Eurocredit plans to transform into a fintech company. The digitalization process of credit products has been in progress for a year in the microfinance organization, a member of an international company Zuk Group.
Mikheil Nonikashvili, the executive director of Eurocredit, talks about the development plan and prospects of the company.
Mr Mikheil, ten years after its establishment, Eurocredit aims at transforming into a FinTech company. What stage are you at in terms of introducing modern technologies?
We started this process this January when we pioneered remote car loans on the Georgian market. We introduced the service together with a FinTech company Wallypay. Those who have ever had a loan with us or are interested in increasing the limit on their active loans, and are Wallypay cardholders, can receive the money in just a few minutes through the mobile application.
In addition, we are working on the idea of granting business loans online. However, we have a slightly different story here, as many people do not follow accounting standards. Our new product will only be for those who file taxes at the Revenue Service, enabling us to analyze business turnover and financial activities. The idea of business loan digitalization is now undergoing an active processing phase. Overall, we want to offer our customers personalized, convenient, and fast products.
While digitizing our services, we also created a new website where clients have unique profiles that enable them to check the available limit, latest offers, payment times, schedule, etc. Additionally, we plan to create a mobile application. The customer should be able to spend as little time as possible to get the desired service.
Why did you decide to transform into a fintech company? How competitive do you feel in this market?
Our slogan is, “Without barriers.” We value simplicity and speed, precisely what consumers are looking for. Technology allows us to easily and quickly provide users with financial resources without any bureaucratic barriers, which is the company goal and the development strategy. It is only natural that the digitalization trend is also prevalent on the market. Advances in technology, trends in consumer behaviour, or pandemic challenges have pushed companies to tackle them and innovate.
You have 11 branches throughout Georgia, and you plan to increase their number, but at the same time, the process of digitalization is underway. What is your ultimate goal?
We know that digital technologies are not yet actively used in the regions due to little awareness of the tools and access to the internet. A rather large segment is still sceptical regarding virtual financial services and technologies. In these areas, people trust financial institutions when they speak directly to a company representative. A distrust of remote banking products is still a challenge. Therefore, we plan to expand the number of branches in the regions and, simultaneously, continue technological development.
Your products are just a car loan and a business loan. How are portfolios distributed, and who are your primary consumers?
So far, car loans occupy a large part of our portfolio. We started issuing business loans this year. That is why Eurocredit is still mainly associated with car loans. We will be so until we significantly change the ratio of loan products in the portfolio, which takes time and a marketing strategy. We plan to become a multifunctional microfinance organization that offers customers a variety of products. Therefore, we will provide a diverse range of loan offers to customers in the future.
As for our customers, these are car owners who want to get a loan fast. We cannot say that our clients belong only to a low-income segment; we also have middle and high-income clients.
Two directions exist when people want to buy a car or get a quick loan to finance their current expenses.
As for the business loan you introduced during the pandemic, what prompted this decision? Did you see the demand and need for this type of loan product on the market?
The company did not stop developing even in the face of the pandemic. Even more, in addition to being the first to launch an online car loan service in Georgia, we also introduced a new product: fast business loan, which allows small and medium-sized businesses to acquire a loan easily, fast, and without additional bureaucracy.
As you know, during the pandemic, most of the HoReCa (hotels, restaurants, cafes) sector faced a problem regarding access to finance as tourism came to a standstill. So we decided to offer these companies loans with flexible terms. We try to adapt to our client’s needs as much as possible, introducing new business loan products. In general, as the economic crisis during the pandemic deepens, the demand for finance grows, especially in the microfinance sector. Therefore, the created crisis has led to the growth of the market of microfinance organizations. We have, for example, increased our portfolio by 25% since January.
How do you assess the competition in the microfinance market?
