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Logo of Phnom Penh Post newspaper Phnom Penh Post - The cost of micro credit

The cost of micro credit

It's simply very, very expensive being poor in Cambodia. The Far Eastern Economic

Review recently reported that Cambodia paid $24 million in tariffs for just $230

million worth of its garment exports to the US in 2002, while the rest of the wealthier

nations paid very little in tariffs. Take Japan for instance, it pays only $28 million

in tariffs for $1 billion worth of exports into the US, the report claimed.

On a more "micro" scale, there have been numerous glowing reports about

ACLEDA, the "not-for-profit organization" now termed the "poor people's

bank," which operates more than 111 branches in 21 provinces (Post June 18,

2004). Indeed, ACLEDA rightfully deserves these glowing reports for helping to reduce

grinding and chronic poverty in Cambodia. Without ACLEDA's capital and its 1,791

staff tireless efforts, the reported 105,000 low-income and marginalized borrowers

might not have access to the capital they desperately need to run a business and

help improve local economy. In this sense, ACLEDA is very much on the right track

for using "micro finance" or "micro loan" as a very powerful

tool for poverty alleviation.

Unfortunately, the high interest rate being charged by ACLEDA, ranging from the reported

3-4 percent per month (36-to-48 percent annual percentage rate - APR - or more),

is eroding its poverty alleviation mission. Once again, being poor in Cambodia can

be very, very expensive indeed - even at ACLEDA's micro scale. With such high rate,

it is a miracle that only about 1.2 percent of ACLEDA's clients defaulted on their

loans. It must be credited to the Khmer spirit!

The poor in the US (and other parts of the world) for instance, paid on average between

18 and 20 percent APR for access to the readily available capital. Ordinary Americans

with good credit, such as myself, can get access to similar capital with interest

rate as low as 3.75 percent APR (or about 0.3125 percent per month) instead of the

cut-throat rate of 36-48 percent APR.

Instead of complaining about it, I personally have just taken out a sizable loan

for a low rate of 4.125 percent APR for the next five years. I plan to use part of

this loan to give ACLEDA Bank a run for its money, and I intend on doing it for profit

by hiring a few of the well trained and under paid ACLEDA staff to do my bidding.

I plan to charge no more than 24 percent APR or 2 percent per month interest rate.

I would keep only one-half of the 24 percent return rate as my profit, while the

former ACLEDA staff I hired get the other one-half as commission. This is a "win-win"

strategy compared to a "win-lose" one.

If ACLEDA's statistics are right on target as reported, especially the loan default

rate, I should have no problem achieving my goal of making "serious profits"

(if not a killing) and really help "alleviate poverty" in Cambodia. If

I can do this well for less, ACLEDA Bank, of which subsidized and free money is plenty

of, should have very little trouble in matching my goal of poverty alleviation in

Cambodia. Please consider this as my personal challenge to ACLEDA and its 1,791 (to

be fewer) staff, including the General Manager Mr In Channy. I strongly urge ACLEDA

to lower its high interest rate and remain fixed on the mission. Capitalism really

works! Give it a chance! Give Khmer people a real fighting chance!

Ronnie Yimsut - Oregon, USA

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