Financing SMEs and Entrepreneurs 2022

15. Georgia

Key facts on SME financing

As of 2020, 99.6% of active enterprises in Georgia were SMEs1, which accounted for 59.3% of business sector employment, 40.8% of business sector turnover and 58.0% (GEL 25.2 million) of output in the business sector (GEL 43.5 million).

In recent years, credit to SMEs rose significantly, amounting to a staggering 407.5% increase from GEL 1 400 million in 2010 to GEL 7 105 million in 2020.2 Throughout this period, total business loans grew by more than 298.9%, and the proportion of SME loans as a percentage of total business loans grew from 33.8% to 43%. During 2019-2020, real growth of SME loans amounted to 16.9%, while total business loans grew by 15.9%.

The average interest rate charged to SMEs in Georgia is high by OECD standards, but it has significantly declined over the last decade, from 17.5% in 2010 to 9.3% in 2020. Despite the pandemic-related challenges, due to the increasing efforts to support access to finance for SMEs. Between 2019 and 2020 the interest rate charged to SMEs declined by 0.6 percentage points. As for the interest rate spread between large enterprises and SMEs, it declined to 0.9% in 2020 from 1.2% in 2019 and 2.6% in 2010.

Although precise data on the availability and use of alternative financial instruments is lacking, available evidence strongly suggests that Georgian SMEs are very dependent on the banking sector for meeting their financing needs and that non-bank instruments still play a very marginal role. However, the rapid growth of micro-financing organisations should not be neglected.

According to the World Bank Group's Doing Business indicator, Georgia ranked 7th in 2020 “ease of doing business”. The Ease of Doing Business 2020 report shows that Georgia has increased public access to information and thus improved in building quality control in 2018/2019. Currently, the country has the lowest number of procedures required to start a business and register a property. Also, in getting credit indicator Georgia ranked 15^th in Doing Business 2020.

Georgia facilitated the enforcement of contracts by introducing random and automatic assignment of cases to judges across courts. Most notably, the country improved its insolvency framework by making insolvency proceedings more accessible for debtors and creditors, improving provisions on the treatment of contracts during insolvency, and granting creditors greater participation in important decisions during the proceedings. According to the information from the Public Registry Agency, after a 35.95% growth in the number of liquidation procedures in 2019, the indicator saw a 29.33% decrease in 2020, reaching 147 cases total.

In 2020, due to Covid-19 global pandemic, the overall volume of non-performing SME loans exceeded GEL 974 million (143% increase from 2019), the highest level since 2010, and the share of non-performing SMEs loans is now at 9.8% (4.8% increase from the last year). Although, it needs to be noted, that in 2020 the total volume of non-performing loans increased by 126% (from 4.93% in 2019 to 9.75% in 2020) out of which, the contribution of SMEs non-performing loans was 40.6 percentage points, and other loans contribution was 85.9 percentage points. The lowest level of SME share of non-performing loans was in 2014 when it reached 4.2%.

The government of Georgia has prioritised SME development as the main source of private sector growth, job creation and innovation. For instance, the Innovation and Entrepreneurship Policy is one of the successful reforms the Georgian Government has conducted.. Through the budgetary support, in 2014, the Ministry of Economy and Sustainable Development of Georgia established two sister agencies, Georgia’s Innovation and Technology Agency (GITA) and Enterprise Georgia, with the main objective of promoting SME development and strengthening SME competitiveness. Both agencies provide financial support to SMEs, as well as a broader range of services that includes access to special infrastructure, mentoring, trainings and various advisory services. In addition to the establishment of these two agencies, the government of Georgia has introduced several private sector development programmes, which include financial and technical assistance components to support SMEs at different stages of development.

The Covid-19 pandemic has delivered the largest economic shock the world economy has witnessed in decades. Response measures such as lockdowns and travel restrictions, have negatively affected consumption, investments, financial and commodity markets, global trade and tourism.

Like the rest of the world, Georgia’s positive economic trajectory has also been interrupted. In 2020, the economy shrank by 6.8%. In 2021 strong economic recovery was observed in Georgian economy, in January-September economic growth amounted to 11.0 percent. The preliminary results of economic activity in 2021 are more positive than previously forecasted and Government of Georgia expects 10% economic growth in 2021. According to IMF projections, Georgia is projected to have the fastest economic recovery in the medium term among regional peers and European countries. Consequently, in 2021-2026 average annual growth is projected at 5.8% supported by infrastructure spending and sustained structural reforms to increase productivity and enhance private sector-led growth.

