Switching from Consumption to Saving

The FINANCIAL — Focused on creating and enjoying maximum comfort today, consumers are buying goods and services that are not creating value for the long term wealth of the individuals, moreover soon these goods are becoming less valuable if not useless. The market is saturated with consumer loans, says Aieti Kukava, CEO at Alliance Group Holding. Switching from consumption to saving is what Kukava recommends. As well-known investor W. Buffet recommends “spend the money what’s left after saving”. The company plans to focus on encouraging entrepreneurial spirit in the regions during the coming years.

The credit bureau was the first project that was launched in 2003. Creditinfo Georgia still remains the only credit bureau in Georgia. Together with AGH, it is currently owned by four leading commercial banks and an international partner company. After the successful launch of the first project, Alliance Group Holding was established in 2005, together with American and European shareholders. Initially the company offered financial services to the market, in terms of micro finances and leasing. Later it expanded its service offerings into the consulting field. Currently, AGH incorporates diversified subsidiaries, with unique products and market position. The financial services include: leasing, microfinance, investment banking. The consulting services are broader and start from property valuation and management, IT, financial and energy consulting and business information. Besides Tbilisi, its services are available in Kutaisi, Zugdidi, Batumi, Rustavi and Tsalka. The customers range from Micro, very small and SME segment to corporations.

“Each year has had its own outstanding success and achievements. When you see the growth and progress of the previous year, you realize that you are on a right path. Last year was very exciting and successful for us. We expanded our regional network and implemented several innovative projects and services. Launching an online business directory was one of the most important projects. It is the largest and most continuously updated database of Georgian companies. The directory includes comprehensive information about 20,000 most active companies registered in Georgia. It allows users to search for companies by sectors, look for the services they provide, along with their contact data. The directory has been very useful and popular among foreign investors as well as local organizations and start-ups,” Aieti Kukava, CEO at Alliance Group Holding, told The FINANCIAL.

In 2013 AGH started the construction of a small hydro-electric power station. The management considered the energy field to be one of the most promising in Georgia. “Together with our international investors and partners we have big plans for this area. In the next 7 years we plan to attract a significant volume of investments in this sector and to acquire the country’s hydro-power potential,” said Kukava.

Q. Microfinance, leasing, property assessment, risk management and consulting is but an incomplete list of the services that you offer. Which of them are the most in demand?

A. Micro financing, micro leasing and consulting service are the most demanded among the representatives of SME business. When it comes to corporate clients and international investors, they are mostly requesting risk management, analytical products, strategic business planning, consulting and fundraising services.

Financial services comprise 60% of AGH’s operations; the remaining 40% is made up of consulting services.

Q. How affordable are your services for SME companies?

A. Our customer base is quite diversified. Our clients include micro, small and medium-sized businesses, as well as large corporations, local and foreign international financial institutions, the embassies of different countries, and non-governmental organizations.

Our services are tailored to meet the demands of small businesses. The client can take advantage of a one-stop shop principle. They receive not only a financial product, but also consulting services, which help them to properly and effectively use financial resources.

We have always followed the principle of responsible lending in micro-financing. We comprehensively study our client’s business before lending to them and consult our borrowers on loan amounts they can serve in order to prevent their over-indebtedness. On a higher level of development we offer more qualified service for SME consumers. Our subsidiary is selected as a consulting company by USAID and EBRD-funded projects. As a result, for a number of entrepreneurs consulting is funded by these organizations and they receive it free of charge.

Q. Alliance Group Leasing has more than 4,000 clients, within which leasing transactions account for over GEL 20 million. Leasing still remains less popular in Georgia and continues to be dominated by the bank and microfinance loans. What is the reason for this?

A. About 3-15% of renewal of fixed assets is financed by leasing companies in developing countries. Meanwhile the same figure reaches 30% in developed countries. The share of leasing is just 2% in Georgia. The remaining 98% of fixed assets is financed through bank, micro-finance or own financial resources. Many people in Georgia do not know that leasing has many advantages in comparison with a standard banking loan. Leasing is a more accessible service. It does not require collateral, as a leasing asset is a subject of collateral. Leasing has flexible payment system. The company provides full support to its customers in relationship with providers and traders. Due to the existing legislation, the development of the leasing market was limited in Georgia till 2011. The recent changes in civil and tax codes encourage the development of the leasing market. It allows customers to use the leasing service in better conditions. However, due to the lack of awareness, consumers prefer to use standard loans. We are optimistic, however that the conditions on the market will change gradually.

Q. Tell us please, from the example of Alliance Group Capital, how active are start-ups and which are the most attractive business sectors for them?

A. Alliance Group Capital finances start-ups as well as existing businesses, which require different type of financial products than bank loans. Young entrepreneurs are more active in start-up businesses. They get involved in businesses of a single risk transaction as well as in modern information technology. We believe that IT has a great potential in Georgia. With the development of traditional industries, modern technologies are one of the main prerequisites for economic development in Georgia. There is a potential to develop such services, which are in demand not only within the country but also on international markets.

