The FINANCIAL — The EBRD and EU are joining forces with Bank of Georgia to help Georgia’s private sector reach new opportunities. Implemented by Bank of Georgia through credit lines, the facility aims to support SME development in the context of the Association Agreement/the Deep and Comprehensive Free Trade Area (DCFTA).
The establishment of a free-trade area is part of the EU’s Association Agreements (AAs) with Georgia signed in 2014. It offers local firms access to the EU Single Market, the world’s largest free-trade area. The facility allows companies to take full advantage of the opportunities offered by the DCFTA. The support of start-ups and women enterprises must be emphasized. Collaboration between the EU, EBRD and Bank of Georgia can be very beneficial for the development of both businesses and the country. The FINANCIAL talked to Mr. Zura Masurashvili, head of the MSME Banking department at BOG, to discuss the prospects of SME development in Georgia.
Q. Last year EBRD granted Bank of Georgia an EU financing facility, which aims to support SME development in the context of the Association Agreement/the Deep and Comprehensive Free Trade Area (DCFTA), allowing companies to take full advantage of the opportunities offered by the DCFTA. Can you tell us about the outcome of this financing project?
A. Bank of Georgia was granted the equivalent of USD 100 million by EBRD to develop Georgian business. Half of it, 50 million, involves the DCFTA component. It is a very important initiative for business support. We created a special product – the European Business Loan – aiming to modernize local business, and ensure that their products and services meet EU standards. On the one hand it will help Georgian companies to bring their products to the European market. And on the other hand it will replace imported goods with high quality Georgian ones.
To support this important affair, the EU will give a cash-back of up to 15% to companies which use this credit line. The most important thing is that, at the same time, companies have the chance to become a part of government projects, for example “Produce in Georgia’’, or “Cheap Agro”, and simultaneously take a subsidy as part of a bank rate. At present it is a unique opportunity for business development in Georgia.
Q. Can you tell us how the EBRD/EU financing facility implemented by Bank of Georgia improved product quality and modernised SME services to meet EU standards?
A. Businesses are mainly investing in new technologies and equipment, production-lines, safety of industrial premises and energy effectiveness. Also they are passing certifications, according to EU requirements. With the European Business Loan we have financed beer production, wine and ice-cream production. They have increased production volumes, but at the same time cut down on the amount of expenditure. In certain cases new installations have given them the opportunity to export their production. We helped and gave finances to several hotels, car service centres, companies which create advertising materials, textile enterprises, asphalt companies and so on. All of these companies were modernized in line with EU standards.
Q. It was said that financing will create an environment that is beneficial to cross-border trade and economic growth in Georgia. Can you give us some examples and success stories?
A. We have some very good examples. After the process of modernization many businesses have had an opportunity to export to the EU market. We may consider the example of Georgian clothes; also plants, including primrose, liquorice, sweetbrier, nettle and wild apple, which can be found in the forests of Racha.
Q. Tell us about women entrepreneurs. How have they benefited from the programme? Why was the financing programme aimed specifically at supporting businesses that are managed or owned by female entrepreneurs for better access to finance?
A. Due to the same credit line, USD 10 million is destined for the development of female enterprises. Generally, in our country the main business owners are males. 70% of our credit portfolios are owned and managed by men. Because of that we have decided to encourage and start financing women’s start-ups. It will help many women to start a business and become more successful.
Q. How has the financing facility improved the access of entrepreneurs to know-how and advice?
A. Due to the DCFTA credit line we held several events to grow awareness. We invited businesspeople, introduced them in general to the DCFTA and credit line possibilities, the process of implementation. We invited the experts of those countries which have already passed and have access to the European market, also the experts who will introduce to Georgian companies the procedures for certification (for those who want start exporting). These kinds of activities are very important for the successful implementation of the DCFTA in banking and in the country.
As well as these financing resources the Bank has a very successful business support programme. It involves business consulting and training. We have recently finished several very important business video catalogues. On the one hand this helps businesses to become more popular, while on the other hand they serve as an inspiration to others. Besides that, we were the first to have opened a branch, made way for business and collaboration. By the way we have created a special corner for businesses, where our clients are free to place their production. This helps them to become popular and to network. In May we will set up a new BOG portal. Interesting articles can be found there, about business settlement and management. Visitors to the portal will be inspired by the biggest success stories. In general, the portal will help to give advice for business development.
Q. Tell us about the technical advice delivered by international experts which is being provided free of charge to these SMEs. Can you give us numbers, statistics?
A. Bank of Georgia has been collaborating with European experts. They help businesspeople to invest in the proper way. They estimate that investments are being made due to European standards. Georgian businesspeople are freely being helped. All of these activities help the Bank, companies, and of course the country, to meet EU standards. A tenth of entrepreneurs have received proper technical advice from the Bank and consulting companies.
Q. What are the main challenges while issuing SME loans?
A. At present Bank of Georgia is a partner and adviser of business. The process and procedures are so simple that enterprises don’t have to prepare in some special way for financial support. They work on a project with the Bank and we help them to get proper financing. If we talk about DCFTA financing the process doesn’t differ. The only difference is the involvement of international experts. Their support is very flexible, effective and successful.
Q. What is the share of SME borrowers which have succeeded in their startups?
A. A few month ago, Bank of Georgia was the first to support and finance women start-ups in our country. It is well-known that start-ups are a risky segment. Our bank takes every case very responsibly and carefully. We don’t want our borrowers to have any trouble with loans. Because of that we only choose the ideas whose success we strongly believe in. Up until now we haven’t made any mistakes in this area. It is a recent project so it is a bit premature to talk of its results.
Q. Do you provide future assistance to companies whose start-ups fail?
A. Beside bank lending we also provide our customer with some advice. We have gained valuable information in the banking system. We have transformed it through our competence and are helping enterprises. Besides that, for the start-ups we have special training programmes – on how to set up an organization. They also have a grace period of an operational tariff for one year. This has a positive effect on business. With constant communication and advice, we are able to facilitate their success.
Q. What are the rates of loans offered to SMEs?
A. The rates of loans depend on many things. For example on loan currency, loan dates and terms, risks and so on. At present rates are very competitive and in general finances are accessible for any kind of business.
Q. Which regions are the most active in terms of using this special financing?
A. We have financed enterprises in almost every region due to the DCFTA, but Adjara, Kakheti and Imereti must be emphasized in particular. However, overall we have the highest numbers in the capital.
Q. Please can you identify the main problems hampering the development of SMEs in Georgia?
A. I deem that, at present, we have all the possible opportunities for business development. Registration of companies, opening a bank account and getting bank assistance can be done in just a few minutes. According to the World Bank’s rating, Georgia holds one of the main positions in that field. Due to some indexes, for instance getting finances, Georgia holds 7th position. This is promoted by banks and the Georgian Government, with projects Produce in Georgia, Host in Georgia, Cheap Agro, Start-up Georgia and so on. Is spite of that the main problem is market size and low capacity to buy goods. The higher the income of people, the better business develops. These two things are inter-linked and dependent on each other.
Q. What is the share of SME financing in Bank of Georgia’s loan portfolio?
A. The SME portfolio is GEL 1.4 billion. It is 22% of the bank’s total portfolio. The role of banks in Georgia’s strategy is to empower this direction, to ensure more finances for business and other non-financial services. In general we want to develop a new level of business service.