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Microfinancier backs high rates

Industry representative says high interest rates reflect lenders’ borrowing costs in offshore markets plus costs incurred managing loans

A senior industry representative defended Cambodia's microfinance institutions (MFIs) Wednesday over the high interest rates charged.

Speaking on the sidelines of an industry conference, Cambodian Microfinance Association (CMA) board member Sim Senacheert said that the rates reflected the borrowing costs of the lenders.

"If the rates are too high and the market did not accept them, then we wouldn't be able to disburse the loans," he said.

Between 60 and 70 percent of all capital disbursed by microfinance lenders in Cambodia is borrowed from international partners who charge between 10 and 11 percent per annum, said Sim Senacheert, who is also the general manager of the Prasac Microfinance Institution.

The Cambodian lender then calculates the interest rates it will charge based on the borrowing costs and expenses, such as wages, rent and transport, he said.

These account for around 15 percent of the value of loans, and a further 1 or 2 percent is then added to hedge against default risk.
"After these expense calculations, we add 5 to 7 percent into the loan for profit," he said, adding to an interest rate anywhere from 28 percent to 34 percent per annum.

Subsidies needed
Cambodia Economic Association President Chan Sophal said Wednesday that interest rates across the sector were too high, but he stopped short of accusing the sector of profiteering on the loans.

"The interest rates charged by MFIs in Cambodia are higher than rates charged in Vietnam or Thailand, but that is because Cambodian MFIs must pay high interest rates themselves when they source financing," he said.

He called on the government to subsidise MFIs to ensure they could offer low rates.

"In some countries, governments subsidise MFIs so those MFIs can lend to customers at lower interest rates," he said. "But in Cambodia, there is no subsidy for MFIs."

Free market
National Bank of Cambodia Director Tal Nay Im said Cambodia is a free market, and that the central bank would not intervene. Rates should be set by lenders and borrowers, she said.

However, rates have come down drastically in recent years to a little over 29 percent per annum on average across the sector, she said.
"Before 2003, the interest rates were very high, ranging from 70 percent to more than 100 percent per annum, but it has gradually declined to 40.2 percent in 2003 and to 29.16 percent last year," she said.

Lending rates at major banks in Cambodia range from around 12 percent to 16 percent, depending on the terms of the loan, she said.
CMA figures released earlier this month showed outstanding microcredit loans dropped 2.7 percent quarter on quarter to US$426.1 million in the second quarter of the year.

Non-performing loans increased from 1.75 percent to 3.39 percent over the same period.

NBC Governor Chea Chanto said there were 20 licensed MFIs in Cambodia as of the end of June, two of which were licensed to take deposits; 25 registered rural credit operators; and more than 60 NGOs offering unofficial credits in rural areas.

He said the sector was expanding its presence in rural areas and had disbursed $274.3 million in rural credits to 857,000 customers as of mid-2009, up 25 percent and 24 percent, respectively, on a year earlier.

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