Micro-financing of small business (ABSTRACT)

Temur Khomeriki

The notion of finances usually implies system of relations connected with movement and use of real money both in financial and credit spheres.

The line between financial and credit relations is quite nominal with the two relations complementing each other. They are closely interrelated and interconnected so that they can be defined as a single financial and credit mechanism for the functioning of appropriate financial institutions.
Of many credit-financial and investment support forms of small enterprises (financial leasing, franchising, financing system in the form of credit unions, micro-crediting and micro-financing), micro financial services system is more developed in Georgia. The system is suitable to businessmen as it is characterised by high speed of loan granting, non-traditional debt coverage terms (group warranties, third parties’ guarantee, low deposit demands, etc), easy accessibility, simplified documentation requirements and procedures, etc. Searching for sources of financing and investments has not yet lost its actuality for small enterprise (less than 20 people employed in enterprises with no more than 500 000 GEL annual turnover). Subjects of small business have limited opportunities of obtaining a bank credit due to banks’ strict requirements for loan guarantees with there being high risks and lack of credit history. On the contrary, micro financing implies operative and regular access to financial services. Granting of loan is preceded by the request consideration procedure, drawing up of documents, attraction of guarantors and collaterals (for individual borrowers), but the process is completed quickly with immediate interaction of parties. Micro financing also contributes to the solution of economic and social tasks. It is a source of quick replenishment of floating and capital assets for micro enterprises. It is a mechanism of credit history formation for obtaining further bank credits. This encourages small enterprise to come out of the shadow sector, thus contributing to its decriminalisation. Being a tool for combating poverty and unemployment, micro financing contributes to the increase of the living standard, employment and economic literacy. Micro finance organisations are oriented towards meeting demands of ordinary people. Given the development of small business, mainly, in the sphere of services and trade, micro financing has become widespread in Tbilisi. Yet there is already the experience of fruitful co-operation in other sectors and regions. Micro finance organisations of Georgia preserve their semi-official status based on indirect laws, standard acts, rules and agreements. Given the social orientation of micro financing services, micro finance organisations are established in the form of non-commercial organisations that comply with the norms of the Civil Code and current laws regulating the activities of non-commercial organisations. Micro financing services for the granting of loans on the repayment basis are not prohibited by current laws. Micro loans are issued from micro finance structures’ own funds designed for the target group of clients.
Proceeding from the above-mentioned, stable and steady credit and financial system of small business support should become a priority task for the government. In its turn, the development of small enterprise contributes to the increase of social and economic stability in the process of on-going market reforms as well as subsequent stabilisation of economic relations.