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.