The Government’s Anti-Crisis Economic Plan consisted of various emergency measures to support the economy and mitigate the effects of the pandemic. These measures included income tax payment deferrals, automatic VAT refund mechanism, granting businesses opportunity to restructure loans, providing commercial banks with long-term resources to solve liquidity problem, reshaping existing or developing new government programmes to support individual economic sectors based on their needs, and specific support measures in tourism, agriculture and construction sectors. Georgia has also facilitated contract enforcement by introducing random and automatic assignment of cases to judges across courts. Importantly, Georgia has improved its insolvency framework by making insolvency proceedings more accessible for debtors and creditors, improving provisions on the treatment of contracts during insolvency, and granting creditors greater participation in important decisions during the proceedings. According to information from the Public Registry Agency, after a 35.95% growth in the number of liquidation procedures in 2019, this indicator saw a 29.33% drop in 2020, reaching 147 cases in total.

Table 15.1. Scoreboard for Georgia

Indicators	Units		2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020
Debt
Business loans, SME		GEL million	..	1 400	1 548	1 738	2 051	2 422	3 621	3 992	5 176	6 620	8 121	9 987
Business loans, total		GEL million	3 097	4 145	4 821	5 344	6 080	7 268	9 575	10 500	12 000	14 687	19 070	23 242
Business loans, SMEs		% of total business loans	..	33.8%	32%	32%	33.7%	33.3%	38%	38%	43.1%	45.1%	42.6%	43.0%
Non-Performing Loans, total		GEL million	926	784	666	810	791	988	1 202	1 380	1 337	1 480	1 414	3 203
Non-performing loans, SMEs		GEL million	..	145	134	111	102	101	161	206	221	407	400	974
Non-performing loans, total		% of all business loans	..	16.1%	11%	12%	10.7%	10.6%	9.8%	10.1%	7.7%	6.6%	4.9%	8.4%
Non-performing loans, SMEs		% of total SME loans	..	10.3%	8.7%	6.4%	5.0%	4.2%	4.4%	5.2%	4.3%	6.1%	4.9%	9.8%
Interest rate, SME		%	..	17.5%	16%	15%	12.9%	11.6%	13%	10.2%	10.4%	10.5%	9.9%	9.3%
Interest rate, large firms		%	..	14.9%	15%	13%	11.4%	10.2%	10%	9.6%	9.3%	9.3%	8.7%	8.4%
Interest rate spread			..	2.6%	1.0%	2.3%	1.5%	1.4%	2.4%	0.6%	1.0%	1.2%	1.2%	0.9%
Collateral, SMEs		%	..	..	..	..	95.6	..	..	..	..	..	..	..
Rejection rate		%	..	..	..	..	4.6	..	..	..	..	..	..	..
Utilization rate		%	..	..	..	..	95.4	..	..	..	..	..	..	..
Other indicators
Procedures of enterprises' liquidation (incl. bankruptcy)		Number	52	2 094	3 176	2 524	1 775	1 785	1 560	229	293	153	208	147
Procedures of enterprises' liquidation (incl. bankruptcy)		Year-on-year growth rate (%)	-14.75	3 926.9	51.67	-20.5	-29.68	0.56	-12.6	-85.3	28	-47.78	35.95	-29.33

Source: see Table 15.8.

SMEs in the national economy

In 2016, pursuant to the National SME Development Strategy 2016-2020, the National Statistics Office of Georgia introduced a new methodology and definitions to calculate statistics on the country’s SMEs. According to the new methodology, as of 2020, 99.6% of active enterprises in Georgia were SMEs. In 2020,SMEs accounted for 59.3% of total private employment (down by 5.7 percentage points from 2019) and contributed to 40.8% of total business sector turnover (which is 3.7 percentage points lower than in 2020) and 58.0% (GEL 25.2 million) of value of output in the business sector (GEL 43.5 million).

In 2020, the number of active enterprises in Georgia decreased by 1.5% from 2019. 23 large firms emerged and 13 719 small firms disappeared from the market. The share of large active enterprises was 0.4% and that of small firms - 98.13%. The number of medium enterprises declined by 15.

Table 15.2. Distribution of firms in Georgia, 2020 by firm size, as a percentage

Size	Number of enterprises*	%
Large	438	0.4
Medium	1 797	1.47
Small	117 550	98.13
Total	119 785	100.00

Note: *Preliminary data.

Source: National Statistics Office of Georgia (Geostat).

Table 15.3. Distribution of firms in Georgia, 2020

By firm size, annual growth rate

Size	2019	2020	Year-on-year growth rate, %
Large	415	438	5.5
Medium	1 812	1 797	-0.8
Small	131 269	117 550	-10.5
Total	133 496	119 785	-10.3

Note: *Preliminary data.

Source: National Statistics Office of Georgia (Geostat).

SME lending

Building on its solid track record as a top reformer, Georgia has made considerable progress since the 2012 SME Policy Index assessment and has adopted a more proactive approach to SME development through targeted initiatives. Since the beginning of 2016, the government of Georgia has been implementing its National SME Development Strategy 2016-2020. One of the core dimensions of this strategy was to ease SME lending. In 2020, Georgia started developing a new National SME Development strategy 2021-25, that focuses, among other priorities, on the improvement of the SMEs access to finance.

