copy the linklink copied!Chapter 2. Small and medium-sized enterprise policy in Georgia

This chapter analyses the environment for supporting small and medium-sized enterprise (SME) development in Georgia, including the importance of the informal sector and different definitions of SMEs. It provides an overview of the emerging policy context for economic development, including priorities for the Social-economic Development Strategy “Georgia 2020” and the National SME Development Strategy 2016-20. It analyses how the government is helping create an enabling environment for expansion of the sector through creation of the Georgian Enterprise Development Agency and Georgia’s Innovation and Technology Agency. Finally, it identifies opportunities to align energy efficiency, renewable energy and SME sector development.


copy the linklink copied!2.1. Context for SME development

The Georgian economy has typically been more structured around small and medium-sized enterprises (SMEs) and services than many other countries in the region. As a result, the profile of the economy is less carbon intensive than some other post-Soviet countries. In Ukraine or Belarus, for example, heavy industry continues to operate while Azerbaijan has an active upstream fossil-fuel industry.

Approximately 723 000 companies are registered in Georgia, of which around 25% are active. Using earlier Georgian definitions, of the total number of companies in Georgia, more than 85% were classified as small, with another 9% as medium. Trade and transport account for the largest volume of business turnover (47%) (USAID, 2017[1]).

In 2016, under the newly adopted European Union (EU) definition, SMEs accounted for 99.7% of all firms in the country (OECD, 2019[2]). However, many of these are rather micro and small companies (between 1-19 employees). SMEs are crucial for employment. More than half of all SMEs are estimated to be based in Tbilisi, with the remainder distributed mainly in the Imereti and Adjara regions. SMEs are an important source of economic activity in the Georgian economy. The National Statistics Office of Georgia estimates that SMEs provide more than 67% of employment and 61.5% of gross value added.

The informal economy in Georgia is also significant. A recent International Monetary Fund study estimates that the informal economy represented more than half of GDP in 2015, although this share has been decreasing steadily over time (Medina, L. and F. Schneider, 2018[3]). Much of the informal economy occurs within the SME segment. Alongside creating fiscal and macroeconomic challenges, the presence of a large informal economy also creates issues for effective environmental regulation. The formalisation of the economy should therefore be a priority for the government, including in terms of improving environmental performance among SMEs.

SMEs are struggling to scale their operations in Georgia. They tend to be clustered in relatively low value-added sectors (e.g. trade, real estate). Relatively few are in areas such as manufacturing. As a result, wages are also relatively low in the sector.

copy the linklink copied!2.2. Definitions of SMEs in Georgia

Until recently, the Georgian Tax Code (President of Georgia, 2010[4]) and the Law on National Investment Agency (President of Georgia, 2002[5]) were used to define SMEs in Georgia and these definitions differed. The National Statistics Office of Georgia accounted for business using a different approach. In order to streamline these definitions, in March 2017, the National Statistics Office approved a new methodology for the SME registry. This new methodology became effective in 2018. For the sake of comparison, EU definition of SMEs is provided in Table 2.2.

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Table 2.1. New Georgian definitions of SMEs


No of employees

Average annual turnover (GEL)



<12 000 000



12-60 000 000



>60 000 000

Source: Information provided by the Ministry of Economy and Sustainable Development.

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Table 2.2. EU definition of SMEs


No of employees

Annual revenue (EUR)

Total assets (EUR)

Single entrepreneur/ micro


<2 000 000

<2 000 000



<10 000 000

<10 000 000



<50 000 000

<43 000 000



>50 000 000

>43 000 000

Source: (European Commission, 2015[6]).

The classification of SMEs can affect where green finance is directed within the Georgian economy, particularly by international financial institutions (IFIs). For example, the Bank of Georgia uses different classification criteria. Companies with an annual turnover of GEL 1.5 million-20 million, or a loan exposure of USD 150 000-2 000 000 qualify as small and medium-sized companies in the Bank of Georgia classification.

