The FINANCIAL — MFO Crystal, one of the micro financing organizations in Georgia, says it showed incredible resilience to the economic shocks following the war and international financial crisis.“During the last 10 years the average annual growth of microfinance portfolios was between 50% and 70%, which is incredibly high and stable sector performance,” says Malkhaz Dzadzua, CEO of JSC MFO Crystal. The company now plans to expand its loan portfolio by 10 million USD to reach approximately 6,000 borrowers in total.
“The leading loan product is micro business loans of up to 5,000 USD with 24 month duration.
The project investment that yields the highest profit is the trade/commerce sector,” Malkhaz Dzadzua says.
The Crystal microfinance programme started in 1998 with the initial loan capital of 10,000 USD.
Since 1998 the company has disbursed more than 25 million USD worth of micro loans, 96% of which was invested in West Georgia regions. The total number of loans issued – 32,000. Indirect beneficiaries – about 24,600. In 2009 in total 5,515 loans were issued to the amount of 5.8 million USD.
At present Crystal has 4,500 active borrowers who have taken 6.5 million USD worth of loans from Crystal in total.
Crystal is financed by international microfinance investors such as the Deutsche Bank Global Commercial Microfinance Consortium, DWM Asset Management, EBRD, Finethic Microfinance S.C.A./via Symbiotics S.A., Oikocredit, Cordaid, IFAD/IDA, TBC Bank and UNDP.
“According to our knowledge, the post-war growth of the sector was even higher attributed to new entrants as well as increased taste of banks for financing small businesses,” Dzadzua says.
“It is obvious that micro loans help businesses to enhance their revenues. If business is viable and potentially profit-making, micro loans help amplify the financial outcome. In many cases we see the expansion of business, but also frequently we see sustained earnings, sustained and created jobs, which result in higher revenues for the individuals involved and their families. It is very important to emphasize that the micro loan as a financial instrument should be used with care and high responsibility, because a loan can equally amplify a problem, if a small enterprise has one. Therefore, stringent screening and credit risk management are important ingredients for success.”
Q. Why did you choose to finance micro and small enterprises?
A. It is obvious from Crystal’s example, that with appropriate methodology and business culture, lending to micro and small can be successful both financially and from a social point of view. We started as a project supporting displaced people in improving their income generation through training and subsidized credit, but over time we transformed Crystal into a viable financial services company. We kept strong emphasis on financing small businesses because of this history and our cumulative knowledge of the sector. I should say we feel very confident in this market and are willing to invest further because there is vast untapped potential in micro and small business financing in Georgia, especially in the regions and rural areas.
Q. You are entirely focused on providing micro loans for the organizations, what is the main strategy behind this goal and mission?
A. The mission of Crystal is to offer a wide range of high quality financial services to micro and small entrepreneurs throughout Georgia. This is done in a way which ensures the balance between uncompromised financial performance and social return. We engage in long-term partnership with our clients supporting them in sustaining and expanding their businesses. A significant portion of our loan portfolio provided is invested in remote areas – usually beyond the reach of mainstream banks – we suppose our work results in greater financial inclusion and increased earnings for micro and small entrepreneurs nationwide.
Q. What are the risks associated with providing loans?
A. While it is perceived that small business financing is an area of increased risk, the past performance of Crystal and entire microfinance sector in Georgia demonstrates quite the opposite. In fact, we showed incredible resilience to economic shocks following the war and international financial crisis. The same goes for the microfinance sector worldwide. Certainly there are credit, operational, currency and liquidity risks involved, but with the right degree of caution one can easily manage those risks.
Q. In your opinion, is financing micro businesses and small enterprises associated with lower risk?
A. There is an inherent credit risk in microfinance operation but we try to properly assess these risks and make necessary provisions. Before the financial crisis microfinance portfolios were perceived as higher-risk assets compared to other financial institutions, because of the very nature of lending to micro and small, but I guess this caution helped us to be adequately prudent in our credit and financial decisions.
Q. Is providing micro loans a fast growing business and how does it differ from the banks that provide macro loans?
A. Microfinance institutions like Crystal are specifically designed to serve the lower end of the financial market. This is manifested in organization culture, structure, systems and processes, training of employees and the way the customer experience is managed. There are challenges in keeping these unique feature while growing in size, but it is possible. In fact, this is what Crystal is going to do. Therefore, I think MFIs and banks can be equally successful if they have the right approach and a good understanding of their micro and small business clients.
Recently EBRD provided Crystal with the equivalent of 1 million USD in GEL, which was the first ever GEL financing for on-lending to micro and small enterprises by EBRD in Georgia.
We have indeed decided to invest this fund fully into Crystal’s core microfinance portfolio, which serves the micro and small entrepreneurs in the regions where we work.
Q. You cooperate with USAID Georgia, whose projects have been undertaken since 15 September, how much money was invested from the US side and how many projects have been undertaken to date?
A. We received a portable guarantee of 1 million USD from USAID which has been fully utilized to obtain the loan from TBC Bank. The first tranche of 300,000 USD has been received so far, but this is just the beginning. With this fund we plan to finance about 700 new micro entrepreneurs in 2010 and an additional 540 new business projects during 2011 and 2012.
Q. What are the main strategies the company used to survive during the recession?
A. The key strategies were the same as in any other business – tough cost control, creation of a financial cushion, more stringent screening and robust, yet ethical, collection.
Q. What are your expectations and challenges in 2010? How many projects do you consider financing? And how many loans will be issued?
A. We plan to expand our loan portfolio by at least 10 million USD which will allow us to reach approximately 6,000 new clients in the course of the next 3 years. We intend to consolidate our positions through 14 offices where we are present and penetrate more in remote areas as well as business sectors which require greater access to credit.
Q. What is your vision of economy development in the regions: Imereti, Samegrelo, Zemo-Svaneti, Guria, and are you in operation there?
A. There is a big market and human capital in these regions, which is still to be realized. We believe that in conditions of secure and stable development of the country, each region has enormous untapped potential for growth. We should see development in agriculture, processing, tourism, services and small manufacturing.
Q. What are the criteria after which you can give people a loan?
A. We assess the management potential, credit record and financial viability as well as looking at sector risks and other factors, including the collateral. Crystal is looking for potentially viable and successful micro and small entrepreneurs to help them elevate their business to the next stage. In this process, our role as a pure microfinance player is limited with provision of loans and ancillary financial services.
For the end of 2009 about 38% of our portfolio is invested in rural areas, mainly supporting agro-business and small farmers. 29% of the portfolio is invested in the Trade sector, 11% in Service. The remaining 22% – in different business sectors and for household needs. Loans are available for expansion of existing businesses as well as for start-up entrepreneurs.