In his letter "The cost of micro credit" Mr Ronnie Yimsut raises a number

of good points. Unfortunately, the impact of his argument is somewhat spoiled by

his specious presentation of certain "facts".

Before addressing the positive aspects of his letter, let me correct some of the

wilder assertions. Firstly, his insinuation that ACLEDA has access to "subsidized

and free money" is both wrong and illogical. Why would anyone give subsidies

or free money to an openly avowed commercially driven organisation that pays dividends

to its shareholders - most of whom are Cambodian? He seems to think that the International

Finance Corporation dispenses its largesse with no consideration for market rates

(wrong again - IFC is highly commercial as is required by its charter). Furthermore,

our nearly 44,000 depositors have plenty of choice - there are 14 other commercial

banks in Cambodia - were we to be offering below market interest rates on their savings.

I am also deeply concerned that he considers ACLEDA's staff to be "underpaid"

(although on what basis he makes this assertion I do not know). We try to be responsible

employers and pay the going rate as well as providing employee benefits such as health,

pension and a share ownership scheme. All this is explained in detail in our "Environment,

Social and Community Report", available from our website www.acledabank.com.kh

or our Annual Report (a copy of which I will be delighted to send him if he will

send me his full address).

Now let us turn to some real facts. He is right in saying that the "Khmer spirit"

is a factor in the low loan default rate. Certainly the good character of our borrowers

is a major consideration in the credit approval process but that does not itself

create the wherewithal to repay the loan. That comes only from generating sufficient

income from a business activity which the loan is provided to support.

The use of Annual Percentage Rate (APR) can be deceptive when talking about microfinance

as most of the higher-rate loans are for much shorter periods - typically weeks -

and are used to finance a particular transaction. The borrower's reasoning is "If

I obtain a loan I can purchase an article (say a sack of fertilizer) in town for

X which I can sell in the village for 2X (after breaking it into 'retail' sized packets)

which leaves me with a surplus even after repaying the bank." In such cases

the APR is of less concern than the fact that the borrower has made a satisfactory

profit out of the deal. As customers grow in strength - hopefully as a result of

the finance we have provided them - they can access larger loans for longer terms

at lower rates upon repayment of the previous loans. Indeed, ACLEDA has a number

of customers who are on their 13th or 14th loan and now employ many more people who

otherwise might not have a job.

As Mr Yimsut implies, all this comes at a price. For a start, ACLEDA pays commercial

rates for its funds (would it be that we could obtain the 4.125 percent APR for 5

years that he claims to be able to get!) but the real cost in microfinance is the

distribution network required to reach the borrowers. Our 114 offices notwithstanding,

the logistics required to serve nearly 110,000 borrowing customers spread around

rural areas in 21 provinces are daunting, a fact - among several others - that Mr

Yimsut overlooks when he issues his "personal challenge" to ACLEDA. If

microfinance is so profitable then where are all the other banks?

There are, in fact, more than 70 licensed or registered microfinance institutions

in Cambodia, many of which are dependent on donations or subsidies. In spite of this

it is estimated that less than 50 percent of demand is met so we are glad - not afraid

- that "Yimsut Bank" is about to enter the field. We look forward with

great interest to its experience.

Mr Yimsut plainly cares deeply for his country and its poorer people and we should

all welcome his commitment, but may I respectfully suggest that a little more research

before putting pen to paper would greatly enhance the force of his passion.

In Channy - General Manager ACLEDA Bank Plc