Q. What are the main mistakes made by start-ups and what are your recommendations for them?

A. Any inexperienced entrepreneur, whether in Georgia or abroad, imagines that they will be able to achieve success in a short-term perspective. However, maintaining success requires dedicated work and concerted effort. Many people with interesting ideas fail to achieve their goals. In many instances, entrepreneurs start a business without any exact plan, budget or market study. Therefore, it is necessary to get qualified consultations before starting a business even with your own financial sources. That is what we take into consideration when financing a start-up business. We rigorously evaluate any business idea, measure the risks, study market and potential consumer behaviour and the competition. Only then we develop realistic plans consisting of several stages. This is everything that a final business plan includes. To first critically analyze ideas and only after that start their implementation is our main suggestion for start-ups. The support of qualified staff is also important for this purpose.

Q. The National Credit Information Bureau is focused on developing, processing, issuing and distributing business information in Georgia. How big is the interest in the Georgian business environment today?

A. We have been operating in the field of business information for twelve years. We are providing information about Georgian companies to global business information companies such as D&B, Coface, Kompass and others. International interest in Georgian business has grown over the last few years. Inquiries from international partners in the last 3 years have increased by 17%. We are sending the processed information of local companies from various industries, mostly on large and medium-sized companies.

Q. The representatives of which companies are more interested in the Georgian business environment, and in which sectors specifically?

A. The interest towards Georgia has always been from European as well as Asian countries. The investors pay a lot of attention to the political and economic situation of the country.  During recent years, many investors have been closely watching the situation in the country. They have been in standby mode.

We went through a very difficult time politically. Georgia has proved that it has one of the most attractive investment environments in the region. Asian and Western European investors became more active this year. We plan to launch various projects in different sectors, such as energy, real estate and information technology.

Q. Energy is one of the most fast-growing sectors in Georgia. Meanwhile the country still has to import this resource in winter. How would you estimate the potential of this field and when can Georgia become an exporter of energy resources?

A. Georgia is ranked among the top five countries with the highest per capita hydro resources. Only 18% of the country’s resources have been utilised. Consequently, the potential is truly remarkable. Investment in the energy sector has become popular among investors only a few years ago and interest in this sector is increasing annually. However, energy requires a long-term investment. The average project takes 3-5 years to be completed. Accordingly, replacing import cannot be achieved easily. However, in the event of stable investment, within 7-10 years Georgia will be able to not only satisfy its own consumption, but also become significant exporter of hydro power energy.

We have been involved in the energy sector since 2011. We are currently constructing the first small hydro-power plant. Together with our international partners, we plan to implement a number of important investments in this field.

Q. How flexible is Georgian business towards modern technologies?

A. The disregard of modern technologies in a globalized competitive world may become detrimental to any business. Georgian business has come a long way since the country’s independence. Nevertheless, there are some fields in which Georgia is dominant in the region. The banking sector and communications are one of these fields, in which modern technologies are actively used. However, other sectors should also feel the importance of technological innovations. One of the main cornerstones of our work at AGH is the introduction of innovative products and services. It helps us to achieve success and increase our efficiency. The increase of efficiency in a competitive and sustainable economy is one of the essential prerequisites for the success of any business.

Q. We rarely see holdings in Georgia that include the activities of different profiles. What were the main criteria while deciding which service to implement?

A. Innovation, optimal diversification of services, constant increase of efficiency, implementation of services and products based on the country’s needs – this has always been the main basis of our work. Our goal is to fully comply with our customers’ interests. Establishing trustful and long-term cooperation with customers has been a cornerstone of our philosophy. As for the different profiles, each direction is a single ring of one complete chain. All of this creates the basis of success for the company, its customers and country as a whole.

We consider CSR to be an integral part of AGH. We use it in our daily activities. Our internal politics is based on a respect for human rights, gender equality, environmental protection, transparency and accountability. All our actions are governed by the fundamental resolve to act responsibly and on behalf of future generations to ensure economic, environmental and social progress.

In 2010 we founded the charity fund Ardza. It carries out projects funded by AGH in three main directions: promoting business ethics among young entrepreneurs, the rehabilitation and preservation of Georgia cultural heritage and environmental projects.

Q. Which innovative projects will you offer to your customers?

A. First of all, we are working to introduce to clients an alternative source of income for them. For this purpose, it is necessary to improve the financial education of our citizens. It is time to decrease consumption and expenditure and switch more to saving. Saving properly is crucial. Each deferred saving can bring more income tomorrow. It is necessary for the customer to see the various ways and means by which individual and its family will get financial stability to create a secure future. These are the ways and means we offer to our customers.

Encouraging entrepreneurial spirit in the regions is one of our main priorities. We will focus on supporting independent start-ups and the expansion of existing ones. Growing and progressing from small and medium sizes to more expanded scales is what our financial and consulting company offers to entrepreneurs.