Ex-Ante Evaluation
Private Sector Investment Finance Division,Private Sector Partnership and Finance Department, JICA
1. Name of the ProjectCountry: Georgia
Project: Micro, Small and Medium Enterprises Support Project
Loan Agreement: December 9, 2021
2. Background and Necessity of the Project(1) Current State and Issues of the Development of the Micro, Small andMedium Enterprises Sector in Georgia
In Georgia, Micro, Small, and Medium Enterprises (MSMEs) play an importantrole in the Georgian economy, accounting for 99.7% of all business enterprisesin the country and 62% of total employment there in 2017 1. On the other hand,financial access for MSMEs is insufficient, mainly for three reasons: relatively
higher risks than those involved in large corporations, insufficient analysis ofMSMEs’ needs by financial institutions, and underdeveloped governance atMSMEs. The finance gap rate 2 for MSMEs in 2014 was high, at 68%, and this is
an issue to be addressed for the growth of MSMEs 3. Meanwhile, the major
MSME industries in Georgia consist of manufacturing, construction, and tourism,
but in all these areas, their common problems are limited access to long-termfinancing and the need to improve the business skills of managers.
Against this backdrop, in 2015 the Georgian government announced the SME
Development Strategy of Georgia 2016-2020. This Strategy cited as threepriority issues enhancing the competitiveness of the private sector, developing
highly competitive human resources, and providing better financial access, andby setting the goal of increasing MSMEs’ output by 10% and the number ofpersons employed by MSMEs by 15%, the government is working to expand theMSME market and improve financial access. Up to now, laws for public
subsidies and the government’s financial assistance for MSMEs have been put
in place, and in addition, there have been initiatives led by financial institutions
such as seminars aimed at improving the financial literacy of managers.
Monitoring Georgia SME Development Strategy 2016-2020, OECD
Financing in Georgia, EIU
2 This is the World Bank’s indicator of differences between the supply of financial access for
MSMEs and latent demand for financing in developing countries. The average rate fordeveloping countries is 55%.
3 MSME Finance Gap, World Bank
1