According to the OECD’s SME Policy Index for Eastern Partner Countries 2016 (OECD et al., 2015[1]) Georgia has improved access to finance for SMEs since 2012 by strengthening its legal and regulatory framework. Overall, Georgian SMEs can access financing opportunities relatively easily at the regional level. Annual SME credit has accelerated in recent years due to declining interest rates on commercial bank loans and private sector development programmes introduced by the government. In 2020, outstanding business loans to SMEs rose significantly (by 23%, reaching GEL 10.0 billion) and the overall share of SMEs’ business portfolio increased by 0.4 percentage points to 43.0%. Nonetheless, the overall share of SME lending remains low and access to finance is still considered a key obstacle to SME development.

Despite good performance compared with other Eastern partnership countries, access to finance remains a chronic problem for Georgian SMEs. Financial literacy levels are still limited compared to OECD countries, and the enforcement of creditors’ rights can be improved. The promotion of greater competitiveness in the banking sector is also necessary to facilitate more sustainable access to finance for SMEs.

Credit conditions

The average interest rate charged to SMEs in Georgia is high by OECD standards, but has significantly declined over the last decade, from 17.5% in 2010 to 9.3% in 2020. As for the interest rate spread between large enterprises and SMEs, it has declined to 0.9% in 2020.

At the same time, collateral requirements remain high. The effects of high collateral requirements are further exacerbated by the relatively low acceptance of movable collateral. Loan dollarization also continues to be high, at the end of 2010 loan dollarization amounted to 73.9% although it has decreased to 55.3% in 2020, due to a number of measures from the National Bank and the government of Georgia to encourage local currency lending. The spread between GEL and FX SME loans amounts around 8% on average, due to the tightening monetary policy the spread steadily increased (As of September the spread between GEL and FX loans amounts to 8.3%. De-dollarization is important for economic stability as it reduces foreign exchange risk and renders the country's economy more resistant to external shocks. De-dollarization also promotes the effectiveness of monetary policy, which is a necessary condition for a stable economy. Hence, according to the National Bank of Georgia, one of its main tasks is to ensure de-dollarization in the country and to do so without administrative measures.

Alternative sources of SME financing

As of the fourth quarter of 2020, there were 40 micro-finance organisations registered in Georgia and supervised by the National Bank. The supervisory policy of the National Bank aims to ensure the steady functioning of these organisations. The micro-finance organisations have over 393 branches and more than 4 145 employees throughout Georgia. Since 2010, microfinance lending to SMEs has grown steadily. By the end of 2020, the total amount of loans to SMEs in the portfolios of microfinance organisation amounted to GEL 41.3 million. The main clients of microfinance institutions in Georgia are non-bankable micro and small enterprises. In addition, the volume of loans to individuals is almost 30 times the volume of loans to legal entities.

Table 15.4. Loans provided by micro-finance organisations in Georgia, 2010-20

		2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020
Loans to enterprises	Number	87	168	354	269	349	355	410	562	878	1327	1477
Loan amount	GEL Million	1.7	2.7	2.9	3.5	5.1	6.1	7.7	11.4	21.3	35	41.3

Source: National Bank of Georgia.

Although exact data on the availability and use of alternative financial instruments is lacking, available evidence strongly suggests that Georgian SMEs are very dependent on the banking sector to meet their financing needs and that non-bank instruments play a marginal role. However, the 162.8% increase in the volume of loans issued by the microfinance organisations since 2017 is notable. The trend suggests that micro-finance organisations are growing at a very fast pace.

Georgian SMEs can also benefit from better access to finance thanks to the InnovFin SME Guarantee programme existing in Georgian banks (Procredit bank, TBC bank, Credo Bank).

The European Investment Bank (EIB) and the European Investment Fund (EIF) – jointly the EIB Group – signed guarantee agreements with the banks in Georgia to support Georgian SMEs. Thanks to the existing agreements, banks can provide loans to innovative companies with the support of a guarantee provided by the EIF and backed by Horizon 2020, the EU Framework Programme for Research and Innovation.

The EIB also signed agreement with Credo Bank to support Georgian micro and small enterprises’ (MSEs – business with less than ten employees) projects, particularly in rural areas.

Currently there is an ongoing work in regards to development of alternative financing mechanisms, such as leasing financing and receivables financing.

Other indicators

In 2017, new legislation was introduced which allowed individual entrepreneurs to initiate the procedures. In addition, improvements in the insolvency framework were introduced, making insolvency proceedings more accessible for debtors and creditors by improving provisions on the treatment of contracts during insolvency, and by granting creditors greater participation in important decisions during the proceedings. In 2019, enterprise liquidation and bankruptcy procedures increased by more than 35% year-on-year and reached 208. Yet in 2020, the number dropped by 29%, to 147.

