Status quo
• MFO market accounts for 0.2% of global economy, mostly operating in developing economies
• Global MFO market focuses on transitioning from being a pure lender to business partner
• Although faced with a bunch of regulations in recent years, Georgian MFO market looks healthy, with profitability above global average
• Georgian MFO market is skewed towards consumer lending, which is different from the classic MFO model.
Key challenges in the sector
• High FX risks and inability to issue new loans in FX. Although the majority of FX liabilities are hedged through currency swaps, some open positions still remain
• High funding and hedging costs – with no direct access to GEL resources from NBG, MFOs are mostly funded through loans from banks and IFIs, high FX borrowings lead to high hedging costs
• High funding and hedging costs leading to high interest rates on loans, limiting MSME’s access to credit.
Expectations
• Law on Micro-banks expected to be approved in Feb-23
• Currently, 12 MFOs are eligible for receiving micro-bank status, though only a few of them have applied for licensing. NBG does not exclude the possibility of new entrants to the market
• Micro-bank model will probably lower funding and hedging costs for MFOs, reducing interest rates on loans and increasing MSME’s access to credit
• Consolidation potential exists among the remaining MFOs, considering a number of small players on the market with poor financial performance.