Meanwhile, due to the impact of COVID-19, which broke out at the end offiscal 2019 4, the tourism industry declined, lowering the real GDP growth rate tominus 6.1%. Because of delay in the recovery of the tourism industry, the growthrate in 2021 is expected to remain at 3.1% despite expanding exports andrecovering consumer spending, and the Georgian economy is predicted to growat the 4% level in the medium to long run.
Approximately 70% of visitors to Georgia come from neighboring countries
such as Russia, Azerbaijan, and Turkey, but since the movement of people islimited as these countries fail to suppress COVID-19 infection, ensuring
financing and liquidity at MSMEs in service and other industries (includingtourism) is an urgent issue to be addressed. Under these circumstances, as partof its efforts to support MSMEs, the government has helped finance MSMEs andassisted their business, including providing 500 million lari (about 17 billion yen)
to grant loans to MSMEs chiefly, through Joint Stock Company Bank of Georgia(BoG), and other local banks and allowing up to 600 SMEs to carry forward
lease payments by three months. However, due to decreased tax revenue andincreased expenditure resulting from COVID-19 prevention and other measures,the International Monetary Fund (IMF) predicts that the ratio of fiscal deficit toGDP will grow from 1.8% in 2019 to 9.3% in 2020. The IMF also reckons that it
will exceed 7% in 2021, making it difficult for the government to continue MSME
support involving fiscal burdens. By financing BoG, which has a 31.6% share of
the market for MSME loans in Georgia, this project aims at providing MSMEs
with better financial access, an issue that has existed since early on and isbecoming even more urgent due to COVID-19.
(2) Japan and JICA’s Policy and Operations in the Private Sector
Japan's Country Development Cooperation Policy for Georgia (April 2014)
cited as a major goal, providing assistance to contribute to promoting economic
growth and stabilizing society, and therefore, this project, which provides supportto MSMEs, the driving force behind Georgia’s economic growth and the sector
that offers large employment opportunities, is consistent with the policy.
(3) Significance of this project
The measures taken by Georgia to prevent infection with COVID-19, which has spreadworldwide since the end of 2019, were considered an exceptional example of success in theworld, as the number of confirmed cases per day in the country remained in a single digit until
July 2020. After mid-September 2020, the number rose sharply and then the infection subsided
temporarily, but after July 2021, the number grew rapidly again, and after mid-August,
4,000-6,000 cases were confirmed daily. After mid-September, the number started to fall, but it
has recently continued to increase again as 6,024 cases were confirmed on November 3.
4This project is in line with Georgia's development challenges and theassistance policies and analysis of the government of Japan and JICA. The
project will contribute to SDG Goal 8 (improving access to financial services),
Goal 9 (promoting industrialization through expanding access to finance forsmall businesses), and Goal 17 (partnerships).
(4) Necessity of Assistance with Private-Sector Investment FinanceThis project will provide long-term loans to BoG, a major commercial bank inGeorgia, in cooperation with the Asian Development Bank (ADB). The projectwill provide stable financial access to MSMEs, which play an important role inGeorgia's social economy. Due to the prolonged impact of COVID-19, it isdifficult for private banks to provide BoG with a 5-year loan so the necessity ofproviding assistance through the Private-Sector Investment Finance is high.
3. Project Description(1) Project Objective
The objective of this project is to maintain and improve financial access for
MSMEs in Georgia, by financing BoG, thereby contributing to sustainableeconomic growth in the country.
(2) Project Site/Target AreaThe whole country of Georgia(3) Project Component
Financial support provided by BoG to MSMEs in the entirety of Georgia
through bank loans to BoG(4) Funding Plan
200 million U.S. dollars(5) Project Implementation Structure1) Borrower: Joint Stock Company Bank of Georgia (Bank of Georgia)
2) Executing Agency: Joint Stock Company Bank of Georgia (Bank ofGeorgia)(6) Environmental and Social Consideration / Cross-sectoral Issues / GenderCategorization
1) Environmental and Social Considerations(a) Category: C(b) Reason for Categorization: The project’s negative impact on theenvironment and society is judged to be minimal, based on the JICA
Guidelines for Environmental and Social Considerations (announced inApril 2010).
(c) Other / Monitoring: It has been agreed with the borrower in writing on
the policy of “selecting projects that meet JICA’s Category C standard can
only be approved as the sub-projects.” A system has also been
established that enables JICA to confirm that projects other than
Category C ones are not included during the financing period. Since,
through these measures, it is determined that the negative impact on theenvironment is judged to be minimal based on the Guidelines, the project
falls into Category C. The category of projects financed by the AsianDevelopment Bank, a co-financier, is B, but loans from JICA are limited toCategory C projects.
2) Cross-Cutting Issues: None in particular3) Gender Category: ■GI (S) (Gender Activities Integration Project)<Activity Components / Reason for Categorization>
The reason is that initiatives based on the Asian Development Bank’s genderaction plan and the amount of loans earmarked for Women-owned MSMEs(WMMSMEs) are set as indicators. The project can also be recognized as a 2X
Challenge initiative due to the percentage of WMMSME borrowers (accountingfor 36.3% of all borrowers of loans for MSMEs) and that of female employees tothe total (68%) as of 2Q 2020.
(7) Other Important Issues: None in particular.
4. Targeted Outcomes(1) Quantitative Effects
The Project will measure quantitative effects using the indicators such as theloan balance for MSMEs, the number of borrowers of MSME loans, the loanbalance for WMMSMEs 5, the number of borrowers of WMMSME loans and thenumber of MSME borrowers with the benefit of repayment being postponeddue to COVID-19(2) Qualitative Effects
Improvement in financial access for MSMEs and maintenance of employment
at MSMEs(3) Internal Rate of Return
5 Women-owned MSMEs are defined as MSMEs that meet one of the following threerequirements: (1) a woman holds, or women hold, a 50% stake or more, (2) a woman serves as
Chief Executive Officer (CEO), and (3) a woman serves as Chief Operating Officer (COO).

Since this is a bank loan project, the economic internal rate of return (EIRR)
and the financial internal rate of return (FIRR) are not calculated.
5. External Factors and Risk Control(1) Prior Conditions
None(2) External Factors
None
6. Lessons Learned from Past Projects
Two lessons learned mainly through the results of ex-post evaluation of theMicro, Small and Medium Enterprises Support Project for the Arab Republic ofEgypt, a Japanese ODA loan project, are that when organizing similar projects tohelp finance micro and small enterprises, it is important for lenders to (1) haverich experience in financing and (2) own many branches to analyze thecreditworthiness of customers distributed nationwide. Through examinations, thepresent project has confirmed BoG’s experience in financing operations, branchsystem, and efforts to step up the digitization of financing decisions. It has also
been confirmed that BoG opened its branches and provided financial services
without delay after it took appropriate measures to prevent infection even as
COVID-19 affected banking operations and that despite the effects of thepandemic, BoG maintained its full financing capacity as it held fast to the policyof further promoting the digitization of financing, a task to which it had paid
particular attention since early on, with the prolongation of COVID-19 in mind.
7. Evaluation Results
This project is consistent with Georgia’s development tasks and development
policy as well as with Japan’s and JICA’s cooperation policy and analysis. It also
contributes to providing MSMEs, including those managed by women and thosein which women play an active role, with better financial access and furthermore
to sustained economic growth. Therefore, it will contribute to Goal 5 (genderequality), Goal 8 (economic growth and employment), Goal 9 (infrastructure andindustry), and Goal 17 (implementation means and partnerships) of the SDGs,
and the assistance it gives through overseas investment and finance is highly
significant.

8. Plan for Future Evaluation(1) Indicators to Be Used
As shown in Section 4 above.
(2) Timing
Ex-post evaluation: December 2025.
End