A Czech Solution to Georgia’s Debt ProblemOct 6, 2020
Drawing on successes in the Czech Republic, People in Need (PIN) is launching a new project in Georgia to advocate for consumer protection for borrowers, and to ensure that borrowers have the knowledge and resources needed to protect their rights. The project is implemented by PIN and the United Nations Development Programme (UNDP) through the Challenge Fund, with financial support from the Ministry of Foreign Affairs of the Czech Republic.
An overview of the debt context in Georgia
Even before the COVID-19 pandemic, indebtedness in Georgia was a principle driver of poverty, homelessness, and inequality. But the economic impacts of COVID-19 have exacerbated these trends and highlighted the country’s alarming vulnerability around debt. According to the National Democratic Institute, roughly half of Georgia’s households are indebted, and 30 percent of families list paying debt as one of their biggest household expenses (NDI, 2019).
These figures are troubling, but they are not surprising. Credit in Georgia is characterised by high interest rates and low flexibility, as well as a variety of both formal and unregulated lenders. Thanks to liberal lending policies, consumer debt has increased 7.5 times in the last 10 years, and according to the National Bank of Georgia, the average interest rate for bank loans was 26 percent in 2020. Tbilisi-based NGO Society and Banks revealed that during the past eight years, 20,000 homes were repossessed, with 65,000 people forced into homelessness or deeper poverty.
PIN’s success story in the Czech Republic
Despite the clear demand for safe and affordable credit options, there is little support for people in debt and minimal public conversation on the topic in Georgia. In the early 1990s, people in the Czech Republic faced similar problems as the result of deregulation. In response, PIN developed a public advocacy strategy and toolkit to combat public indebtedness. Kateřina Hůlová, PIN’s Czech Debt Expert, says: “Based on the analysis of the Czech environment and comparing our Czech model with Western Europe, we have started to push important legislative changes that would enable the indebted population to get a second chance and better protect everyone from loan sharks and foreclosures. We believe that our experience in debt advocacy and debt advice services will be transferable to Georgia, where the project has the power to impact the lives of thousands of indebted people."
Transferring PIN’s Expertise to the Georgian context
Inspired by its successful Czech experience, PIN will implement a project in Georgia to provide research, advocacy, and debt advice services to vulnerable Georgians. The project addresses the debt crisis that keeps many households from benefiting from Georgia’s ongoing development gains. The programme’s goal will be to empower community actors to directly support indebted households, increase national public awareness of the topic, and provide evidence-based solutions and recommendations to improve the policy environment. Jonáš Háger, a representative from UNDP, said: "In the Czech Republic, PIN has gained wide recognition for its interventions in the area of debt. […] We are proud and excited that we can support the transfer of Czech expertise to Georgia, where the need for such a programme is high. We are looking forward to seeing the development and results of this ambitious, comprehensive, and truly inclusive initiative implemented under the Czech-UNDP Partnership for SDGs."
The project will be implemented in partnership with GeoWel, an economic think tank with 11 years of experience in research and communication on economic and social issues affecting vulnerable communities in Georgia. “Access to financial services and loans is a precondition for many people to get out of poverty or to develop their livelihoods,” says Jan Mrkvička, director of PIN’s Relief and Development Department. “Unfortunately, such services can be easily misused as instruments to keep people in poverty for their entire lives. PIN realised this contradiction many years ago and decided to strive for the improvement of the whole system in the Czech Republic. We achieved many tangible, positive results, and now we want to transfer our experience to other countries facing similar problems.” Through this project, PIN hopes to help Georgians increase their household economic security, ensure greater accountability of lenders, and establish credit policies that support individual investment in income-generating activities and education, by promoting consumer-friendly and accountable credit and debt practices.
Eva Fernández Martín, Project Manager, People in Need, firstname.lastname@example.org, +995 595113378 (Georgia).