Case Study

Myth and Reality of Agricultural Microlending - Experiences from a Commercial Bank in Georgia

The profitability of agricultural microloans through the experience of United Georgian Bank
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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.

About this Publication

By Derflinger, K., Ivaniychuk, O. & Grossmann, H.