In 2020, due to Covid-19 global pandemic, the overall volume of non-performing SME loans exceeded GEL 974 million (143% increase from 2019), the highest level since 2010, and the share of non-performing SMEs loans is now at 9.8% (4.8% increase from the last year). Although, it needs to be noted, that in 2020 the total volume of non-performing loans increased by 126% from 2019, out of which, contribution of SMEs non-performing loans was 40.6 percentage points, and other loans contribution was 85.9 percentage points The lowest level of SME share of non-performing loans was in 2014 when it reached 4.2%.

Government policy response

Legal and institutional framework for SMEs

Currently ongoing and already implemented reforms by the Georgian Government in recent years have significantly reduced administrative barriers and streamlined public services. Reforms have included a more liberal tax regime, a simplification of customs procedures and quicker VAT returns (5-7 days). In addition, there have been several efforts to modernise public administration, which have resulted in a new system for licenses and permits and the provision of e-government services. The current government agenda includes actions to further streamline and decrease taxes, strengthen the judiciary system and reform the framework for insolvency.

In 2015, the government of Georgia started developing the National SME Development Strategy 2016-20 with support from the OECD. The strategy was adopted in 2016. The Ministry of Economy and Sustainable Development of Georgia was the main coordinator of the strategy’s implementation. In 2020 Georgia, started developing new National SME Development strategy 2021-25

The below chart provides the new definition of SMEs in Georgia, introduced by the National Statistics Office of Georgia, pursuant to the national SMEs development strategy. The new definitions are better aligned with the EU definition, which allows for benchmarking Georgian SME performance with OECD and EU countries.

Table 15.5. Definition of SMEs in Georgia

Size	Criteria
Medium	Number of employees in a range of 50 – 250, and annual turnover between GEL 12 million to GEL 60 million.
Small	Number of employees is not more than 50, and annual turnover is not more than GEL 12 million.

Source: National Statistics Office of Georgia.

Taxation of small businesses

From 1 July 2018, the statutory limit for businesses to qualify for small business status has been increased from GEL 100 000 to GEL 500 000. Furthermore, compulsory registration as a VAT payer does not nullify small business status. Incomes of persons with small business status are taxed at 1%, instead of previous 5% and enterprises with gross income of less than GEL 30 000 are exempt from income tax.

According to the Tax Code of Georgia, business turnover that does not exceed GEL 100 000 during a fiscal year will be exempt from VAT. In addition, the supply of primary agricultural products are be subject to VAT exemptions.

In 2020 under the economic support package Property and Income tax deferrals were applied to tourism sector and tourism related activities.

Corporate Income Tax (CIT)

Amendments and an addendum to Georgia’s tax code, which were adopted by the Parliament and signed into law by the President, have fundamentally reformed the corporate income tax regime for Georgian companies. Under the current tax code, profit tax will have to be paid by companies only if corporate profits are distributed.

IFRS Standards

The government of Georgia has launched an accounting reform to increase transparency and financial accountability and enhance the protection of stakeholders’ rights. This reform requires the private sector to adhere to International Financial Reporting Standards (IFRS). IFRS require companies to publish financial reports each year until the end of October in accordance with specific guidelines. Under the reform, companies were separated into categories, two of them being small and medium-sized enterprises. Each category must submit its own unique forms at uniquely specified deadlines.

Bankruptcy: Second chance

The Georgian Law on Insolvency Proceedings provides procedures for insolvency, as well as for the reorganisation of enterprises. According to the World Bank Group's Doing Business 2020 report, Georgia ranks 7^th. Doing Business finds that Georgia implemented substantive changes in the local regulatory framework in three main areas during the 2016-17 period. Enforcement of contracts was made easier by introducing random and automatic assignment of cases to judges throughout the courts. Most notably, the country improved its performance resolving insolvencies, by making insolvency proceedings more accessible for debtors and creditors, improving provisions on the treatment of contracts during insolvency, and granting creditors greater participation in important decisions during the proceedings. Despite these measures, however, Georgia was demoted by 4 ranks to 64th out of 190 countries in this category and debtors still face challenges related to insolvency proceedings. Enterprises in Georgia have difficulties closing their businesses, mainly due to bottlenecks in implementation procedures, and therefore often remain in business registries even when their activity has come to a halt. In order to re-start operations and/ or shift operations toward a new business, it is usually easier to establish a new business rather than go through formal closing procedures. This situation also causes incompatibility between the number of registered businesses and the number of actually operating businesses. Moreover, despite some improvements, the business recovery rate is still low (40.5 cents on the dollar in 2020, up from 27.5 in 2007), compared to OECD countries (70.2 cents on the dollar), however exceeds the Europe and Central Asia average.

