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Traffic passes in front of the Prasac Microfinance Institution branch office in Phnom Penh. Pha Lina

MFIs seek ministry support

The Ministry of Economy and Finance (MEF) is planning to form a joint committee chaired by government officials and microfinance institutions (MFIs) to promote small loan disbursements as the new 18 percent loan interest rate cap takes effect, according to an announcement released by the government on Friday.

The initiative was announced after representatives from the Cambodia Microfinance Association (CMA) met with Finance Minister Aun Porn Moniroth last week. They discussed possible measures that the MEF could take to prop up the sector after the sudden imposition of the April 1 interest rate cap on all new and restructured MFI loans a drastic cut from the prevailing 20 to 30 percent rates offered on small loans.

Bun Mony, adviser to CMA and chairman of Vithey Microfinance Plc, said yesterday that while the Minister was willing to listen to the group’s requests, he declined to make any firm commitments and vowed to study the difficulties MFIs face. CMA was hoping to get a reprieve for its members from taxation on profits and gain access to lower cost funding sources.

“The minister assured us that he will form a joint committee to help resolve any issues that may damage the sector’s ability to provide small loans,” he said. “He also agreed that he will intervene on some tax matters.”

However, Mony said that no official agreement has been reached nor was there a specific timeline for the establishment of the joint committee.

Since the National Bank of Cambodia (NBC) announced in March that interest rates on microfinance loans could not exceed a maximum of 18 percent per year – a decision some experts suggested had political overtones and could seriously impact returns from microlending – CMA has actively tried to find solutions.

A week after the NBC announcement, the CMA claimed to have brokered a deal with the central bank, agreeing to reduce annual licensing fees and provide loans in riel directly to MFIs. The body also said that the NBC would consider postponing a 12.5 percent reserve requirement on borrowing that was supposed to apply to microfinance deposit-taking institutions (MDIs) this year.

The NBC also promised to consider extending the deadline for MFIs to reach their revised minimum capital requirements. MFIs are currently required to raise their paid-up capital to at least $1.5 million by March 2018, while MDIs must reach $30 million.

Contacted yesterday, Hout Ieng Tong, chairman of CMA, said there has been no progress in getting the NBC to make good on its commitments since the initial meeting.

Ngeth Chou, senior consultant at Emerging Markets Consulting, predicted that both the MEF and NBC would take a wait and see approach before the government made any firm commitments to ease the burden of the interest rate cap.

“I think that it will take some time as the government needs to observe if MFIs are really having difficulties,” he said, adding that MFIs could find ways to provide small loans by slowly increasing service charges.

“Charging a one or two percent service fee is a method that MFIs could use to continue to provide small loans to clients if the government decides not to intervene,” he said.

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