Online credits in Georgia yield annual efficient interest rates from 500% to 1100%. However, these credit organizations do not lack clients and borrowers, anyway.
The fact points to financial ignorance of the population and the fact extremely impoverished residents do not care for outcomes while trying to gain today’s piece of bread.
Meanwhile, both the Government and the National Bank of Georgia (NBG) show indifference to the savage game by credit organizations in the country.
According to the report of the Social Agency of the Georgian Health Ministry, more than 1 million residents in Georgia consider themselves to be extremely impoverished. This category is waiting for social allowances. It is difficult to expect this category to demonstrate knowledge and reasonable perception of the processes, when these people face real problems with sustenance. However, the NBG stubbornly underlines financial ignorance of the population.
Credit organizations issue loans to the Georgian citizens, who have turned 19. Even this aspect signifies these organizations pay less attention to the borrower’s income source. Citizens of this age category mainly borrow loans for gambling games and this is the main factor for increased suicides among young people. This uncontrolled wild market have set insanely huge interest rates. The website of Loans.ge, which introduces conditions of various online companies, shows that:
The annualized efficient interest rate is 708% in CCLoan, 435% in ELoan, 730% in NetCredit, 435% in Vivus, 1174% in EmmasCredit (EmmasCredit has indicated 365% annual efficient interest rate on its own website), 800% in Moneyman, 850% in CreditOn and 558% in Credium.
For instance, NetCredit issues 50-1000 GEL online loans with a maturity period of 1-30 days and the monthly interest rate is 19%, while the annual efficient interest rate makes up 730%. The fine for every overdue day constitutes 1%, i.e. 1 GEL will be charged a day if the client has borrowed 100 GEL.
Online Credit issues loans from 50 GEL to 2000 GEL to citizens having turned 19. The annual efficient interest rate for 50-700 loans makes up 1132%-384%, because the consumer status changes while taking a repeated loan. Consequently, the commission fee rate also changes.
Tens of other credit organizations offer almost the same conditions. The quantity of these online credit organizations has extremely multiplied for the past two years.
Our respondent Mariam Chelia with heavy experience of her relations with online credit organizations says her financial problems deepened after she first applied to such an organization.
“Every day I receive tempting proposals from various credit organizations in the form of SMS messages. I took the first loan of 200 GEL in August. I wanted to buy clothes for my child for secondary school. The initial month was interest free. I was going to cover the loan after taking my salary, but my salary is so small that I failed to cover the loan. To prevent charging interest rates, I applied to other organization for loan covering. Currently, I have taken loans from almost all organizations.
Now I regret to have taken such a step, but it is too late. I borrowed 300 GEL loan several months ago. The monthly payment exceeds 70 GEL. I have to pay 20 GEL for overdue 10 days”, Mariam Chelia said.
Online credit organizations do not issue loans under annual interest rates. They receive profits through huge fines and commission fees, banking expert Lia Eliava said.
“This inappropriate business that contradicts the world practice must be eradicated. Loans must not be issued under only commission fees, because the commission fee is paid on monthly basis, but a major part of online organizations follows this practice anyway. Moreover, the most important thing is that the efficient interest rate is not calculated by only a commission fee. This method is strange in all normal countries. Similar abnormality happens in only Georgia. Loans are issued under unclear schemes”, Lia Eliava said and noted that like the Baltic Countries, where there are a lot of online credit organizations, the National Bank of Georgia (NBG) should set supervision over the sector.
As to the loan issuing procedures, a special law should be adopted to regulate crediting business. This law should ban issuing loans under only commission fees and should introduce a fixed annual interest rate.
All these aspects should be integrated into a joint legislative norm. By the way, this savage market involves online credit organizations and microfinance organizations, pawn-shops – all these directions should be regulated. Central banks regulate similar issues in other countries.
“The national bank operates in Georgia and this body must supervise the finance sector activity. However, I do not expect the current administrationo of the National Bank to take efficient steps in this respect, because they have done nothing for the past 7 years. Let’s see what the new administration will do”, Lia Eliava noted.
Besides the NBG, both the Parliament and Government of Georgia show indifference to this wild market. Therefore, there is no party in the country that would put forweard due legislative initiatives.