In response to the issues discussed above, that the enterprises face in regards to insolvency proceedings, in 2020 Georgia adopted a new law on Insolvency Proceedings (Law of Georgia on Rehabilitation and Collective Satisfaction of Creditors). The law largely differs from the previous law of Georgia on Insolvency Proceedings, introducing new mechanisms and making the process more flexible and efficient, providing adequate protection of creditor rights, timely and efficient insolvency processes and effective rehabilitation framework in line with best international standards. The law was enforced on April 1st, 2021. It is not yet reflected in Doing Business ranking.

SME Institutions

National Institutions

To promote SMEs’ development and support their competitive growth, the Ministry of Economy and Sustainable Development of Georgia (MoESD) established Enterprise Georgia and Georgia’s Innovation and Technology Agency.

Enterprise Georgia was established in February 2014 (Government Decree 173; 19.02.2014) and is the only institution in Georgia responsible for coordinating the implementation of SME support policies and programmes. The main goals of Enterprise Georgia are to improve private sector competitiveness, support start-up businesses, facilitate the establishment of a modern entrepreneurial culture, improve access to finance, support the diversification of exports in goods and services, as well as support FDI attraction and aftercare. Enterprise Georgia’s main functions are:

• To improve access to finance for SMEs through several support schemes it offers:

  • Loan/lease subsidies in scopes of the industrial component of the program “Produce in Georgia”. Currently the beneficiaries can receive interest rate subsidies for the first 36 months of the loan/lease. The co-financing rate for loans is NBG refinancing rate plus 3 percentage points and NBG refinancing rate plus 5 percentage points for leases. The range of loans and leases is from GEL 10 000 to GEL 10 million depending on sectors. The new terms were introduced in the middle of 2020 to offer better conditions in response to the Covid-19 pandemic. The program will cease admitting applications from 2022.

  • Loan/lease subsidies in scopes of the Universal component of the program “Produce in Georgia”. The mechanism was launched in September 2021. It offers interest rate subsidies for the whole duration of loans/leases. The co-financing rate is NBG refinancing rate minus 5% for loans and NBG refinancing rate minus 3% for leases. The range of loans and leases is from GEL 50 000 to GEL 10 million. The mechanisms also offers the beneficiaries to receive a partial credit guarantee on 60% of principal loan amount and a grant of 15% of loan amount (terms apply).

  • Partial Credit Guarantee Scheme provides guarantees 90% of loan principle amount. The guarantees apply for 10 years and loans range from GEL 20 000 to 5 000 000.The loans may be issued by both commercial banks and microfinance organisations.

  • Micro and small entrepreneurship support program is open to any natural person who is a citizen of Georgia over the age of 18. The program offers grants to start or expand a micro enterprise. The selection process is conducted by independent contractor organisations. There are several stages to the competition: a) business ideas; b) business plans; c) interviews; d) on-site inspections. In 2020 the maximum amount of the grant was GEL 30 000. Under the program the beneficiaries have to make a financial contribution to the project as a form of co-financing. The amount of co-financing ranges from 5-25% depending on the type of beneficiaries.

GITA (Georgia’s Innovations and Technology Agency) was established in February 2014 under the supervision of the Ministry of Economy and Sustainable Development of Georgia.

The main goals of GITA are:

• To create an innovation ecosystem and coordinate its development;

• To support innovative start-ups and SMEs with their increase in competitiveness;

• To support the development of innovations and export-oriented ICT;

• To support the absorption of innovations and technology, and commercialisation of R&D.

• To facilitate cooperation between the representatives of scientists and businesses.

The main functions of GITA are:

• To facilitate and finance knowledge-based initiatives, innovative projects and products;

• To implement programmes that stimulate R&D in the business sector;

• To attract FDI in ICT;

• To support the development of internet spaces, as well as internalisation and digitalisation processes in SMEs.

Institutional strengthening of Enterprise Georgia and GITA remains important to address SMEs’ needs and challenges and to provide target-oriented services.

In addition to these government agencies, there are a number of organisations providing assistance to Georgian SMEs, the most active of which are the Georgian Chamber of Commerce and Industry and the Georgian Employers’ Association:

The Georgian Chamber of Commerce and Industry (GCCI) was established as an independent public agency and has several regional offices through which it provides services. The main functions of GCCI are to provide information and consultancy services for businesses, support the improvement of business skills and business planning, promote exports, and support the internationalisation of enterprises. GCCI membership is voluntary. Currently, the Chamber has 1 639 members of which more than 83% are SMEs. Membership fees vary from free of charge to GEL 8 000 and depend on the services provided. SMEs are exempt from membership fee.

