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Logo of Phnom Penh Post newspaper Phnom Penh Post - Lenders see rise in bad microloans

Lenders see rise in bad microloans

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Cambodian microfinance institutions say economic crisis is taking its toll on the MFI sector and increasing the number of nonperforming loans to more than 1 percent

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Tracey Shelton

Microfinance lenders say the economic crisis is leading to higher rates of nonperforming loans in 2009. Last year, bad loans were just 0.67 percent of total lending.

MICROLENDERS predict nonperforming loans (NPLs) will grow from 0.67 percent last year to more than 1 percent in 2009 as more borrowers struggle to pay their debts in an economic slowdown.

Even with the slowdown, some lenders say their total loans will increase in 2009 as demand for banking services grows.

That could lead to more asset seizures as lenders try to recuperate unpaid loans.

"Our major concern now is that nonperforming loans will go up," said Bun Mony, a member of the board of the Cambodian Microfinance Association (CMA) and chairman of Sathapana Limited. "We forecast that NPLs will increase to 1 percent or higher this year due to the economic downturn that is affecting our clients' incomes."

He said that his microfinance institution (MFI) Sathapana lent US$37.5 million last year to 37,000 clients and plans to increase that to $44.5 million this year to meet growing demand.

"The NPL rate at my MFI has increased twice since the start of this year, up from an NPL rate of 0.16 percent at the same time last year," he said.

"We project that bad loans at our microfinancer are around 1 percent this year."

More defaults

Chea Phallarin, general manager of microfinancer Amret, said Thursday that NPLs at his institution have increased over the last few months.

"Last year, NPLs were only 0.06 percent out of the $54 million in total lending - but since the start of the year, the NPL rate has increased sharply to around 1 percent," said Chea Phallarin. "For the whole year, it is forecast at 1.2 percent."        

He blamed the troubles on the economic slowdown and the lack of a credit bureau, which allows some clients to obtain loans by misstating their finances.

Sim Senacheat, general manager of Prasac, with 97,000 clients, said Thursday that the NPL rate at Prasac during the first quarter of 2009 had risen to 0.5 percent, up from 0.28 percent last year.

"Bad loans are still controllable and we hope that they will stablise this year," he told the Post.    

He said last year Prasac lent $60 million and plans to increase the figure to $75 million in 2009.

Bun Mony said microfinancers usually lend up to 50 percent of appraised collateral and said that bad loans will lead to more asset seizures.

Chea Phallarin said seizures of land and other assets only takes place after permission from the courts.

"Some of our clients have the ability to repay their debts, but they refuse to do so; we will sue them in court to seize collateral to clear debts."

"We only take clients to court if they fail to pay for between three and six months. This is a last resort," he said.

Sim Senacheat agreed that his institution has seized collateral such as land or houses to repay debts, but that it only does so through the court system.

"We do this when clients fail to pay and have defaulted for at least half a year."

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