Georgia trying to contain banks

After long discussions the National Bank of Georgia (NBG) took a landmark decision - for the first time in many years commercial banks (there is no others in the country, except for the NSA) limited the issuance of loans to the population. It has obliged credit institutions to study financial solvency of borrowers and their real incomes. The amount of monthly payments, including for covering the principal debt and interest, must not exceed 25-30% of the income of the borrower and his family.

This revolutionary for Georgia decision has not only a financial and social, but also philosophical and ideological dimension, indicating an adjustment of the country's development vector. Until now, the radically right-wing concept has triumphed in Georgia, according to which, the government should not interfere in business, especially in the banking sphere; and if a person takes a loan, then he is responsible for his decision. Given the local specifics and post-Soviet mentality, as well as a weak culture of personal responsibility in market conditions, such liberal approach has led to disastrous consequences for not only individual families, but society as a whole.

According to various sources, up to 30%-50% of the total adult population of the country is indebted to financial organizations. This does not mean that all of them are insolvent or do not fulfill their obligations. But when 600,000 people in a country with a total population of 3,6 milion people are indebted to pawnshop-like financial organizations, this leads to consequences that destroy social moral foundations. People lose everything they have withouthaving had time to pay interest to microfinance organizations and pawnshops. The percentage rate on a loan reaches 100-300% per year.

The bank debts epidemics was facilitated by the fact that in the conditions of the uncontrolled financial services market, public and private debt collection and execution services can mercilessly evict a family, using excessive force, just a day after receiving a request from a bank or pawnshop. Banks have specialized collection agencies whose methods of operation are not regulated. Attempts by the authorities to complicate the eviction of people or the confiscation of property ran into resistance from banks that have broad connections in the media and right-wing political parties.

Limiting the issuance of loans may seem inexpedient in terms of economic development only at first glance. Vast majority of hardback loans accaunts not for treatment or education, but for buying luxury goods and covering gambling and sweepstake debts. The government, controlled by the billionaire Bidzina Ivanishvili, initiated a program for granting preferential loans for small and medium-sized businesses. This initiative was met with a dead silence by Georgia's commercial banks.

An unexpected ally of the government in curbing banks was the main opponent of the current authorities, former president Mikhail Saakashvili. In the course of appeals from Amsterdam, where he lives after being expelled from Ukraine, Saakashvili called banks bloodsuckers and interest-holders. The "restless revolutionary" named Ivanishvili as the "chief interest-holder", promising to "take everything from him with the interest" after the presidential elections.