Beyond the Banks: Is Microfinance Reaching Georgia’s Most Vulnerable?

While Georgia’s microfinance growth—expanding to GEL 1.7 billion (about $639.2 million) portfolio by 2023—has been largely driven by loans classified as "consumer credit," the reality on the ground is more complex. Today, more than 75% of all MFI portfolios consist of these loans— but in the world of Georgian micro-entrepreneurship, the line between a household need and a business investment is rarely clear-cut. According to survey results, among the households with MFI loans, 62% used them for general consumption, 39% for specific goods such as electronics, and 6.4% for business purposes, with many households using loans for more than one purpose. However, for an informal worker, a loan for a vehicle is often a strategic investment enabling a delivery service, just as a home appliance may be used in a small-scale catering venture. These loans act as flexible "livelihood capital," allowing families to manage cash flow and maintain the assets they need to stay economically active.

ADB’s survey of 1,400 households further shows a stark contrast in poverty levels based on credit access. Households that currently hold microfinance loans recorded poverty rates between 10.4% and 14.7%. Meanwhile, those with no access to any form of credit—often the most vulnerable in society—faced a poverty rate of 29.4% (Figure 1).

Figure 1: Population Subgroups Below the 60% Welfare Threshold

Source: Authors.

The findings reveal that microfinance is a financial tool for the “working poor” and used by households that are employed in either the formal or informal sector but whose incomes are insufficient to meet basic needs. However, these findings also underscore a critical caveat: while MFIs are transformative for those they reach, they are currently most effective at supporting the "near-poor" rather than those in extreme deprivation.

Unsteady household income, high logistical costs

If microfinance is such a successful engine for the working poor, can this also benefit the poor that yet no access yet to micro-credit?

On the demand side, the hurdles are deeply personal and practical. Many vulnerable households struggle with unsteady incomes that make the commitment of a monthly repayment feel like a gamble. Even for a microfinance loan that is provided without collaterals, the lack of experience with banking or poor financial literacy are relevant barriers.

On the supply side, there are also logistical challenges. Lenders often perceive these clients as high costs, narrowing the sector’s reach to those who are already better economically integrated to borrow safely. Even for an MFI, driving to a remote village to serve a single low-income client involves high transaction costs. This leaves the most vulnerable citizens dependent on government social safety nets or the unpredictable support of friends and family.

High interest rates

There are also other structural supply-side constraints, one of which is the high cost of borrowing. In Georgia, effective interest rates commonly exceeded 20% in 2023. This is a reflection of the MFIs’ costs. The businesses are risky. In addition, MFIs are not allowed to take deposits and need to refinance via relatively expensive commercial bank funds or foreign currency loans requiring costly hedging against currency swings.

The ADB study highlights an opportunity: if interest rates could be lowered from 21% to 16%, the number of households willing to borrow would nearly double—from 32.5% to over 63%. This signals a massive, untapped demand for affordable credit that could be unlocked through regulatory reform or better access to local currency funding. In addition, Georgia has already taken a promising first step: a 2023 law created a new category of “microbank” that is licensed to accept deposits and access central bank funding. This could meaningfully reduce borrowing costs for the sector.

Despite its selective reach, microfinance demonstrably enhances household resilience and economic well‑being. The study’s regression and propensity score analyses converge on a key finding: having access to these loans significantly improves a household’s chances of climbing out of poverty. In fact, borrowers saw an average 11% drop in poverty levels. This proves that credit acts as a stabilizer, helping families manage their budgets and stay economically active even during tough times.

While the system is imperfect, its impact in rural areas is also undeniable. In the Georgian countryside, nearly 45% of households use microfinance, compared to just 23% in urban centers. Rural livelihoods are famously volatile, dictated by the unpredictable cycles of farming and harvest. For these families, access to credit allows them to smooth consumption—buying food during a lean month, purchasing medicine for a sick relative, or keeping a small micro-enterprise running when income dips.

Georgia’s microfinance sector has potential for boosting development. The study’s findings point toward several opportunities to ensure the sector's benefits reach those who need them most.

As many low-income households frequently struggle to navigate financial terms, repayment structures, or risk assessment, targeted financial literacy programs paired with simplified credit procedures could enhance responsible borrowing and improve creditworthiness. Coupled with policies on reduced interest rates, this can trigger significant uptake of microfinance.

To reach the most vulnerable, microfinance institutions (MFIs) could deliver targeted loan products for education, healthcare, emergencies, or food security only when paired with appropriately designed public or development-partner support mechanisms. Subsidized interest rates or partial risk-sharing would need to come from government programs or international financial institutions, not from the MFIs themselves. However, MFI can become an efficient and targeted distribution channel for such support. Introducing subsidized products need to be conditioned to transparent criteria identifying eligible households. Under such a framework, MFIs could act as implementing partners, expanding outreach that uses subsidies efficiently while maintaining market-based principles.

Microfinance is already improving lives across Georgia. Borrowers who access MFI services experience greater financial security, smoother consumption patterns, and lower poverty rates compared to those who remain outside the credit system.

However, more could be reached. Georgia’s microfinance sector can evolve from a primarily consumer-lending model to one that is more inclusive, affordable, and development-oriented. With the right regulatory and financial innovations, microfinance can become not just a safety net but also a true engine of growth and a powerful instrument in the country’s fight against poverty.

Asian Development Bank. Georgia and Poverty. Manila. (accessed January 2026).

Asian Development Bank. 2025. Microfinance in Georgia: Supply, Demand, and Pathways to Inclusive Finance.