CC BY
11
Section 8. Economics and management
https://doi.org/10.29013/ESR-21-11.12-59-63
Vanishvili Merab, PhD in Economics, Professor, Georgian Technical University, E-mail: merabvanishvili@yahoo.com Kokashvili Nanuli, PhD in Economics, Associate Professor, Gori State Teaching University, E-mail: nanulikokashvili@gmail.com Sosanidze Maka, PhD in Economics, Associate Professor Gori State Teaching University E-mail: m.sosanidze@mail.ru
LOAN-DEBT PECULIARITIES OF THE POPULATION IN GEORGIA
Abstract. This scholarly article, based on the latest literary sources and rich factual materials, discusses such important issues of financial education as the debt obligations and debt burden of the population.
It has been proven that interest-free loan from friends and bank loan prove to be the most widely-used loan sources by the Georgian respondents, with 42% of people borrowing interest-free from a friend, and 39% borrowing from a bank. In terms of popularly, bank loan is followed by pawnshop loan (18%), payday loan (12%), and MFI loan (11%).
In general, middle-income households prove to be the most active borrowers, followed by higher-income households. Interest-free loan from a friend/family is the most popular amongst low- to middle-income respondents and thus, it is likely that such loans are predominately given in small amounts.
Keywords: Loan liability, debt burden, current loan, interest-free debt, "online" loan, pawn loan, current "online" liability.
Introductions
In recent years, the issue of financial obligations and debt burden of the financial population has occupied a priority place in the political agenda of many countries.
The data collected as a result of the present study allows us to study the current level ofdebt and debt burden of the population in the country, indicates which segments of the population need special attention, identifies gaps in debt and debt burden, and helps to
set standards and debt For the national strategy, as well as for individual programs to be implemented within it.
Within the framework of the research, 1100 respondents (age: 18+) were interviewed by face-to-face survey method across the country. A stratified cluster sampling method was used used. The selection was made according to the regions and the type of settlement. Sampling points were selected in proportion to the population; adults were randomly selected in households based on the „last birthday principle" (adults who had the birthday most recently were chosen as respondents). The fieldwork was conducted between April 1 and April 25, 2020.
Results and discussion: One of the goals of this research household borrowing trends and the estimated level of the debt burden. According to the survey, 53% of the population has a current home loan, while 37% of respondents say that no one is currently using a loan in their household.
The most widespread loan type used during the past year in Georgia is an interest-free loan from relatives. For 39% of the respondents, the main loan source is a bank; for 18% - the most common loan source is a pawn shop. 12% of those surveyed have a payday loan ("an online credit") experience, while 11% have borrowed money from microfinance organizations and 3% -from private moneylenders. Out of those 12% who got a payday loan during the last year, 7% still have a current payday loan in the amount of 350 GEL on average.
In total, the segment that has loan-bearing experience has approached on average 1.7 loan sources. In the regional profile, the average number of loan sources is highest in Imereti - 2.18 sources, and lowest in Shida Kartli - 1.4 sources.
If we look at average monthly household loan payments from income perspective, we will see that for households with monthly income up to 550 GEL (550 GEL being 75% of the median monthly household income in the country), the average monthly loan payment amounts to 32% of their monthly income. For households whose monthly income falls between 551 and 900 (900 being 125% of median household monthly income in the country), the average monthly loan payment amounts to 48% of the household income. Further, households whose income is between 901 and 1500 GEL pay about 38% of their income to service the loan, while for households with the income of1501+ GEL/month, the average monthly loan payment amounts to 36% of their income.
Table 1.- Household Monthly Installment on the loan
Highlights Currency: GEL
Mean 393
Median 226
Minimum 10
Maximum 9.081
Standard deviation 560
Quantity 581
Table 2.- A single down payment made by a household to repay an „online loan"
Highlights Currency: GEL
Mean 350
Median 300
Minimum 50
Maximum 1500
Standard deviation 274
Quantity 80
Table 3.- Monthly installment of households according to loan income
Average household monthly income (profile) Mean Median Standard deviation Quantity
Up to 550 GEL 178 147 142 255
551-900 GEL 351 300 237 145
901+ GEL 636 500 560 143
Within the frames of the study, we looked separately at lump sum payments that households make to service payday ("online") loans. These pay-
It is interesting to look at the range of PTI (payment-to-income ratio) of households within different income bands in order to assess their relative indebtedness levels. While it would normally be expected that the PTI increases with the increase of family income, our analysis revealed that the middle-income families (with monthly household income between 551 and 900 GEL) have the high-
Further, it must be noted that generally, when analyzing household income and expenditures, we may encounter certain inaccuracies, as far as respondents may not be willing to disclose full and detailed information on their income and expenditures; to add, respondents may also not be sufficiently informed about the liabilities and revenues of their household members.
Looking at loan sources for households with different income levels provides interesting insights. The use of bank loans increases significantly with
ments, along with monthly household payments on all other types of credit, are presented in Tables 1 through 4.
est PTI ratio and thus, are the most burdened by current liabilities.