First of all, I would like to mention that when we started granting car loans ten years ago, there was little competition on the market. Now the situation has changed. Many microfinance organizations have entered the market with this product, as car loans are relatively less risky. In addition, microfinance organizations have to meet the PTI ratio, which implies a loan repayment ratio based on customer income. Most of the population in Georgia is on the verge of this ratio, which means that they do not qualify to get additional loans. In the case of a car loan, the financial organization does not have to take this ratio into account. As a result, the competition in this area is growing, and it propels banks to be active in the car loan market. In the last two years, at least 5-6 banks have been added to the retail segment with the auto loan product. However, others do not yet have much experience in this business compared to Eurocredit. They are now learning the outcome. We have the most experience in this field. According to our information, we are in the top three regarding the number of disbursed car loans.
Eurocredit sees the success of business in timely mediation and encourages dispute resolution through mediation. What are the disputes arising from credit obligations and statistics of their settlements through mediation in a microfinance organization?
It has only been a year since we have started mediation. And, today, we use it actively. We have already settled about 90% of disputes through mediation. This process is much faster. Today, dispute resolution in court takes a long time. It requires additional judicial and other associated costs, ultimately proving unprofitable for the business sector. Therefore, we believe that resolving disputes through mediation is the best solution for both lenders and borrowers.
The growth of a company without the effective work of its employees is unimaginable. What is Eurocredit doing to increase their productivity?
We pay much attention to this issue. Our team consists of more than 150 professionals with expert knowledge of the case and extensive experience. Eurocredit has created a free environment, which promotes employee loyalty and goodwill.
In the microfinance segment, we have above-average salary offers for employees. According to a financial market study conducted by one of the largest auditing companies in Georgia, we are in the top five in terms of remuneration. We have such a great bonus system that many people want to start working with us. However, this is not the most important reason that motivates and inspires the employees. A common goal drives us. We learn together, constantly evolve, are flexible with work, and are distinguished by a high degree of decision-making autonomy.
Our management philosophy is based on mutual respect and trust. Any level manager has the opportunity to engage in the process, express an opinion, and propose an idea. We listen to each other and try to be better tomorrow than we are today.
As with clients, so with our employees, we use the concept of “no barriers.” We also explain to employees all kinds of barriers in their relationship with a supervisor or colleague.
I want to mention that we systematically study employee satisfaction. The job satisfaction rate reaches as high as 95%.
Work on the legislative initiative of micro-banks has been completed. Under the initiative, prepared by the National Bank, micro-banks, unlike microfinance organizations, will have a chance to receive deposits and lend in foreign currency. What are your expectations? What impact will it have on the interest rates?
I embrace this initiative as it will increase competition. Microfinance organizations have somewhat limited access to finance compared to banks. The interest rate on funds attracted by banks is much lower. Consequently, we cannot enter the low-marginal segment where banks are. As micro-banks will be able to lend in foreign currency, their competitiveness will increase, and, most importantly, currency risks will diminish. I expect interest rates to fall in the future under healthy competition, although this depends on other macroeconomic indicators.
In general, the edge of microfinance organizations is less bureaucracy and faster business processes. Adding other advantages will further increase our allure.
Does Eurocredit consider transforming into a micro-bank?
We will not be able to apply for conversion into a micro-bank any time soon, as one of the requirements is to have a portfolio comprised of 70% micro-business and agro loans.
Besides, the amount of capital required for the establishment of a micro-bank was determined by 10 million. Not all micro-financial organizations can meet this. What changes do you expect in the market?
I do not expect radical changes, as only five microfinance institutions may transform into micro-banks at this stage. These are the companies that have an international rating and the ability to mobilize this amount of money. It will be crucial for micro-banks to gain more consumer trust than microfinance organizations have now. It is imperative to increase the credibility of this institution, and, in the future, the transformation of other responsible microfinance organizations into micro-banks will follow if the relevant requirements are met.
Finally, what do you expect from 2021, and what are your future strategic goals?
We will finish the current year as successfully as we started if unforeseen circumstances do not occur. Significant activities are observed in our segment, which makes us feel positive. We will also attract bank financing, which will allow us to become more active in the market.
One of the most valuable and strategic goals is to gain an international rating, which will increase our ability to attract financial resources and reduce its cost. Our ambition is to continue the technological transformation, digitalization, acquire an international rating, and move the company to the next level. With the efforts of our united “family,” we consider this to be realistic. After all, success is to take one step a day, which is a pleasant process.
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