs and employees in the sector fell, with the former dropping to 40 and the latter to 4145 by Q4 2020 (52% and 16% decrease, respectively). Moreover, a significant decrease of online loans and custom loans simply diverted the borrowers to pawn shops.
“In the period from Q1 2017 to Q4 2020, the number of MFIs decreased significantly and dropped from 83 to 40. Accordingly, the number of employees in microfinance organizations during the same period experienced downward trend, dropping from 4946 to 4145 employees,” the recent snapshot analyze of PMCG Research on Microfinance Sector in Georgia (2017-2020) revealed.
In recent years, the Government of Georgia and the National Bank of Georgia have taken significant steps in order to regulate non-banking lending institutions (MFIs and loan-issuing entities). MFIs are now required to provide additional information (such as information on shareholders, governance, and business plans), while a minimum initial capital requirement for MFIs of 1 mln GEL and ongoing minimum capital requirements of either 18% or 24% were also introduced, as well as minimum ongoing liquidity requirements for MFIs of either 18% or 25%. It is worth noting that a maximum interest rate cap of 50% has been set and the individual loan limit has been increased to 100 000 GEL (instead of 50 000). Moreover, limits on investments and other regulations have also been imposed.
In Q4 2020, MFIs in Georgia held 1.48 bln GEL of assets and 0.98 bln GEL of liabilities. In this period, the consolidated assets and liabilities of MFIs increased, compared to Q4 2019 with a growth of 7% and 9%, respectively. Compared to Q1 of 2017, figures decreased by 10% and 22%, respectively.
In 2020, gross income (revenue) of MFIs decreased, compared to 2019, and dropped by 13% to 814.9 mln GEL, while net income increased to 47 mln GEL. Moreover, the net income margin increased by 15 percentage points and reached 6%.
In 2020, the total amount of loans issued by MFIs (both to individuals and to legal entities) amounted to 4.58 bln GEL, while the number of loans issued amounted to 2.71 mln loans, which is 4% and 26% decrease, respectively, compared to 2018.
In 2018-2020, a significant decrease of online loans and custom loans (by 12.4 and 5.2 percentage points, respectively) was recorded. As a result, pawn shop loans emerged as a popular alternative, with its share rising by 16.3 percentage points over the same period. Moreover, trade and service loans and agricultural loans did not encounter noteworthy changes in this period (1 percentage point and 0.8 percentage points increases, respectively).
According to the IMF, microfinance sector in Georgia currently faces a number of challenges, stating in particular that there is a mismatch between foreign currency borrowing and local currency lending. MFIs are obliged to lend to individuals and connected parties not more than 100 000 GEL and all loans up to that level must be in GEL. Moreover, funding from commercial banks is mostly denominated in foreign currency, which increases costs for MFIs (with regard to interest rate costs), when they need to exchange foreign currencies to GEL.
In addition, the 50% interest rate cap is considered too low by a number of MFIs which usually follow a strategy of providing risky microcredits to individuals. Therefore, they desire a higher interest rate cap to cover probable losses.