Given the structure of the economy, many borrowers considered as corporate clients by local banks under the Georgian classification are considered eligible for SME under the EU/IFI definition. IFI credit lines tend to use international (e.g. EU) standards. As a result, Georgian banks have lent larger amounts to smaller numbers of corporate clients (e.g. loans of USD 1 million+) rather than focusing on smaller-scale SMEs in the Georgian context. Doing this reduces the transaction costs for Georgian banks but results in lower levels of green finance being accessible to micro and small businesses.

copy the linklink copied!2.3. SME policy environment

The SME policy environment is generally considered to be well-developed and supportive in Georgia. The 2018 World Bank “Doing Business” survey ranked Georgia number 6 globally. The country has maintained its position among the highest placed of transition economies. In recent years, Georgia has sought to improve the business environment for all enterprises, including SMEs. It has simplified administrative regulations, reduced the tax burden, fought corruption, facilitated free trade and promoted privatisation. Among other measures, the Georgian government has put in place several regulations and institutions that support lending and borrowing. These aim to help improve access to credit (e.g. credit information system, central collateral registry, a civil code that allows for a wide range of assets to be pledged as collateral). Despite this favourable legal basis, access to finance remains a constraint for enterprises, particularly SMEs. This, in turn, hinders normal business operations and the transition to greener economic development.

In a 2016 study, the OECD developed an SME Policy Index looking at EU Eastern Partnership (EaP) countries analysing 12 dimensions/measures for implementing the Small Business Act (SBA) for Europe. Georgia received a positive review across seven of these measures, and was named as the best performing and reforming country among the EaP countries. It was praised for its work on insolvency, the regulation framework, support services for SMEs and start-ups, standards and technical regulations, and innovations. However, several challenges were identified, including access to finance and skills mismatch in the labour market and low-job creation.

The Social-economic Development Strategy “Georgia 2020” (Government of Georgia, 2014[7]) is a road map for the medium to long term, setting out the strategy, priorities and action plan by sector. It is strongly relevant to the development of the SME sector, identifying three main priority areas:

  • Private sector competitiveness: improving the investment and business environment; promoting innovation and technology; facilitating the growth of exports; developing infrastructure and fully realising the country’s transit potential

  • Developing human resources: developing the country’s workforce with a view to meeting labour market requirements; tightening the social security net; increasing the accessibility and quality of the country’s healthcare system

  • Access to finance: mobilising investments; developing financial intermediation.

Elsewhere, the government programme “Freedom, Rapid Development and Welfare” sets out support for SMEs in economic development, among other priorities. It promotes business start-ups and innovation under the economic reform thematic workstream.

copy the linklink copied!2.4. National SME development strategy

In 2016, the Ministry of Economy and Sustainable Development (MESD) prepared and approved the National SME Development Strategy 2016-20 (Government of Georgia, 2015[8]). The strategy, developed in close cooperation with GIZ and OECD, forms the basis for SME sector development. Targets include increasing SME economic output by 10%, employment by 15% and manufacturing production by 7% over the duration of the strategy.

The National SME Strategy has five core thematic areas of focus:

  • access to finance

  • improvement of the institutional, legal and entrepreneurial environment

  • SME skills and entrepreneurial culture development

  • export support and SME internationalisation

  • innovation and research development support.

For each thematic area, an action plan sets out short-term implementation measures. The first action plan was prepared for the period 2016-17. Support for SME development also forms part of a broad range of other strategies and policies:

  • The Regional Development Programme of Georgia 2015-17 contains SME promotion and job creation as a core regional priority with links to specific sectors (e.g. tourism, agriculture).

  • The Strategy for Agricultural Development in Georgia (2015-20) promotes the development of SMEs within the agriculture agenda.

  • The Professional Education Reform Strategy 2013-20 recognises the need for capacity building and skills upgrade for the SME sector.

  • The Deep and Comprehensive Free Trade Area (DCFTA) implementation action plan 2014-17 considers the role of SMEs, including access to finance and export promotion.

  • The Rural Development Strategy 2017-20 and action plan, approved by the government in March 2017, also considers SMEs.

copy the linklink copied!2.5. Institutional support

To support development of the SME sector, and to boost innovation and increase entrepreneurial activity, MESD has set up two agencies. These are the Georgian Enterprise Development Agency (Enterprise Georgia, 2019[9]) and Georgia’s Innovation and Technology Agency (GITA, n.d.[10]).

