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Proposed credit bureau to regulate lending

National Bank of Cambodia aims to have the bureau – which it says will manage the Kingdom’s microfinance institutions and establish a national financial database – up and running by 2011

Cambodia's central bank will establish a credit bureau to manage microfinance lending and avoid loan duplication by 2011, a senior official said last week.

National Bank of Cambodia Director General Tal Nay Im said the bureau would allow the country's microfinance institutions (MFIs) to submit lending details into a national financial database accessible across the sector.

It would prevent clients' using one piece of collateral, usually soft title on property, to apply for loans at more than one lender, a practice which has been linked to a rising incidence of non-performing loans in the sector.

Many rural borrowers do not have [hard] land titles, so they use papers recognising their possession of land as collateral to borrow money from a financial institution," she said. "Later, they ask the local authority to issue two or three more papers for the same land or house and use them to borrow from other microfinance institutions."

Credit agents do not ask me what i will use the loan for, but … if i have collateral.

The credit bureau would stamp out the practice, she said.
Figures released earlier this month by the Cambodian Microfinance Association show non-performing loans rising from 1.75 percent at the end of the first quarter to 3.39 percent at the end of the second quarter.

Borrowers spoken to by the Post Friday confirmed the practice.

Pen Huch, 35, from Sdech Kong Khang Cheong commune in Kampot province's Banteay Meas district, said she had borrowed a total of $5,000 from three institutions - ACLEDA bank, MFI Amret and CHC Limited - with the intention of lending the money on at a higher rate of interest.

"Credit agents do not ask me what I will use the loan for, but they asked me if I have collateral," Pen Huch said.

A certificate recognising ownership of land could be bought from local authorities for 5,000 riels ($1.21), she said.

However, Pen Huch said she was cheated by the villagers she lent to and was now unable to repay the loan.
"Now I am completely in debt. I have sold my rice field to repay the debts, but it is still not enough."

She said she still owed $1,000 and alleged that the lenders were forcing her to sell her house to repay the debts or face court action.

Uk Chaim, 50, from the same commune, said she received six land ownership papers from the local authorities for her single piece of land and used them to borrow $4,000 from six creditors last year.

"I have sold my rice field to repay the debts, but now I still owe them about $1,000 and they are forcing me to sell my last property - the land where my house is - to repay the debts," she said.

"The future credit bureau will be definitely significant to prevent rates of NPL from going up," said Peter Sheerin, a credit bureau and risk management adviser at the International Finance Corporation (IFC), the private-sector financing arm of the World Bank.

The IFC has been providing technical support for 18 months but hopes the bureau could be established before 2011, he said. "Now, the major challenge is around having to change the law to provide a legislative framework to allow for the establishment of the credit bureau," Sheerin said, adding it would cost between $2 million and $3 million.

A priority on the legislative front is the creation of laws around handling confidential information, which Tal Nay Im said was critical to allow the bureau to keep track of the credit histories of borrowers.

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