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Neighbourhood bank makes a difference in Georgia

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ProCredit Bank Georgia.

Customer care is a priority for ProCredit Bank Georgia.

ProCredit Bank Georgia shows development ethos pays off

When ProCredit Bank Georgia began offering savings accounts with a minimum deposit of just 5 lari (about €2), critics said it wouldn't be taken seriously. When it sent its bankers onto the streets to talk to people, they said the idea wouldn't work. And when ProCredit tore down the bars over their windows, “It was a revolution,” says Deputy General Manager Asmus Rotne. “We had to fight with security advisors, police and our insurers to get them to understand why we wanted to open up.”

But then ProCredit isn’t really a typical bank. As its mission statement points out, its shareholders are “not primarily interested in short-term profit maximisation”.

The bank is a long-term partner of the EBRD and mainly focuses on business loans to the micro and small business sector. When it does provide consumer loans, the criteria are strict: it does not offer credit for buying DVD players or TV sets. “Consumer loans can be for housing renovation, when there is some lasting value,” says Mr Rotne, citing roof replacement or double glazing installations as viable projects.

ProCredit Bank Georgia is part of the ProCredit Holding group, which is active in 21 countries in Latin America, Africa and Eastern Europe. EBRD has helped to establish the 10 subsidiaries of the Holding Company that are active in Eastern Europe and the Caucasus, including those in Kosovo, Bosnia and Herzegovina and Bulgaria. ProCredit’s national subsidiaries more or less work to the same formula: they are development-oriented banks focusing on business lending to the MSME sector.

ProCredit Bank Georgia was established in 1999 with the support of the EBRD, Germany’s Kreditanstalt fuer Wiederaufbau, the Netherlands Development Finance Company and the World Bank’s private lending arm, the IFC, as well as of four local banks. The EBRD also provided technical assistance funds from the US to help the initial set up of ProCredit Georgia.

The EBRD formerly held a stake in ProCredit Bank Georgia, which it sold to ProCredit Holding, and has also been a source of credit, providing two loans worth a total of US $9 million (Taiwan's ICDF also provided US $3 million through the EBRD). Most recently, the EBRD provided a US $15 million loan in June 2007, of which US $5 million was syndicated to Citibank. This was the first time the Georgian bank had been able to access the international capital markets and marked a significant milestone in its growth.

Development is at the heart of ProCredit’s business ethos. “We are more interested in the loans having an impact on the development of the company, for the economy and for the entrepreneur running that business,” according to Mr Rotne, a Danish graduate of Aarhus and Harvard universities who speaks Russian and Georgian, which he learned on an exchange programme in 1995-96.

ProCredit can have an impact with a large number of smaller loans, Mr Rotne says. Recipients have included Eka Bezhanishvili, a doctor who gave up her profession in the economically difficult period in Georgia in the late 1990s. Her first loan came not from the bank but from a neighbour, who lent her just 7 lari to buy ingredients to make two small cakes. The sale of those two cakes developed into a bakery which ProCredit has supported for the last five years. Ms Bezhanishvili now has 30 employees and a bakery that operates 24 hours a day.

ProCredit has 35 branches in Georgia, 16 of them in the capital. Sixty percent of its total loans have been made outside Tbilisi.

Mr Rotne says the bank places a great emphasis on being part of the neighbourhoods in which it operates. While it does advertise, it prefers to makes its presence felt by involvement in the community: its employees go out onto the streets to talk to people; it has developed local projects such as the renovation of a playground, for which it encouraged local tradesmen and construction workers to get involved; and it recently set up a blood donation programme.

This approach requires a different sort of banker, Mr Rotne notes. People working in the team want to be part of this mission, he says. Of ProCredit’s outstanding credit portfolio of 60,000 loans, 40,000 are business loans, heavily tilted towards the micro (or what ProCredit calls the development) sector. Clients in medium-sized businesses have often grown up with the bank.

ProCredit Bank Georgia faces competitive challenges, at the very small end from NGOs but also from larger banks which are starting to move into the micro area. The bank has responded partly by introducing a more flexible pricing policy.

Mr Rotne describes the experience of working with the EBRD as “really positive”. “We know each other well,” he says. The EBRD initially provided loans and took an equity stake, which it sold. It later provided ProCredit’s first access to commercial funding via the June 2007 syndicated loan.

According to Mr Rotne, ProCredit is growing more independent thanks to the build-up of funds held at the bank by customers and to the Citibank component of the June loan. “It is important to establish a credit history with mainstream commercial banks. Our clients need a credit history and so do we,” says Mr Rotne. “If we can do it without the EBRD in the future, that will be the success story.”

By Anthony Williams, Head of Media Relations
Photos: David Mdzinarishvili
Contact: Group for Small Business

6 July 2007