Over the past period, the current developments in the Georgian finance sector were being widely discussed in our society. The reasons are not positive – at this stage, everybody talks about tightened regulations that have brought serious negative effects, and the new norms are aim curb the accumulation of unreasonable loans, but it turned out that loan-taking procedures became stricter for all categories.
As a result, the new regulations have brought about a crisis period for the development sector, too. Meanwhile, home appliance stores lost 50% of their sales.
In a word, besides careless borrowers, the whole economy is bearing serious losses, and this is only the beginning. Let’s remember the 2008 global crisis, when commercial banks dramatically cut crediting volume – as a result, sales shrank, stores were closed, plants decreased production and started firing staff, and so on.
In a word, this is the principle of dominos. If something changes, serious problems are ahead.
However, there is one main problem, which is the real reason behind the current situation – neither the insatiability of the Georgian financial sector, which is an indisputable reality, nor the evident short view of the National Bank management.
The key and fundamental problem is that there is a surprisingly low level of financial sophistication in Georgia.
In the Soviet Union, one saying was widespread: “A loan is bad because you take the property of others temporarily, but you return your own property eternally”. Apparently, the majority part of Georgian citizens do not remember the second part of this saying – the repayment of loans.
Even in the Soviet period, Georgians were accustomed to unreasonable spending of money. However, in that period, this money was coming from the central budget of the Soviet Union. Therefore, embezzlement could not create serious problems. Many years have passed since then, and the Soviet Union collapsed, and the easy money sources disappeared, but the habit of embezzlement remains.
Because of the very low financial culture, people in Georgia do not know how to spend money reasonably. With low incomes, this habit brings catastrophic results.
Sometimes, it is unbelievable that people may demonstrate such indifference in their relationship to money – that they simply, and without a second thought, take so many loans, and this has no reasonable explanation.
Sometimes this money is spent on useful affairs – the purchasing of real estate, business expansion or treatment of ill patients. However, an analysis of the debt pardoning state program that the government announced in the 2018 pre-election period, shows that similar positive samples are very few, and there are hundreds of thousands of citizens in Georgia who have taken loans of about 2000 GEL unreasonably.
This is a mortgage loan, which is not a business credit, and this is not a treatment of an ill patient. They take loans for mobile phone, TV sets, vehicles, holidaymaking, wedding, birthday gifts, casinos and so on.
People enslave themselves because they buy something that is not vitally important. I will take this loan today, and do something tomorrow – this is a key principle of their thought in this case. “The principle of doing something” leads them to take new loans at commercial banks, first, and then at microfinance organizations, then at online companies, then from usurers. Interest rates grow and grow and, in the end, borrowers have to pay the price of an apartment for an initial 2000 GEL loan.
The lowest financial culture, widespread short-term views and habit lead to following one’s own whims, and are revealed not only in taking irresponsible loans.
Sometimes, the so-called ‘Swindled Depositors’ hold protest rallies. I do not mean the 1990s, when capitalism was a new thing and inexperienced people used to entrust their savings to evident swindlers. 30 years have passed, but nothing has changed.
They tell unbelievable stories about selling apartments, bank loans, money transfers that their relative make from abroad, savings of tens of thousands of USD – all these monetary resources were directed to financial pyramid schemes – today in the 21st century.
Gambling games are one more destructive sector, one of the key sources of a lot of small debts. Betting houses and casinos are always nearby.
Georgian citizens have preserved the habit of irresponsible spending of money. A casino is a means of entertainment in normal countries, but in Georgia it is considered as a mean for earning money, although nobody has ever made a fortune in a casino. At the same time, there are armies of persons impoverished and bankrupt at casinos.
Amid small revenues and a lack of money, Georgian citizens spend more money on gambling games than on food. Among Georgia’s top 50 companies, 4 operate in the gambling business, and only 3 ones represent the industrial sector.
Not Putin and Russian Imperialism, but Real and Barcelona are Georgia’s major enemies, earthquakes and volcanos do not bring real tragedy, but European and World Championship Football.
In this situation, and among such citizens inclined to self-destruction, it is not surprising that it is of vital importance to dramatically cut crediting opportunities.
And, as a usual, along with careless and irresponsible people, hard working people also bear losses.
Apparently, this is Georgia’s karma.
By Tengiz Ablotia