Status quo

  • Despite facing a number of regulatory challenges in recent years, the MFO gross loan portfolio has sustained steady growth, with an 11.0% CAGR over 2019-24.
  • The sector prioritizes consumer lending over business loans, mainly driven by high funding and hedging costs, leading to high interest rates on MFO loans.
  • MFOs have limited access to GEL resources, yet they are required to issue loans in GEL. This FX mismatch necessitates hedging, further increasing the interest rates on MFO loans.

Microbank model

  • The status quo led to the initiation of new microbank model, serving as an intermediate structure between traditional banks and MFOs.
  • The microbank model will enhance access to GEL resources, lowering funding costs. In addition, microbanks will be able to issue loans of up to GEL 1mn, compared to the current limit of GEL 100K.
  • Reduced funding costs will lower interest rates. Besides, increased lending limits will enable microbank to offer more loans to the MSME sector.
  • 3 MFOs are presently involved in the transition process, expected to finalize by the end of the year. At present, there are no other viable candidates in the market eligible for transfer to microbanks.