Myth and Reality of Agricultural Microlending - Experiences from a Commercial Bank in Georgia
This paper argues that although most of the international microfinance community believes that agricultural micro-lending cannot be profitable due to high risks and costs, the experience of the United Georgian Bank (UGB) indicates that agricultural micro-loans can be very profitable, even for a commercial bank.The paper states that:
- Microfinance practitioners have always considered agriculture a pariah;
- Georgia has been an exception, with private banks investing in small-scale agriculture;
- Agricultural lending is an increasingly popular line of business for financial institutions in Georgia;
- The UGB, one of the largest commercial banks in Georgia, has played a major role in this area;
- After two years of experimenting with agricultural microlending, UGB's retail lending department considers agricultural loans less risky and more profitable than urban micro loans;
- UGB identifies the following factors as the most important ones for success in agricultural lending:
- Empowering staff members;
- Developing products and procedures that match the farmers' realities;
- Reaching out to farmers in a cluster approach.
The paper concludes with the statement that UGB intends to expand into new areas of agricultural lending in the future using the strategies of simplification and diversification.