The Georgian Employers’ Association (GEA) is an independent non-profit organisation, unifying more than 2 000 large companies and SMEs. GEA provides consultancy services to SMEs and carries out different programmes related to entrepreneurial learning and business skills development. GEA membership is fee-based and varies from USD 600 up to USD 2 000 according to the size of the enterprise.

The Georgian Small and Medium Enterprises Association (GSMEA) is a non-political and non-profit organisation founded in accordance with Georgian legislation on 10 September 2010. The association aims to protect the interests of small and medium businesses, promote the creation of healthy and competitive conditions in the country, and establish active communications between SMEs and public agencies, financial institutions and international organisations. The Association has 3 780 members, out of which 73% of businesses are small, and 27% are medium-sized enterprises.

The Export Development Association (EDA) was founded in 2012. Its mission is to help Georgian enterprises grow and diversify their exports through advocacy, advice and promotion. EDA is a member-driven association uniting up to 100 Georgian export-oriented producers and service providers. EDA supports Georgian exporters through capacity-building initiatives, the development of export marketing plans, export management services, selection of target export markets and the diminution of barriers to trade. Most EDA members are in the production sector, but EDA also affiliates tourism industry representatives.

As with GITA and Enterprise Georgia, the above-mentioned associations require assistance to strengthen their capacities regarding EU policies and DCFTA requirements, so that they can better support SMEs. In addition, closer cooperation with the business sector, as well as between SME institutions is needed to provide target-oriented services and avoid overlap.

State-led, private sector development programmes (access to finance)

State programme “Produce in Georgia”

The state programme “Produce in Georgia” was launched in May 2014 as part of the state strategy to support the development of the private sector, and SMEs in particular through provision of technical assistance and co-financed loans. The programme aims to facilitate the development of the production industries, establish new enterprises and extend/upgrade existing ones.

Initially, the programme focused on two sectors: manufacturing and agro-processing, and was supervised by the Ministry of Economy and Sustainable Development of Georgia (implementing agencies: Enterprise Georgia, National Agency of State Property (NASP), and the Ministry of Environmental Protection and Agriculture of Georgia (implementing agency: Agricultural and Rural Development Agency (ARDA), currently Rural Development Agency (RDA)). In 2016, new hotel and film components were added to the programme.

The agency Enterprise Georgia, within its industrial component, covers 7 percent of bank interest on commercial bank loans and 9 percent of interest rate payments on leases for 2 years for SMEs in the sectors prioritised by the government. Enterprise Georgia also administers the “Host in Georgia” project, which offers to cover 7 percent of commercial bank loan interest payments for 2 years to small and medium-sized hotels.

In order to provide more beneficial terms to the businesses affected by the Covid-19 pandemic, the agency introduced provisional changes to the programme. Starting in 2020 the subsidised interest rate on commercial bank loans was raised to NBG refinancing rate plus 3 percentage points, and NBG refinancing rate plus 5 percentage points on leases. In addition, the co-financing period increased from 24 to 36 months. Transitional period is to last until 15^th of December 2021.

In 2015, pursuant to the “Produce in Georgia” framework, the government introduced a new sub-programme, aimed at developing micro and small-scale enterprises via the provision of financial assistance mechanisms (co-matching grants with a beneficiary contribution of at least 20% in capital spending) and consulting services. Assistance is intended to provide beneficiaries with necessary knowledge on modern business practices. The programme covers all regions of the country, except for the capital city of Tbilisi. Trained and selected project owners receive co-matching grants of up to GEL 5 000 from the government (with three person maximum per project and a limit of GEL 15 000).

Due to the economic difficulties caused by the Covid-19 pandemic, the “Micro and Small Business Support programme” was renewed. For the Micro and Small Business support programme announced in October 2020, the agency has received 26 299 applications in total. To this day, 4 124 beneficiaries have received training courses and 699 new contracts were signed. Beneficiaries were able to receive a grant to both expand their businesses and start new ones. Importantly, in 2020 Tbilisi was added as one of the target locations of the Micro and Small Business Support Programme, which prioritizes supporting more than 300 economic activities. A maximum of 30 000 GEL was allocated as a grant for programme beneficiaries.

In 2019, Enterprise Georgia partnered with 14 largest Georgian banks and launched a new programme - Credit Guarantee Scheme. The main purpose of the Credit Guarantee Scheme is to improve access to finance for small and medium-sized enterprises, which fail to meet the requirements of the loan provision. According to the scheme, the agency provides 70% of loan security on loans ranging from GEL 50 000 to GEL 2 000 000, with a maximum maturity of 10 years. Priority directions for this programme are production and processing, hotel industry, electricity generation, educational activities, training centres, export of wide range of services, and research and development.

