Microfinance Organizations’ Association: Investments down after banking regulations

Beso Shengelia, Head of the Association of Microfinance Organizations in Georgia, says that the investments in this field have significantly reduced after the introduction of tight banking regulations in January 2019.

He commented on the statistics which show that in the second quarter of 2019, the amount of Foreign Direct Investments (FDI) in the Georgian financial sector decreased by $93 million compared to the same period of the previous year.

However, according to the head of the association, despite the decline in investments, now the financial market is more secure than it was before the regulations.

“There is a better trend in the second quarter, but still insufficient for investors to feel safe and secure. Of course, as profitability has declined, many investors have restrained themselves for making additional investments and are still waiting when things will get better,” he said.

Shengelia added that the association is doing its best to convince the investors that it is safe to invest in the Georgian financial market.

“The fact is, the leading microfinance organizations have confirmed that we are capable of resolving the situation in the wake of unexpected changes and that we have a clear positive trend. I think the regulations were timely, moreover, it was better to have them implemented much earlier. The only thing we can argue about is whether the regulations needed to be implemented so fast and so strictly,” he explained.

The National Bank of Georgia (NBG) released information earlier this month, according to which, Georgian microfinance organizations ended the first half of the year with GEL 80 million-loss.

The National Bank also said that the number of such organizations was 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 the microfinance companies amounted to GEL 1,334,164,316, which is less than GEL 200 million compared to the previous year, with the total loss of these organizations at GEL 79,927,000 for the six months of 2019.

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 for the financial institutions to issue loans without a detailed analysis of the revenue, expenses, and liabilities of the borrowers to assess if the borrower is capable of paying back the debt.