  • Georgian Enterprise Development Agency (EDA, or Enterprise Georgia) is the primary co-ordinator of programmes and policies to support SME sector development. It aims to support start-ups, improve competitiveness, build skills and help Georgia diversify its economic base with a view to promoting an export-led economy. To that end, it helps co-ordinate key state support programmes, promote better access to finance and offer consulting, capacity and business intelligence services. Enterprise Georgia has three main divisions:

    • The business division promotes entrepreneurial activity in Georgia by supporting entrepreneurs. It helps create new enterprises, as well as expand and refurbish existing ones.

    • The export division promotes the export potential of the country by increasing the competitiveness of local products and the overall volume of goods directed towards international markets.

    • The invest division attracts, promotes and develops foreign direct investment in Georgia. As the moderator between foreign investors and the government, the division ensures access to updated information, provides an efficient means of communication with government bodies and serves as a “one-stop-shop”, supporting investors throughout the investment process.

  • Georgia’s Innovation and Technology Agency (GITA) co-ordinates and mediates innovation and technology development in Georgia. Its aims to provide a legal framework for innovation, support knowledge and innovation commercialisation, provide access to finance by grant programmes and create infrastructure for innovation. It also helps construct physical infrastructure for new technologies (e.g. techno-parks, innovation laboratories for start-ups, i-labs - innovation centres within universities), and foster dialogue between academia and industry. In addition, it promotes increased awareness around the role of innovation in the broader public.

In terms of professional associations, the sector is represented by a range of institutions. These include the Georgian Chamber of Commerce and Industry, Georgian Employers’ Association and Georgian Small and Medium Enterprises Association.

A number of donors and IFIs also have programmes to support SME development. These include the World Bank, the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), Kreditanstalt für Wiederaufbau (KfW), Asian Development Bank, United States Agency for International Development and Millennium Challenge Account.

copy the linklink copied!2.6. Programmes and measures to support SMEs

Over recent years, three core national programmes have been established to support SME development in Georgia. These bring together a larger number of projects with a consolidated budget of about USD 100 million per annum.

  • “Produce in Georgia” is developed by MESD and managed by EDA/Enterprise Georgia. Established in 2014, it supports the competitiveness of Georgian industry with a focus on building entrepreneurship among SMEs and export potential. As of June 2019, “Produce in Georgia” had supported 503 businesses with total investment value of Georgian lari (GEL) 1.18 billion (about USD 400 million) and had created more than 17 740 jobs. Much of this was invested in the field of agriculture and tourism/hotels (Enterprise Georgia, 2019[11]).

  • GITA manages the implementation of innovation grant programmes. Mini grants and micro grants help Georgian companies and SMEs commercialise business ideas and technologies. (GITA, n.d.[10]). In the framework of a World Bank loan – Georgia National Innovation Ecosystem – GITA has launched a Startup Matching Grants Programme. This aims to support globally scalable start-ups, including in the field of green technology and agriculture, and improve their access to finance and access to global markets.

  • The Ministry of Agriculture works through the Agricultural Projects Management Agency (APMA) to implement more than ten projects to support SME development in agriculture (APMA, 2019[12]).

In 2017, MESD reviewed the potential to unify these projects under a single branding and management structure “Produce in Georgia for Rapid Development”.

copy the linklink copied!2.7. Emerging measures

A range of emerging measures is under development as part of the draft National Strategy for SMEs:

  • A draft of Innovative Georgia 2020 has been prepared and is expected to be supported by the World Bank’s Innovation Development Project.

  • Changes to Georgian definitions of SMEs are expected to align them with EU standards. This can result in a significantly higher proportion of the economy being classified as SMEs compared to previous Georgian standards.

copy the linklink copied!2.8. Barriers to access to finance

The government of Georgia has made significant progress to support development of a vibrant SME sector. Achievements include reducing barriers to entry, simplifying business registration, lowering taxes, and supporting a robust regulatory environment.

