Ask for money and you receive it

Sophico Sichinava

Long time has passed since the appearance of the first micro-finance institutions in Georgia, yet the notion “micro loan” has penetrated into the life and conscious of our society only recently.

Micro-financial institutions are formed with the status of non-government organisations that, as mentioned, are financed by international donor organisations. Micro finance organsiations try to slowly pass to self-financing regime. Similar organisations of the world exist in different forms: compared with micro-finance institutions, credit union is a collective union financed by members, i.e. there is so to say self-financing;
Agricultural credit co-operatives – the principle is the same, it is possible that a legal entity is united and engaged in the sector as well as budget-financed state funds for entrepreneurs’ support: federal, regional, municipal.
Micro-finance is a new type of economic and financial service. Small businesses use the service to obtain short-term loans and investments with the perspective of receiving larger loans.
Micro-financing helps poor and low-income citizens in starting business. They either have some resources or wish to expand business, but they have no chances to apply for a loan in traditional commercial banks that, as a rule, do not give loans without a mortgage. Most micro finance organsiations’ individual loans range from 100 dollars to 10 thousand dollars depending on particular conditions (there are countries with less than 100 thousand dollars’ micro loans). Micro-financing provides for the correction of really existing mortgage. Group loans range from 50 dollars to 600 dollars and are issued to solid groups of 4-7 persons who need no mortgage and agree to vouch for each other in covering debt. Credit officials provide debtors with appropriate training.
Average level of micro-loan ranges from 100 to 300 dollars. Yet, you can obtain smaller or larger loans from micro finance organsiations depending on business requirements. Representatives of micro finance organsiations say that even 50 dollars is a big sum for low-income entrepreneurs who can invest the sum in some business and receive profits.
As a rule, consumers of micro financing are ordinary, low-income people who have their own farms. They are mainly farmers as well as people who are involved in small business such as food-processing and trade. Micro-financial activities are more diverse in cities comprising shop owners and people who offer different kind of services to consumers. Petty merchants and debtors of micro finance organsiations usually belong to middle layers with small, but stable income source.
As mentioned above, a customer is free to take individual as well as group loans. Individual loan is a loan issued by micro-finance organisation to a person for a mortgage or warranty or without any mortgage. Group micro loan is a loan issued to a group of natural persons without a mortgage who are bound with a solid commitment.
Micro loans are the best chance for those who have leant their economic possibilities . Warranties are not required in this situation. In fact, groups of five-six persons vouch for each other. There is joint responsibility provided some of them fail to pay out the loan.
Warranty is necessary for individual loans. The sum and accrued charges range from monthly 2 to 4%, i.e. two-year loan is paid in laris.
Customers of micro-finance institutions can not be impoverished people who do not have any stable income source and are, therefore, insolvent (for instance, homeless). The people can have more problems if they take a loan and do not pay it out. Customers of micro-finance institutions will not be people with unstable income.
Micro-loan is not meant for single use, it is issued in stages. If an entrepreneur has covered a debt once, he might have another chance to turn to micro-financial institutions for larger loans and with better conditions. All this depends on long co-operation. That is why all debtors care for their credit history.
Micro-loan is also advantageous due to the simplified loan-taking procedure. One should submit a limited number of documentation. Loan is issued quickly in 3-4 days. This depends on the size of debt. There are untraditional loan-taking forms such as third person’s or group warranties.
The financial service offered by micro finance organsiations is not cheap. 100 dollars’ loan requires almost the same number of personnel and resources as 2 thousand dollars’ loan. Financial operations’ expenses come from here.
Expenses of one micro loan can easily make up 25 dollars, which might equal 25% of loan. This very fact makes micro finance organsiations establish seemingly high interest rates, yet in reality, as we can learn from the experience of micro-finances, customers pay interests voluntarily so that to ensure constant access to loans.
Apart from financial service, you can obtain information on your business in micro finance organsiations. Thus, you can learn whether it is possible to cover the loan of micro finance organsiations by your business. This, certainly, helps organisations reduce risks, but as they say, people are taught to catch fish and customers’ risks are reduced.
According to the law of Georgia, there are the following present limitations for non-banking micro finance organsiations: prohibition of deposit and accounts operations; prohibition of currency operations; prohibition of profit distribution. It is of high priority as 48 discrepancies with laws are found. A special law on micro finance organsiations is being prepared and it will be ready in 2005.