By Georgy Kalatozishvili, Tbilisi. Exclusively for Vestnik Kavkaza
Not long before the parliamentary elections of 2012, President Saakashvili slammed banks for their “inhumane” practice of granting mortgage loans: “Be exceptionally careful, do not kick thousands of people out of their homes for some tips, or you will get the obdurate hatred of people towards banks.”
The speech caused bewilderment because the deep reforms, the president and his team of young reformers were acting according to “libertarian logic” – “let the loser cry.” They did all they could to exclude any allusion of norms limiting freedom of movement of capital and services from socio-economic relations. As a result, Georgian society faced a hideous social and ethical problem threatening to undermine its core. It was so high-scale that the factor affects the electoral potential of the authorities. Otherwise, Saakashvili, as the “political animal” of Aristotle, would not have been so worried about it. He was making the speech prior to the elections, although he was initialing all the laws himself.
Now, thousands of families in Georgia are losing their homes, unable to pay mortgage debts to banks, micro-financial organizations (MFO) and private creditors. There are no limits, no means of control, limits on interest rates or regulation of conditions of mortgage deals in the country. A man can simply enter a bank, an MFO or a private creditor in the country's market, and borrow money at a huge interest rate with an apartment or a house as a property guarantee. In most cases, the loan is needed for urgent reasons. For example, for surgery or to save a family member’s life.
Percenters, as though characters from works of Dostoyevsky, are fine with even the most inappropriate stratagems. Taking advantage of the lack of legal regulations and the helplessness of their victims, they put in an interest rate of 40, 50, 60 or even 100% annually. Should the debtor be at least a little late with payments, the creditor has the right to sell his house worth $100,000 for even $5,000 at an auction. There are no merciful terms, no chance for at least week-long talks, no mechanisms for compromise or constructive debt. As a result, there have been countless human tragedies, crying children left on the street and families living in garages.
A special state agency is responsible for eviction, the National Bureau of Execution. “The antagonist of Dostoyevsky” waits for the poor victim in need of money for the son’s surgery, sets the highest possible interest rate and will address the Bureau with a demand to free the living space, if necessary, in other words, kick the family out to live on the street. Just as it was hard to find a family that had not lost a relative in the Great Patriotic War, it is hard to find a person who does not have a friend with an example of such a horrifying tragedy caused by a mortgage loan.
Paradoxically, it is only the demands of European banks that persuade Georgian banks to show propriety: demanding mortgage debtors to present annual income notes, grant loans at a rate of 11-12% annually, not 40-50%.
But this does not solve the problem aggravated by poor knowledge of the law: 9 out of 10 mortgage debtors admit that they did not read their credit deal and asked only about the interest rate and terms of paying. But a multi-sided deal made by a skilled lawyer has many pitfalls to the advantage of the creditors and disadvantage of the debtors.
Nonetheless, attempts by leftist parties to change the law face fierce resistance. The ruling coalition of Bidzina Ivanishvili, a billionaire and the ex-owner of the Rossiyskiy Credit Bank, is no less harsh in this sector. Although Ivanishvili, unlike Saakashvili, has the honesty at least to refrain from populist and demagogic criticism of the law he passed himself within the framework of the “libertarian reform” and full freedom of business according to the “survival of the fittest” rule. The weak become helpless victims. That is how Georgian society regards it, undermining respect for the socio-political formations made in the country after the fall of communism.
How Dostoyevsky’s characters come to lifeBy Georgy Kalatozishvili, Tbilisi. Exclusively for Vestnik KavkazaNot long before the parliamentary elections of 2012, President Saakashvili slammed banks for their “inhumane” practice of granting mortgage loans: “Be exceptionally careful, do not kick thousands of people out of their homes for some tips, or you will get the obdurate hatred of people towards banks.”The speech caused bewilderment because the deep reforms, the president and his team of young reformers were acting according to “libertarian logic” – “let the loser cry.” They did all they could to exclude any allusion of norms limiting freedom of movement of capital and services from socio-economic relations. As a result, Georgian society faced a hideous social and ethical problem threatening to undermine its core. It was so high-scale that the factor affects the electoral potential of the authorities. Otherwise, Saakashvili, as the “political animal” of Aristotle, would not have been so worried about it. He was making the speech prior to the elections, although he was initialing all the laws himself.Now, thousands of families in Georgia are losing their homes, unable to pay mortgage debts to banks, micro-financial organizations (MFO) and private creditors. There are no limits, no means of control, limits on interest rates or regulation of conditions of mortgage deals in the country. A man can simply enter a bank, an MFO or a private creditor in the country's market, and borrow money at a huge interest rate with an apartment or a house as a property guarantee. In most cases, the loan is needed for urgent reasons. For example, for surgery or to save a family member’s life.Percenters, as though characters from works of Dostoyevsky, are fine with even the most inappropriate stratagems. Taking advantage of the lack of legal regulations and the helplessness of their victims, they put in an interest rate of 40, 50, 60 or even 100% annually. Should the debtor be at least a little late with payments, the creditor has the right to sell his house worth $100,000 for even $5,000 at an auction. There are no merciful terms, no chance for at least week-long talks, no mechanisms for compromise or constructive debt. As a result, there have been countless human tragedies, crying children left on the street and families living in garages.A special state agency is responsible for eviction, the National Bureau of Execution. “The antagonist of Dostoyevsky” waits for the poor victim in need of money for the son’s surgery, sets the highest possible interest rate and will address the Bureau with a demand to free the living space, if necessary, in other words, kick the family out to live on the street. Just as it was hard to find a family that had not lost a relative in the Great Patriotic War, it is hard to find a person who does not have a friend with an example of such a horrifying tragedy caused by a mortgage loan.Paradoxically, it is only the demands of European banks that persuade Georgian banks to show propriety: demanding mortgage debtors to present annual income notes, grant loans at a rate of 11-12% annually, not 40-50%.But this does not solve the problem aggravated by poor knowledge of the law: 9 out of 10 mortgage debtors admit that they did not read their credit deal and asked only about the interest rate and terms of paying. But a multi-sided deal made by a skilled lawyer has many pitfalls to the advantage of the creditors and disadvantage of the debtors.Nonetheless, attempts by leftist parties to change the law face fierce resistance. The ruling coalition of Bidzina Ivanishvili, a billionaire and the ex-owner of the Rossiyskiy Credit Bank, is no less harsh in this sector. Although Ivanishvili, unlike Saakashvili, has the honesty at least to refrain from populist and demagogic criticism of the law he passed himself within the framework of the “libertarian reform” and full freedom of business according to the “survival of the fittest” rule. The weak become helpless victims. That is how Georgian society regards it, undermining respect for the socio-political formations made in the country after the fall of communi
