The express loan by Bank of Georgia is one of the most expensive credit products in the Georgian reality.
It is worth noting that the Express Credit is advertized as an interest-free loan, but the service commission fees raise the annual effective interest rate to several hundreds of percent. We remind our readers that the annual effective interest rate is an interest rate that is calculated on the ground of all expenditures that are required to serve a credit, as well as the time for taking these costs.
The available amount of Express Loan is 150-700 GEL. The maturity period is one year. If a borrower fails paying off the loan for a year, he/she must pay off the whole amount at once at the end of the maturity period. The maturity period cannot be extended.
At the same time, Bank of Georgia advertizes the product as an interest-free bank credit, while the borrower has to pay double commission fee a month. For example, we should discuss the case with a 700 GEL credit. The commission fee for taking this amount of Express Loan makes up 19 GEL, while the borrower has to pay a 35 GEL commission fee every fortnight and this sum is not deducted from the principal sum.
Under the Express Loan conditions, the borrower has to pay 450% interest rate for one-month Express Loan. It is interesting that several online credit organizations issue credits with 450% interest rate.
In 2011 the President of the National Bank of Georgia (NBG) issued a decree on Regulations for Providing Customers with Required Information on Banking Services. Under the mentioned regulations that came into force on June 1, 2011, commercial banks are obliged to provide the customers with all necessary information on the loan-taking process and explain the risks that may arise from unpaid credits.
Moreover, commercial banks are obliged to update clients on the loan’s annual effective interest rate that includes all the costs for the loan services.
Though, these regulations refer to any consumer credits, including overdrafts and credit cards, when the credit’s total amount exceeds 300 (three thousand) GEL and is under 50 000 (fifty thousand) GEL.
Commercial banks frequently use this legislative defect in their own interests and they issue loans less than 300 GEL under very expensive interest rates and the Express Loan a proof to this consideration.
The last period has actualized the issue of imposing state regulations over online credit companies. The Georgian society’s attitude to this business is very negative because of high interest rates and enslaving conditions. Various surveys prove that Georgian citizens demand for forbidding and restricting the online credit organizations.
High interest rates of commercial banks seem to be shadowed by expensive credit products of online credit organizations. In reality commercial banks have not cheapened their bank products. The Georgian banking sector is regulated by the National Bank of Georgia (NBG), but it is difficult to say commercial banks offer better conditions as compared to online credit organizations.
It is worth analyzing how properly these organizations are regulated or how online credits should be regulated in the future to reap efficient results for customers.