Refugee Debts Out of Control in Georgia

Thirty-five-year-old Archil, his two brothers and their families, left the Liakhvi gorge, in Georgia’s conflict zone with South Ossetia, during the war in August 2008.



Before the conflict erupted, the three brothers were prosperous farmers and the banks lent them money without a problem. Now, Archil is massively in debt and one of a fast growing number of Georgians who cannot repay loans taken out in better times.



Archil knows well how he slid into debt as a result of war and the consequent loss of his business, income and home.



“My brothers and I had two-storey homes, orchards, farms and heavy trucks and because our income was good, the bank gave us a loan without any problem,” he recalled. “Today we have nothing left of that but the debt.”



Archil said his bank had called him so often in connection with the loan that he has changed his telephone number.



“Now I don’t even know what they’re demanding and I have no wish to know it either,” said Archil, who lives in a settlement recently built for refugees from the 2008 conflict.



A black list of insolvent borrowers in Georgia has spiralled out of all proportion in the last 12 months.



The number of names on the database, managed by an agency, Credit Info LLC, in cooperation with local banks and other financial institutions, has grown from 23,000 this time last year to more than 200,000 – almost a tenfold increase.



“Recently, the number of defaulted customers has been increasing very fast,” Alexander Gomiashvili, a general manager of Credit Info, said.



Georgia’s credit boom took off in earnest in 2004-2007 when, during a time of economic growth, banks simplified the procedures for obtaining mortgages and consumer loans.



Thousands rushed to take advantage of the easier credit. But in 2008 the country went to war with Russia, only then to be hit by the world economic crisis. Recent political instability and continued street rallies and protests have made the economic outlook even grimmer.



“Behind the list of the 200,000 debtors are their families as well,” noted Demur Giorkhelidze, an economic expert. He estimates that the total number of Georgians caught up in the debt crisis probably exceeds a quarter of the population of 4.4 million.



“The government has refrained from taking any part in solving the problem, which may well cause them problems eventually,” the expert said.



Debtors like Archil are especially numerous in Georgia’s refugee settlements.



Many refugees insist no one has offered them any practical advice in the form of debt restructuring plans, subsidies or other benefits. Meanwhile, they say the banks seize back whatever they can through debt recovery agencies.



“If anyone transfers a couple of tetris (US cents) to your account, they remove it immediately,” Archil complained.



Alexander Gomiashvili, general manager of Credit Info, told IWPR that the banks decide themselves on the procedure for entering defaulting customers onto the black list. The grace period can vary from 30 to 60 days after the customer has defaulted.



The banks insist that they usually offer refugees favourable terms for repayment of loans.



“We’ve adjusted debt fines to every individual personally, amended the payment schedule to their convenience and established an assistance fund for refugees,” said Sopho Balavadze, public relations manager at the Bank of Georgia. “We did all we could.”



Other private banks and microfinance organisations operating in Georgia make similar claims. However, human rights bodies say they are flooded with complaints to the contrary from refugees.



The Young Lawyers Association of Georgia, a not-for-profit organisation, said it had received more than 400 requests for assistance recently.



“When we approached the banks, asking them to take into consideration the problems that refugees face, the banks replied that they provide repayment packages on an individual basis,” Natia Mosashvili, head of the refugees department of the Young Lawyers Association of Georgia, said.



“Despite that, we still have hundreds of cases of refugees who feel they are being intimidated into repaying loans and fines.”



She said one case involved a refugee being threatened with the confiscation of the small home provided for him by the government as temporary accommodation.



Mosashvili says the lawyers of her association work on every complaint and they hope the government will join the process, and take more notice of complaints.



However, there is not much sign of that so far. On the contrary, the authorities turned off the electricity and gas supplies to refugees who returned to Gori, which was briefly occupied and bombed by the Russian army, because they had not paid their utility bills.



The ministry for refugee affairs and resettlement refers to this case as “a misunderstanding”.



“The ministry paid the utility bills for the refugees,” said Diana Koshadze, head of the finance department in the ministry. “But to cover all the debts owed to the commercial banks exceeds all our capacities.”



Jondi Bagaturia, a deputy from the opposition Qartuli Dasi party in parliament, says the government should be taking better care of citizens caught up by the debt crisis, whether or not they are refugees.



This parliamentarian wants the government to set aside 250 million US dollars from the international aid it received following the 2008 war, and divert it to the banks to alleviate the debt problem. “That way the banks could ease the conditions for customers who have run up debts,” Bagaturia said.



But the deputy has not actually raised the issue in a parliamentary session, as the opposition street protests, demanding the resignation of the president, have brought parliament’s work to a virtual standstill.



Giorkhelidze agrees that government initiatives to aid banks, along the same lines as the financial bail-outs offered to banks in the West, might be one way out.



“The authorities in Europe and the United States allocated huge sums of money to support the banks and so help big and small businesses,” he recalled. “But in Georgia, apart from the impact of the world economic crisis, there was a war for which the government is responsible.



“The authorities must search for a solution immediately so that every debt is restructured on an individual basis.



“Having a policy in which banks can’t do anything but forcibly recover their debts is disastrous for banks, people and the country overall.”



Such calls evoke only dismay on the part of officialdom, however. Gigi Ugulava, mayor of the capital, Tbilisi, told a debtors’ street protest four weeks ago that the state was “not a milch cow”.



Eka Djanashia, public relations manager at the ministry of economic development, is also wary of calls for the government to assume responsibility for banks’ bad loans.



“The state does not intend to interfere in the dealings between banks and their customers,” she said.



Moreover, banks and other financial institutions deny that they encourage or rely on the use of brute force to recover debts. They say the leave the recovery of debts to intermediary companies that work on commission.



However, Nino Imnadze, who owned a small business before she filed for bankruptcy, says the constant telephone calls and visits by the staff of the debt recovery firm drove her to the brink of suicide.



“I took out a loan from the bank and was repaying it honestly,” Imnadze said. “But after the [2008] war, things went bad. The bank did not take my new circumstances into consideration and was fining me.



“Then some guys came from a company and threatened to confiscate my property even though there was no collateral against the loan in the terms of my contract.”



Several suicides have already been recorded as a result of debtors’ disputes with banks. The most horrifying involved 40-year-old Rostom Hohonashvili, who set himself on fire on May 6.



Relatives say he ran up a debt of 3,000 dollars and killed himself after failing to reach agreement on restructuring the repayments with his bank.



Bizarrely, even after his death, Hohonashvili’s name remains on the black list. Officials at Credit Info say data on debtors remains in the database for seven years.



Giorkhelidze fears the current system of debt recovery could well damage the banks’ prospects in the long term.



“This way, they’re spoiling the credit history of the most active part of the population,” he said. “When the resources for new credits start to flow, there may not be enough customers to lend the money to.”



Natia Kuprashvili is a freelance journalist based in Tbilisi.