MICROCAPITAL BRIEF: Georgia Cracking Down on Consumer “Microfinance,” Capping Interest Rates at 50%

Georgian Prime Minister Mamuka Bakhtadze reportedly stated recently that 630,000 of the 3.7 million people in Georgia have debt they cannot repay. Questionable loans have been disbursed by banks, online lenders and others using the term “microfinance” to describe their services.

One woman earning GEL 150 (USD 58) per month reportedly was able to borrow GEL 5,000 (USD 1,900) from a bank for a friend at an effective interest rate of 300 percent. After the friend left the country, she was saddled with a total of GEL 7,000 (USD 2,700) in repayments to be made over three months. After a year, including late payments, her debt rose to GEL 80,000 (USD 31,000). She had multiple unpleasant interactions with debt collectors before she was able to settle the debt for “close to” GEL 7,000 (USD 2,700). Later, the woman was approved for smaller loans, which she was able to repay.

Annual interest rates in Georgia reportedly ranged as high as 4,000 percent before the National Bank of Georgia capped bank and non-bank lending rates at 100 percent in 2017. In 2018, the cap was lowered to 50 percent, and the National Bank of Georgia also established limits on late fees. As of 2019, lenders will be required to abide by maximum sizes for personal loans, which will vary depending on each individual’s income and collateral.

The nine MFIs from Georgia that reported data to the US-based nonprofit Microfinance Information Exchange since 2014 have an aggregate gross loan portfolio of USD 376 million.

Sources and Additional Resources

Eurasianet story
https://eurasianet.org/s/georgias-predatory-lenders-are-punishing-the-poor

MIX Market data on Georgia
http://www.mixmarket.org/mfi/country/Georgia

Do you know that MicroCapital publishes the MicroCapital Monitor newspaper each month? Find out more at http://www.microcapital.org/products-page/.