This research study explores the existing funding systems of higher education in Georgia and their influence on universities’ research productivity. The research used Harman’s (2007) typology of research funding— institutional, project, and special program—to analyze each approach’s effect on universities’ research productivity. The research revealed that these funding models did not substantially affect the development of scholarly and research capacity. Major barriers to the development of higher education and research are largely related to the amount and financing models. Analysis of the higher education financing policy showed that per capita financing does not allow sufficient research activities at HEI, and targeted financing programs oriented toward developing specific scientific directions or improving scientific infrastructure do not promote research productivity. Based on research findings, the author argues that immediate changes in funding policy are required for the institutional development of university-based research in higher education of Georgia.