However, access to finance remains a key barrier to SME growth. Smaller SMEs are less likely to access international finance. They typically face higher costs than large enterprises and similar companies in comparable countries. Some key barriers are set out below:

  • Commercial banks are the main source of funding for SMEs in Georgia. In general, lenders regard the SME sector as being relatively high risk. Smaller SME borrowers tend to lack the collateral or track record to engage with the banking sector. They may also be already over-borrowed, thereby creating less capacity for further credit expansion. Georgian banks are keen to manage their exposure to non-performing loans. They are highly sensitive to robust balance sheets and strong capital adequacy ratios, particularly banks with an international shareholder base.

  • Burdensome collateral requirements are a significant barrier. In terms of collateral, banks may sometimes demand more than 130% of the total loan value (usually in the form of real estate or land). For many SMEs, this is challenging as their fixed asset base may be relatively small, or their value proposition based around intangible assets.

  • High interest rates, especially in local currency, also create significant barriers for many SMEs in Georgia to access finance. Interest rates for loans are generally high (about 23% for individual entrepreneurs and 16% for legal entities), reflecting the relatively high levels of perceived risk. Rates are significantly higher for borrowers using microfinance structures. As a result, SMEs face a significant financing gap.

  • The length (or tenor) of finance on offer can also be a constraint. Often maturities are relatively short. They may not reflect the potential payback periods needed for profitable capital investment (e.g. renewable energy or energy efficiency).

  • Loan dollarisation is also an issue from an interest rate perspective. Over the last five years, many SMEs have sought to borrow in foreign currency due to the lower headline interest rates. However, this means that SMEs are not hedged against local currency fluctuation and exchange rate effect. A weakening local currency (as has been the case in Georgia over recent years) results in a real-term increase in the value of loans.

  • Banks also view low levels of financial capacity and understanding among SMEs as a key issue in terms of providing access to finance and pricing loans. Weak financial record keeping and business planning prevent lending. However, this has been improving over recent years as the Georgian economy has liberalised and matured.

  • Banks also tend to have a more centralised credit system in Georgia, thereby creating some challenges for regional lending to SMEs. Regional loan officers may not be well-trained to assess SME risks or authorised to make lending decisions.

  • There is limited availability of alternative non-bank and equity-financing mechanisms. Asset-based finance, such as leasing and factoring, is underused. As well, the venture-capital environment is at a nascent stage. A recent Law on Collective Investment Undertakings (President of Georgia, 2013[13]) defines venture capital and private equity funds. However, venture capital activities and awareness of business angels remain low.

SME access to credit in Georgia is not significantly out of line compared to other countries. A World Bank/EBRD survey on business environment and enterprise performance in Georgia identifies low wealth and high levels of corporate debt rather than bank-lending policies as the key constraints to SME lending (GET Georgia, 2018[14]). The share of SME credit has been increasing over the past two years in Georgia.

copy the linklink copied!2.9. Financing structures

The government has tried to address barriers to access finance. Targeted programmes aim to provide access to credit under the SME support programmes previously identified. These programmes provide a range of instruments. Some provide grants, while others subsidise the interest rate for SME beneficiaries. However, this does not address the issue of collateral, making it challenging for some smaller SMEs to participate.

To address this challenge, the government recently introduced a new credit guarantee scheme which aims to tackle specific market failures, and support risk diversification and credit supply growth. The budget for this initial stage of the scheme is GEL 20 million (about USD 7 million) and it can be further expanded in the future. It is a pilot phase that the government can learn from and adjust later on accordingly. This mechanism will give access to finance to SMEs with insufficient collateral for securing bank loans or that operate in a sector or market considered high risk by the banking sector credit policy.

Examples of other support measures are set out below:

  • Under “Produce in Georgia”, if a company gets a loan from the bank, the government can finance part of the interest payment. The loan amount needs to be between USD 150 000–2 000 000 for manufacturing projects and USD 600 000– 2 000 000 for agricultural projects. Interest rates are between 11-13% and the government co-finance amount is 10% (only for the first 24 months). As one stipulation, 80% of the loan should purchase capital assets.