In 2020, Enterprise Georgia also made changes to Credit Guarantee Scheme. The agency now guarantees 90% of the amount of loans issued in scopes of the programme and 30% of the amount of loans restructured/refinanced in scopes of the programme. The latter is a provisional clause introduced in the period of Covid-19 pandemic. The programme also allowed for participation of micro-finance organisations. The volume of loans now range from GEL 50 000 (GEL 20 000 micro-finance organisations) to GEL 5 000 000. Transitional period for provisional changes is to last until 15^th of December 2021.

Enterprise Georgia initiated several programmes specifically developed to support the sectors most affected by the pandemic. The programmes mainly subsidised loan interest payments. The supported sectors were hotel and restaurant industries, construction sector, event organisers, and air transportation.

In accordance with the “Produce in Georgia” state programme, the government reported the following results* for all sectors of the economy (up to December 2020):

Table 15.6. “Produce in Georgia” state programme

Produce in Georgia	Number of Projects	Investment Volume (GEL Million)	Employment (number)
Industrial	539	1 060.7	17 307
Agro-processing	30	88.5	NA
Hotel	193	459.9	3 752
Film	25	96.1	16 724
Micro Grants	6 212	61.6	>11 000
State Properties Transferred	108	175.6	NA

Notes: Investment volume - includes loans issues by commercial banks and additional investments made by beneficiaries. Employment – People employed and those who will be employed. Data includes information since the launching of the state programme “Produce in Georgia” May 2014 up to December 2020.

Source: Enterprise Georgia.

Access to finance tools for innovative start-ups (managed by GITA)

The MINI grants programme which runs on a total budget of GEL of 500 000 was launched in 2019. It aims to promote market demanded innovative projects. Grant recipients are non-profit institutions, enterprises and individuals. In total, up to the start of 2020, GITA financed 392 applications, which include grants for traveling, prototyping and organising events. Due to Covid-19 crisis, GITA raised the grant amount to GEL 15 000. After the increase in grant amount, GITA awarded 27 projects.

In terms of anti-crisis actions, GITA added a new grant competition to the MINI grants – prototyping digital services and awarded 11 projects.

GITA announced the Calls for Proposals for Start-up Matching Grants Programmes. The objective of the programme is to stimulate innovation and creation of innovative enterprises in Georgian economy through development/adoption and commercialisation of innovative products and services with the potential for internationalization. The financing to be awarded by GITA through Start-up Matching Grants could cover a maximum of 90 percent up to GEL 100 000 of the total approved Applicant’s project budget for a one-year project.

95 beneficiaries were financed within the announced – GEL 100 000 matching grants programmes.

In addition, there are open calls for GEL 100 000 Start-up Matching Grants programme and GEL 650 000 Innovation Matching Grants programme.

Innovation Matching Grants Programme aims to stimulate innovation and the creation of innovative enterprises in the Georgian economy. The programme will promote product, technological or business process innovation by Georgian MSMEs with a preference to innovation that introduces innovation on a global scale with a clear Georgian nexus and operations headquartered in Georgia.

In scopes of GEL 650 000 Innovation Matching Grants programme GITA contracted 14 companies.

Rural Development Agency (within the Ministry of Environmental Protection and Agriculture of Georgia)

Currently, the agency manages eight different programmes within the agriculture and agro-processing industry. These programmes include government financial support (subsides, grants and guarantees), and are united under the government’s United Agro Project.

In 2020, the government reported following results regarding the eight different programmes:

Table 15.7. Rural Development Agency’s (RDA) programme report

RDA	Year	Project (number)	Investment volume (GEL million)	Co-financed volume (GEL million)
Preferential Agro Credit Project	2013-2020	47 484	2 999.6	448.3
Co-financing of Agro Processing and Storage Enterprises	2014-2020	99	133.7	52.3
Georgian Tea Plantation Rehabilitation Programme	2016-2020	51	3.0	2.1
Agro insurance	2014-2020	115 807	69.8	48.1
Plant the Future	2015-2020	2 747	144.2	82.3
Agro production promotion	2016-2020	708	38.5	15.2
Young Entrepreneurs	2018-2020	237	24.2	9.4
Co-financing the purchasing of agricultural machinery	2019-2020	176	23.6	10.7

Source: Rural Development Agency (RDA).

In 2018, the government introduced a programme for young entrepreneurs in villages – “Young Entrepreneurs”, which is designed for young, aspiring entrepreneurs who are residents of Georgia. The programme is financed by a donor organisation – Denmark International Development Agency (DANIDA).

In 2019, the government announced another new programme of co-financing the purchasing of agricultural machinery.

The agency introduced changes to the existing programmes to provide conditions that are more advantageous to the potential beneficiaries. For example, the changes made to Preferential Agro Credit programme allowed full financing of interest payments on loans for 6 months to support growing of annual cultures. 2 906 loans were issued with the total value of GEL 57.3 million.

The agency also introduced several support packages for various stages and areas of agricultural production as measures against the effects of Covid-19 pandemic.

