Leading European credit rating agency Scope Ratings is evaluating Georgia's legislative framework for microbanks. According to the article, the new law is expected to enhance competition in the financial sector, support entrepreneurs and the self-employed, and drive economic growth.

“Georgia’s microbank framework is designed to enhance financial-sector competitiveness, expand the range of product offerings and services, and support entrepreneurs and the self-employed, driving economic growth,” reads the report.

“The granting of Georgia’s first microbank license to JSC MFO Business Capital (MBC) in December 2024 was an important milestone in the development of country’s financial sector. It also led to a rating upgrade for MBC to B+/Stable from B/Positive.”

The article highlights the advantages of the microbank framework over the regulatory framework for microfinance organizations and lending entities, particularly regarding the increased lending limit. 

Alvaro Dominguez Alcalde, Financial Institutions Representative at Scope Ratings, notes that microbanks in Georgia are subject to stricter regulatory requirements than microfinance organizations. This enhanced oversight is expected to mitigate lenders' risks and, over time, lower funding costs for microbanks. 

The author also anticipates that the microbanking sector will expand rapidly, with an annual growth of GEL 1 billion.

“While the microbank sector is expected to be smaller than the MFO sector (which stood at GEL 2.3bn as of September 2024), we believe it is set to grow rapidly, as institutions can grant larger loan tickets. Assuming 20% annual growth in lending volumes, the sector could reach GEL 1bn by 2026.”

The article highlights that not only microfinance organizations, but also other entities, are eligible to apply for a microbank license. The National Bank of Georgia has a strict one-year deadline for making a final decision on granting microbank licences. However, even if an application is rejected, companies can re-apply without limitations.

Scope Ratings is a leading European credit rating agency that provides independent credit ratings, research, and risk analysis on sovereigns, financial institutions and corporations. In 2023, Scope was accepted by the European Central Bank, making its credit ratings eligible under the Eurosystem Credit Assessment Framework (ECAF).

Please note that, following MBC, the National Bank of Georgia issued a microbank license to JSC Crystal on February 12 this year.