BANKING SYSTEMS AND THEIR IMPACT ON SOCIAL JUSTICE: A COMPARATIVE STUDY

Nino Mikiashvili E-mail: [email protected] Associate Professor, Ivane Javakhishvili Tbilisi State University Tbilisi, Georgia https://orcid.org/0000-0001-8840-4859 Natalia Konovalova E-mail: [email protected] Associate Professor, RISEBA University of Applied Sciences Riga, Latvia https://orcid.org/0000-0003-4072-4479 Abstract: Background: The banking system and the services it provides can significantly enhance financial inclusion and stimulate business activity within the population. These factors play a critical role in economic development and poverty reduction, which, in turn, contribute to the establishment of social justice. The banking system can directly or indirectly alleviate the harmful effects of inequality by increasing access to credit, savings accounts, insurance, and other financial services. Additionally, the banking sector can encourage greater investment in human capital, thereby improving the overall social climate. As a whole, the purposeful functioning of the banking system can serve as a key component in implementing a country’s social policy and fostering positive trends. Objectives: This study aims to examine the impact of banking services availability on social justice, focusing on the economies of Georgia and Latvia. Methods: Both quantitative (correlation analysis) and qualitative approaches, based on data from national statistical services, central banks, and international financial institutions, are employed to explore the relationship between social justice and the banking system. Results: Key findings reveal that both countries face challenges related to financial inclusion and social inequality, though in different forms. In Georgia, one of the manifestations of social inequality is the limited availability of formal banking services, particularly in rural areas, coupled with high rates of non-performing loans. Latvia's main challenge is addressing regional inequality and the residual effects of financial crises within the banking sector. Social justice cannot be achieved where poverty is widespread, or where there is a high risk of falling into poverty. In this context, the current situation in both Georgia and Latvia is noteworthy. According to data from the National Statistical Service of Georgia, the absolute poverty rate in the country was 21.7% in 2018, 15.6% in 2022, and 11.8% in 2023. In Latvia, data from the European Commission indicates that in 2019, approximately 24.4% of the population was at risk of poverty; in 2020, the figure was 23.4%; and in 2022, it was 22.5%. Poverty in both countries is predominantly concentrated in rural areas and certain urban regions, making the need to address social inequality particularly acute in these areas. A review of international experience shows that an effective banking system, characterized by accessible credit, a strong regulatory framework, and targeted financial policies, plays a crucial role in reducing poverty and, therefore, in promoting social justice. Conclusion: Enhancing financial inclusion, ensuring access to credit, improving financial literacy, and maintaining economic stability through sound banking policies should be central strategies for sustainable development. Achieving these goals requires a comprehensive approach involving the government, financial institutions, and civil society, all of which must collaborate to create an inclusive financial ecosystem. Therefore, there is a pressing need for affordable strategies and innovative banking solutions tailored to the current realities in Georgia and Latvia to address the challenges of establishing social justice. Keywords: Social Justice, Poverty, Banking System, Financial Access, Georgia, Latvia JEL classification: D63, G21, H55, I32