The Market is out of Control and Harmful for Economy and Population
Economic experts are giving the alarm as the quantity of organizations issuing online loans grows. They urge the Authorities to adopt the law on crediting business as soon as possible. Growth of similar organizations in quantity cannot develop the state economy, even more so, to assist the impoverished population.
Online crediting organizations appeared in the Georgian market in 2014. They issue the first loan without interest rates and these companies broadly advertize this factor, but they keep silence regarding interest rates of the second and third loans. Today, more than 10 companies issue online loans in Georgia.
The loans amount ranges from 50 to 70 GEL on average. Credit organizations issue short-term small credits without any guarantee, on the ground of ID card submission. The loan is approved in 15-60 minutes. The online crediting companies only require that the borrowers must be 20-21 years old and above.
The loan issuing conditions seem simple and attractive. The potential borrowers have to fill out an online application on the credit organization websites. They should insert a desirable amount on the calculator, as well as the desirable maturity period and click the button “Take a Loan”, fill out a registration field and pass identification.
It is worth noting that only several online credit organizations offer the first loan without interest rates, while a majority part does not provide similar opportunity. Unprecedented high interest rates are set on online loans despite simplified terms. The borrowers have to pay monthly 30-32%, while the annual efficient interest rate is 392%. According to specialists, a major part of similar loans accounts for 500 to 1500 GEL. Despite high interest rates, online companies become more and more popular among consumers.
The bank sector experts assert that a growth of online loan companies in quantity and unprecedented high interest rates will further impoverish the population. As a result, the economic growth will be ceased in the country. The quantity of online loan companies grow because the demand for quick money increases in the society.
The bank sector expert Lia Eliava says the online crediting intensification may bring various threats to the population and the state economy, because online loans withdraw money from the real sector and direct it to the financial sector and the population has to take high costs to serve the loans.
It is also interesting whether the Finance Ministry possesses information on online lenders, whether similar organizations are registered and pay taxes, whether their revenues are counted. According to my information, nothing similar happens and this is a huge problem, because the state budget loses certain revenues. In practice, this is a wild field that is not controlled by the Authorities”, Lia Eliava said.
It is very difficult to control online crediting sector worldwide, even more so the due legislation absents. Therefore, it would be simple for the Authorities to ban this business entirely, because it brings nothing good to the country. It would be better to ban commercial banks to issue similar loans. Online loan companies take finances mainly from commercial banks”, Eliava noted.
The experts also talk about elaborating mechanisms for issuing loans and call on the Authorities to develop the due legislation as soon as possible. “The Authorities should introduce a law on crediting business with determined rights for issuing credits, as well as with specific procedures. And the existing unimportant norms in the civil code is not sufficient to ensure legal and legislative guarantees for crediting business. The Authorities have to perform a huge job, but no one is apparent who would take these steps”, Eliava noted.