A brief overview of the investment and financial service sector in Georgia
Access to formal financial institutions and basic financial services allows households and individuals to better manage their finances and plan investments in both the long and short term. However, many households worldwide still lack access to bank accounts and other types of financial services, and formal and informal small and medium-sized enterprises in developing economies are often financially unserved or under-served (Stein et al., 2013).
The banking sector is one of the most developed sectors in the Georgian economy (Gugushvili, 2013). About 40% of adults in Georgia have access to a bank account, which is relatively high in comparison to other countries in the region (Figure 7.1). However, the formal saving rate is very low; at only 1% it is below the regional average. Low income levels, cultural characteristics and little trust in the banking system have been suggested as reasons for Georgia's low saving levels (ACT Research, 2011; Gugushvili, 2013).
Figure 7.1. Georgia has low levels of formal savings compared to other countries
in the region
Formal savings (%) and bank account possession (%)
Note: The definition of formal savings is having saved in a formal bank or other financial institution. The sample includes adults 15 years and above.
Source: World Bank Global Financial Inclusion Database, http://datatopics.worldbank.org/financialinclusion/.
Sta.tLink^^2 http://dx.doi.org/10.1787/888933458017
Besides banks, other essential financial institutions in Georgia include insurance companies and microfinance institutions (Gugushvili, 2013). The IPPMD community survey included a question on financial institution coverage in the sampled communities.1 As expected, urban communities are better covered when it comes to all three types of financial service institutions: banks, microcredit institutions and money transfer operators. The biggest difference found in coverage is for banks: 43% of urban communities have at least one bank office while only 15% of rural communities have a bank. Microcredit organisations are very scarce in rural areas, while almost one in four urban communities has a microcredit organisation (Figure 7.2).
Figure 7.2. Urban communities are better covered by financial service
institutions
Share of communities with financial institutions (%)
Source: Authors’ own work based on IPPMD data.
Statuhttp://dx.doi.org/10.1787/888933458022
An important factor in promoting productive investments is a favourable investment climate. The Georgian government has in recent years introduced measures to promote entrepreneurship and self-employment activities by introducing liberalising policies; with the aim of reducing, for example, bureaucracy and tax burdens (Tchaidze and Torosyan, 2009). The World Bank’s ease of doing business ranking, which measures the regulatory environment around the start-up and operation of a local firm, ranks Georgia as number 16 in the overall ranking. It ranks Georgia as number 8 for starting a business and 7 for getting credit (World Bank, 2017).
Figure 7.3. Georgia has the most favourable business regulatory environment
in the region
World Bank ease of doing business ranking, overall and selected indicators
Note: A high rank (represented by a low numerical value) indicates a relatively more favourable business environment compared to other economies worldwide. In total, 190 countries are included in the ranking. Starting a business and getting credit are two sub-topics of the ease of doing business ranking.
Source: World Bank Doing Business Economy Rankings, www.doingbusiness.org/rankings.
Sta.tLink^^2 http://dx.doi.org/10.1787/888933458034
