2009 cheap credit issues

The issuing of cheap credits in accordance with the 2009 programme has been delayed although it was scheduled to start at the end of August. The Government has not yet taken the decision to allot the appropriate sums of money for the project. This is because there are some problems with the national budget and the cheap credit issue of 2008 was not entirely successful.

The 2009 programme initially envisaged disbursing GEL 20 million under very attractive terms, at a maximum 12% interest rate over 7 years. Banks chosen to give this money out would have received it from the budget at a 2% annual interest rate. However despite being offered these attractive conditions most of the banks refused to participate in the project. The amount to be issued was very small from the banks’ point of view and there was also a feeling that banks would not be free to choose possible recipients as officials might interfere. Of the 19 banks operating in Georgia only three, Basis Bank, VTB and Peoples Bank agreed to participate in the programme.

Luckily the banks’ fears may be unfounded. They have been given absolute freedom to decide whom to give the loans to, and their decisions will presumably be based on the usual criteria of reliability and solvency. The banks now also ask for collateral before issuing cheap credit programme loans, although almost 90% of the more than 300 applicants so far have not offered enough to qualify for a loan. Asking for collateral is a response to the bad experience of last year, when very many entrepreneurs could not repay their loans due to the 2008 war, the financial crisis or other reasons.