It is noteworthy that middle-income households often borrow from non-bank financial institutions, such as pawn shops and "online" lenders, which may not be checking the creditworthiness of their clients at all or not as thoroughly as banks do, leading this segment to excessive levels of debt (Table 5).
the improvement of income levels. There is a higher probability of encountering people who have a bank loan in the segment whose household monthly income is above 1501 GEL than in the households that fall in other income bands. Further, 65.6% of households with monthly income between 901 and 1500 GEL, and 60.9% of households with monthly income between 551 and 900 GEL currently have a bank loan (Table 5). It should be noted that none of the formal loan sources are particularly common in a segment with a monthly income of up to GEL
Table 4.- Uniform contribution made by households to repay the „online loan" according to the income
Average household monthly income (profile) Mean Median Standard deviation Quantity
Up to 550 GEL 276 234 234 29
551-900 GEL 317 300 215 21
901+ GEL 438 347 274 21
Table 5.- Loan sources by income categories
Total% from 783 respondents Current loan Friend ... debt without interest A private person Pawn shop Bank Microfinance organization Payday ("Online") credit agency
53.2% Up to 550 43.6% 64.2% 2.5% 23.0% 47.6% 13.0% 10.0%
18.8% 551-900 70.0% 62.4% 2.0% 29.3% 60.9% 15.8% 25.0%
11.5% 901-1500 64.6% 47.8% 3.5% 30.8% 65.6% 10.2% 31.6%
3.6% 1501-2000 67.5% 52.6% 3.8% 16.0% 78.6% 16.5% 11.8%
4.9% 2001 and more 65.2% 49.7% 6.2% 14.4% 80.9% 30.5% 15.3%
550; 64.2% of this segment has an interest-free loan from a friend or relative.
An interesting picture is given by the current loan liabilities in demographic terms. There is almost no traceable difference between household loan exposure levels in a gender profile: 53.2% of males and 52.3% of females reported having a loan. The proportion of those respondents who has a loan in a household increases steadily from the age of 18 till the age of 46. 51% of those between the ages of 18 and 25 have a loan in a household, as opposed to 66% of the respondents between the ages of 36 and 45. Starting with the age of 46 and up, household loan exposed proportion starts to drop again; only 32% of the respondents whose age is 66 and up have a loan in a household. Again, we must take into account that we may be facing certain inaccuracies when analyzing this data, as the respondents may not be fully informed about the liabilities of their household members. It is noteworthy that with the improvement of education levels, the household loan exposure generally increases as well. In particular, 55% of those with the university education have a loan in a household, while the same is true for only 43% of those with incomplete secondary school education.
If we group the employed respondents of all occupations together (excluding the self-employed segment), we will see that the respondents in this group are most inclined to having a loan in a household. More specifically, 70% of this group has a loan in a household. This segment is followed by a self-employed segment, 65.3% of these respondents having a current liability. If we group unemployed respondents together, we can see that 44.2% of them have a current loan, which is a rather low number, when compared to 68.2% of the total employed segment (including self-employed) that has a loan.
55% of the rural population has got a current loan, as opposed to 51% of the urban population. Mtskhe-ta - Mtianeti, Imereti and Guria are three regions with the highest loan exposure. The least loan exposed region is Samegrelo, where only about 34% of the sur-
veyed audience has a current loan. 53.4% of Georgian speakers currently have a loan, while the same is true for only 46.1% of non-Georgian speakers in Georgia.
The proportion of current loan holder households increases with the improvement of economic status. In particular, the loan exposure steadily increases from the segment that can hardly make ends meet up to the segment that can buy anything except a new car with their own funds or credit (from 47% to 64%), while in the upper economic classes, the loan-holders' proportion steadily decreases, yet still stays above the country's average figure.
Conclusion: The research found that household loan exposure generally increases in proportion with the improvement of education levels, employment, and economic status; to illustrate, 55% of those with university education, and 68% of the employed population have a loan in a household, while the same can only be said about 43% of those with incomplete secondary school education and 44% of the unemployed persons.
It is interesting to look at the PTI (payment-to-income ratio) ranges of families within different income bands to assess their relative indebtedness levels. While it would normally be expected that the PTI increases with the increase of household income, the results of the study revealed that the middle-income families (with monthly family income between 551 and 900 GEL) have the highest PTI ratio and thus, are the most burdened by current liabilities. This finding may be partially due to the finding that middle-income households often borrow from non-bank financial institutions, such as pawnshops and "online" lenders, which may not check the creditworthiness of their clients at all or as accurately as banks do, leading these segments to excessive borrowing. In addition, when discussing household indebtedness levels, it must be taken into account that the residents may not disclose full amounts of their liabilities and income, or may not be sufficiently informed about the liabilities and income of other household members.
The findings of the present research are important for setting certain standards and orientations in the field of financial education, and for developing financial literacy programs. The overall financial literacy levels of the Georgian population can be assessed as intermediate, leaving vast room for improvement.
The results of the research reveal a significant gap between the literacy levels of different segments of
the population, highlighting the need for diversified approaches. In order to attain sustainable progress, it is essential that financial literacy efforts focus not only on improving the knowledge, but also on positively changing the target audience's behavior and attitudes, as significant gaps can be observed in these directions as well.
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