Economic crisis halts lending expansion and causes NPL rates to escalate, say MFIs, with little progress expected by year's end

MICROFINANCE institutions (MFIs) said loans are down sharply in the first half of the year, while bad debts have risen due to the economic crisis.

Hout Ieng Tong, president of the Cambodian Microfinance Association, predicted the situation would not improve before the end of the year. He forecast the average level of nonperforming loans (NPLs) for the industry would rise tenfold to 3 percent this year.

Chea Phalarin, manager of market leader Amret, said the company was being cautious in its lending, while clients were afraid they would be unable to make repayments.

"We planned to disburse US$50 million of loans in the first six months of this year, but only $33.5 million was lent to 230,000 customers," he said, adding that Amret lent $30 million in the first half last year.

The NPL rate increased from 0.08 percent at the end of last year to 2.8 percent at the end of June, he said.

Sim Senacheat, general manager of Prasac, the nation's second-largest MFI, said last week that loan disbursements were down 13 percent to $33 million from $38 million in the first half of 2008. Prasac also has fewer clients now: 87,700 as opposed to 100,000 at the end of June last year.

"The economic and real estate downturn mean we have restricted our loans - especially large-scale loans.... That's because we are concerned about repayment capacity," said Sim Senacheat, adding that bad loans were up from 0.23 percent at the end of 2008 to 1.35 percent at the end of June.

MFI Sathapana echoed the problems of its competitors. Chairman Bun Mony said loans were one-third below target at $22 million, and bad loans stood at 1.7 percent, up from 0.2 percent at the end of 2008.