  • The Ministry of Agriculture and 11 major banks have been running a subsidised agro-credit programme since 2013. The APMA subsidises part of the loan interest payments. Rates are subsidised by 11% for capital asset investments (USD 12 000– 600 000) and 8% for working capital (GEL 2 000–100 000, or USD 740–37 000). The ministry also offers grants for agro-processors for capital asset investment or training of up to GEL 500 000 (USD 186 000) and 40% of total project value.

  • Under the “Host in Georgia” programme, the government provides a 10% interest rate for GEL-denominated loans and 8% for loans in USD/EUR. The interest rate co-financing lasts for two years. The minimum amount is GEL 500 000 (USD 186 000). The government also provides a collateral guarantee for 50% of the total loan for the first four years. In addition, it co-finances franchising/management agreement fees of GEL 300 000 (USD 112 000) annually for the first two years.

  • Under the GITA mini grants programme, SMEs can access grants of up to GEL 100 000 (about USD 35 000) to support commercialisation, and under the micro grants programme up to GEL 5 000 (about USD 1 900).

  • The World Bank project proposes matching grants of between USD 30 000– 250 000, requiring some level of co-financing for innovation.

copy the linklink copied!2.10. Market gap for green SME investments

A key challenge facing green SMEs in particular is the gap in the market in terms of financial institutions offering green credit for micro and small-sized firms. Many of the existing banks providing dedicated green credit lines tend to serve larger SME customers and loan sizes are often larger (e.g. >EUR 100 000) than might be required for a typical energy or resource efficiency investment by an SME (between EUR 10 000 and30 000 but often closer to the lower boundary, see Annex B for examples of typical resource efficient investments made by small businesses). On the other end of the market, micro-finance organisations serve smaller SMEs but at significantly higher interest rates. This gap in the market of green finance is a significant constraint to increasing energy and resource efficiency investments by small firms. In other words, such investments are too big for microfinance institutions and too small for traditional bank lenders. This market gap requires special attention in government policies.


[12] APMA, N. (2019), “Agricultural and Rural Development Agency”, webpage (accessed 23 September 2019),

[9] Enterprise Georgia (2019), “Results of the Micro and Small Business Support Component”, webpage (accessed 23 September 2019),

[11] Enterprise Georgia (2019), “Results of the State Program ’Produce in Georgia’”, webpage (accessed 23 September 2019),

[6] European Commission (2015), User Guide to the SME Definition, European Commission, Brussels,

[15] Georgia, G. (2016), Freedom, Rapid Development, Prosperty, Government Platform 2016-2020, Government of Georgia, Tbilisi,

[14] GET Georgia (2018), “Banking sector monitoring Georgia 2018”, Policy Study Series, No. PS/01, German Economic Team Georgia/Berlin Economics, Tibilisi/Berlin,

[10] GITA (n.d.), “Georgia’s Innovation and Technology Agency”, webpage (accessed 23 September 2019),

[8] Government of Georgia (2015), SME Development Strategy of Georgia, 2016-2020, Government of Georgia, Tbilisi,

[7] Government of Georgia (2014), Social-economic Development Strategy of Georgia: Georgia 2020, Government of Georgia, Tbilisi,

[3] Medina, L. and F. Schneider (2018), “Shadow economies around the world: What did we learn over the last 20 years?”, Working Paper, No. 18/17, International Monetary Fund, Washington, DC,

[16] NAMA (2017), Georgia – NAMA, Nationally Appropriate Mitigation Actions, Georgia (database) (accessed 23 October 2019),

[2] OECD (2019), Financing SMEs and Entrepreneurs 2019: An OECD Scoreboard, OECD Publishing, Paris,

[13] President of Georgia (2013), Law of Georgia on Collective Investment Undertakings, 24 July 2013, No 843-ES, President of Georgia, Tbilisi,

[4] President of Georgia (2010), Law of Georgia on Tax Code of Georgia, 17 September 2010 , No 3 591-IIS,, President of Georgia, Tbilisi,

[5] President of Georgia (2002), Law of Georgia on the Georgian National Investment Agency No 519 of 19 June 2002, last amended on 4 March 2015, President of Georgia, Tbilisi,

[1] USAID (2017), Innovation and Technology in Georgia, United States Agency for International Development, Washington, DC.

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