Figure 15.1. Trends in SME and entrepreneurship finance in Georgia

Note: A change in regulation in 2009-10 caused a large increase in bankruptcies.

Source: See Table 15.8.

Statlink

Table 15.8. Definitions and sources of indicators for Georgia’s scoreboard

Indicators	Definition	Source
Business loans, SMEs	Bank loans to SMEs, amount outstanding (stocks) at the end of period.	National Bank of Georgia
Business loans, total	Bank loans to all non-financial enterprises, including SMEs loans, amount outstanding (stocks) at the end of period.	National Bank of Georgia
Non-performing loans, total	Substandard loans together with doubtful and loss loans, including interbank loans.	National Bank of Georgia
Non-performing loans, SMEs	Substandard loans together with doubtful and loss loans, including interbank loans.	National Bank of Georgia
Interest rate, SMEs	Annual Weighted Average Interest Rates on loans (stocks) to SMEs	National Bank of Georgia
Interest rate, large firms	Annual Weighted Average Interest Rates on loans (stocks) to all non-financial enterprises	National Bank of Georgia
Collateral, SMEs	Percentage of SMEs that were required to provide collateral on latest bank loan	National Bank of Georgia
Rejection rate	Percent of firms whose recent loan application was rejected	National Bank of Georgia
Bankruptcies, total	The number of bankruptcy proceedings that are actually initiated and registered in the Public Registry Agency of Georgia during the reference period.	Public Registry Agency

References

Cornell University, INSEAD, and WIPO (2019); The Global Innovation Index 2019: Creating Healthy Lives—The Future of Medical Innovation, Ithaca, Fontainebleau, and Geneva. https://www.globalinnovationindex.org/Home

World Bank Group Flagship Report (2019); Doing Business 2019: Training for reform; https://www.doingbusiness.org/content/dam/doingBusiness/media/Annual-Reports/English/DB2019-report_web-version.pdf

World Economic Forum, Klaus Schwab; Global Competitiveness Report 2018; http://www3.weforum.org/docs/GCR2018/05FullReport/TheGlobalCompetitivenessReport2018.pdf

OECD (2016), SME Policy Index: Eastern Partner Countries 2016: Assessing the Implementation of the Small Business Act for Europe, OECD Publishing, Paris. DOI: http://dx.doi.org/10.1787/9789264246249-en

World Bank Enterprise Surveys (2013), Georgia, http://www.enterprisesurveys.org/~/media/GIAWB/EnterpriseSurveys/Documents/Profiles/English/Georgia-2013.pdf

Doing Business Report 2018, Economy Profile Georgia http://www.doingbusiness.org/~/media/WBG/DoingBusiness/Documents/Profiles/Country/GEO.pdf

National Statistics Office of Georgia (GEOSTAT) – Business Register Statistics https://www.geostat.ge/index.php/ka/modules/categories/64/biznes-registri

National Bank of Georgia, Statistical data – https://www.nbg.gov.ge/index.php?m=304&lng=eng

Revenue Service (under the Ministry of Finance of Georgia) – Georgian Tax Code http://www.rs.ge/Default.aspx?sec_id=4846&lang=2&newsid=2693

National Agency of Public Registry (under the Ministry of Justice of Georgia) https://napr.gov.ge/

Investing in SMEs in the Eastern Partnership 2017, country profile Georgia, http://www.eu4business.eu/files/community/pdf/country_report_georgia.pdf

The Global Competitiveness Index Report 2016-2017 https://www.jetro.go.jp/ext_images/switzerland/pdf/TheGlobalCompetitivenessReport2016-2017_FINAL.pdf

Georgia – Neighbourhood SME financing – February 2016 http://www.eib.org/attachments/efs/economic_report_neighbourhood_sme_financing_georgia_en.pdf

Enterprise Georgia, SME support agency of the Ministry of Economy and Sustainable Development of Georgia http://www.enterprisegeorgia.gov.ge/en/home

Doing Business Report 2020

https://openknowledge.worldbank.org/bitstream/handle/10986/32436/9781464814402.pdf

Global Innovation Index 2020

https://www.wipo.int/global_innovation_index/en/2020/#:~:text=The%202020%20edition%20of%20the,the%20COVID%2D19%20global%20pandemic.

Economic Freedom of the World 2020

https://www.fraserinstitute.org/sites/default/files/economic-freedom-of-the-world-2020.pdf

Corruption Perceptions Index 2020

https://www.transparency.org/en/cpi/2020/index/geo

OECD FDI Regulatory Restrictiveness Index

https://www.oecd.org/investment/fdiindex.htm

Notes

← 1.  According to a new methodology introduced by the Georgian National Statistics Office in 2016 to gather statistics on the country’s SMEs and in pursuant of the National Strategy of SME development.

← 2.  Figures are inflation-adjusted with 2010 as the base year.