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Profits of Microfinance Institutions and Online Loan Companies Grew

As a result of the devaluation of the national currency, profit of microfinance institutions and online loan companies rose – Givi Korinteli, the head of the First Credit Union, says.

According to him, the more the national currency falls, the more people need extra amounts they take to cover old loans.

“The microfinance organizations and online companies are most effective for such purposes. The bank that has already granted a loan to a person does  not give him or her a second loan. At the same time, there are many cases when citizens  have  5-6 loans, of which 3-4 are online loans. It is the main reason for the profit growth of MFI’s and online credit unions,” Korinteli explains.

In his words, the positive side is that along with the growth of profits, revenues to the state budget also grow, but the upside is that all this happens at the expense of consumers. “People take out loans in order to cover the difference in the payment of the principal loan, which has risen due to the devaluation of the national currency. And it is a very negative factor,” Korinteli notes.

According to the head of the Association of MFI’s Yuri Lebanidze, there is no a direct link between the increase in the sector’s profit and the devaluation of the national currency, since this sector has been growing for the last 6-7 years. The National Bank of Georgia says  the profit of MFI’s in the first two quarters  of 2015 increased by two-fold and amounted to GEL 70.5 million.

According to the NGO Society and Banks,  as of July 1, 2015, commercial banks issued loans worth GEL 535 million to MFI’s and online companies while in the same period of 2014 – 233 million. Then, the MFIs and online companies provide the loan amount in a much higher percentage – a received income is enough to return the loan to the bank and make a profit. MFI’s and online companies generally lend to consumers with low and middle incomes.