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A man moves water manually from one rice paddy to the next in Kandal province
A man moves water manually from one rice paddy to the next in Kandal province last year. Many poor Cambodians living in rural areas use credit to purchase water pumps or motorbikes which have no way of generating repayments according to a village finance specialist. Pha Lina

A lending alternative to MFIs

Oxfam said it will expand its savings-led community-lending model in Cambodia as an alternative to traditional credit-based microfinance services, which it says are ineffective in reaching the Kingdom’s poorest.

Oxfam’s Saving for Change project, which trains rural communities to form savings groups, now has $5 million in capital, with over 100,000 members, mostly women, in 6,000 groups across the country.

“There are plenty of people in the microfinance market that have got the skills [and] the opportunity to take on loans, but there’s also a lot of people, especially in a developing country, that don’t,” said regional Oxfam director Brian Lund at a conference in the InterContinental Hotel yesterday.

Similar to community banks, saving groups are composed of rural communities who pool their cash together and take out loans from the group, paying interest back to the pool or individual members rather than to a microfinance institution (MFI).

Oxfam says its venture is projected to jump to over $9 million by 2019 and increase its member base to 170,000 - a drop in the bucket compared to Cambodia’s deposit-taking MFIs, whose collective portfolio reached $897 million at the end of 2014.

Village finance specialist Brett Matthews said that for many poor, rural Cambodians, using credit to purchase essential goods – such as a water pump, motorbike, or extra food – makes no sense.

“They’re not going to generate repayments, and all you’re going to end up with is debt,” he said.

Matthews, however, did not fault some MFIs for providing loans to the poorest farmers rather than more entrepreneurial ones, saying it was due to a lack of available financing options in rural areas.

Speaking at the conference, Minister of Women’s Affairs Ing Kantha Pavi was the most critical voice of the microfinance trend.

“Microfinance has victimised people and not only women but also men and siblings because of the high interest [rates],” she said, citing average rates of 3 per cent per month or 36 per cent per year.

She did qualify this statement, by saying that she did not mean MFIs were “not good”, only that in certain cases microfinance-induced debt forced people to sell their land, house, or even their children into the sex trade.

“How many people can afford [that]? I shake my head and inform the presidents of MFIs but they say they cannot reduce because of the high-risk,” she said.

Sim Sinacheert, president of Prasac, Cambodia’s largest MFI, said such a portrait of the sector was inaccurate, especially when it came to professional lenders, differentiating them from the many unregistered microcredit institutions, some of whom have been accused of predatory lending.

“In the formal sector, we have professionals to help clients. So far, only 0.2 per cent of our loans are NPL [non-performing loans]”, he said.

Sinacheert added that thanks to increasing competition, interest rates had gone down to about 22 per cent a year, compared to the 60 to 36 per cent they hovered around in recent years.

Nevertheless, according to Kea Borann, CEO of microfinance institution AMK Bank, savings groups and microfinance can be complementary to each other.

“In short, as long as the fund is managed properly, it is good to have a saving culture in the rural population.”

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