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Excessive Debt Stifling Georgia

Mamuka Bakhtadze: “Irresponsible lending pushed 630,000 citizens onto the black list”

“Today excessive debts stifle the country. This is the only relevant appraisal that we can give to the current situation in terms of excessive indebtedness. It is an important source of impoverishment. On the one hand, it narrows incomes managed by our citizens, and on the other hand, citizens with these problems are ejected from active economic life,” Prime Minister of Georgia, Mamuka Bakhtadze, pointed out at the meeting of Parliament on June 21.

The recently-approved Prime Minister has emphasized the citizens on the “black list.”

“A lot of our citizens have lost free access to financial resources,” the Prime Minster said.

According to April 2018 indicators by Creditinfo, the number of credit records grows every year. At this stage, the database includes 24,687,694 records, up 4 million since last year. Today, there are 5,880,113 active loans. The Creditinfo database also has 2,537,374 records of physical bodies, and 94,193 records of legal entities.

According to the last census, a total of 3,718,200 people live in Georgia. This signifies that about 68.2% of the total population of Georgia has taken loans. According to the same indicators, 6.3% of the population is insolvent, and this signifies these 6% have negative status or have had negative status at some point.

“I would like to emphasize a responsible crediting system, and assure you that its formation is of crucial importance for shaping a socially sustainable and efficient economic environment in the country.”

“I would like to remind you that about 630,000 Georgian citizens are recorded on the “black list,” and they cannot carry out valuable economic life. This list includes citizens with interesting business projects, small entrepreneurs who cannot develop their potential, cannot employ other citizens, as an irresponsible crediting system has ejected them from economic life.”

“This signifies that 25-30% of the economically active population cannot participate in the economic development of Georgia. This has a negative effect on inclusive growth. Therefore, it is important to take specific steps in this direction. I have heard much criticism of this issue, which is absolutely ungrounded. I would like to note—and this is my personal opinion, supported by the International Monetary Fund (IMF) and the World Bank (WB), by all key partners—that this reform will be oriented on healthy economic growth,” Bakhtadze said.

The Prime Minister’s initiatives are backed by nonbank credit organizations. However, commercial banks criticize the regulations imposed on excessive indebtedness.

“Mamuka Bakhtadze was the first who actualized the problem with excessive indebtedness. This problem is relevant in not only Georgia, but also worldwide. In our case, there are unequal liabilities in relation to incomes, and these liabilities burden our citizens. It is important to prevent excessive indebtedness. A majority of our citizens have taken various types of loans and I think these initiatives were delayed. Prime Minister Mamuka Bakhtadze has unveiled the problem. Reduction in excessive debts has a positive effect on both the population and business, because excessive debts create problems for the business sector too, because the business sector bears losses because of insolvent citizens,” said Irakli Berdzenadze, the executive director of Association of Nonbank Financial Institutions.

It is worth noting that crediting organizations do not worry about the growing number of records on the black list. On the contrary, surprisingly, commercial banks or other microfinance organizations continue issuing loans to clients with negative credit histories, just with much higher interest rates and worse conditions. As a result, citizens who were included in the black list—fairly or unfairly—receive loans anyway with much higher interest rates.

Since loans are issued on conditions of huge guarantees, crediting institutions have never had problems with collecting credit, and the low level of overdue and bad loans prove this consideration. Consequently, commercial banks and microfinance organizations receive more benefit from lending to citizens on the black list compared to clients with good crediting history. It should be also noted that Creditinfo was founded by four major commercial banks. Consequently, it carries out a policy that best fits the interest of these four commercial banks.

By Merab Janiashvili
Economic Analyst
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