Brett Matthews

Deposit day at a Ra Roessey savings bank in Battambang. This is one of many community-based microfinance organizations funded by CCA and VanCity Savings in Cambodia.

Last week, when Bangladeshi microfinance pioneer Mohammed Yunus won the Nobel Peace

Prize for his groundbreaking work with Grameen Bank, there were some very happy bankers

in Phnom Penh.

"I give him total credit with starting the microfinance movement," said

John Brinsden, vice chairman of Acleda Bank, Cambodia's largest licensed microfinance

institution (MFI) . "He's the grandfather to it all."

Another Yunus fan, Brett Mathews of the Canadian Cooperative Association, credits

the economist with popularizing the "solidarity group" - a structure that

allowed Yunus to lend money to very poor people without collateral. The Nobel Committee

stated that he won the prize because helping people out of poverty is a lasting contribution

to international peace.

But with the microfinance industry now in the international spotlight, a debate has

been sparked within Cambodia's own microfinance sector between proponents of the

credit union movement and the well-established, and much heralded MFIs.

Mathews, and his colleague Vong Sarinda, coordinator of the Cambodian Community Finance

Network (CCFN), have taken the presently high profile of the microfinance industry

to blast Cambodia's licensed microfinance institutions (MFIs) for putting the pursuit

of profits ahead of helping the poor. They're claiming, among other findings, that

the MFIs - for years the darling of Cambodia's banking sector - are not so much a

sacred cow, as a golden calf.

"Even if the MFIs here wanted to, they could not replicate Grameen's achievement,"

Mathews told the Post. "In order to even attempt to do so, they would have to

start having some respect for the need of poor rural people to save money."

In reports and statements obtained by the Post, Mathews and Sarinda have criticized

the 16 Cambodian MFIs on their ability to deliver quality financial services to impoverished

villagers and have claimed that the much-anticipated draft Financial Sector Blueprint

"whitewashes" the needs of the rural majority.

"MFIs are revealing to Cambodians that they see profits as more important than

the needs of the rural majority," reads a report released in September. "For

them, small-balance savings accounts are not a vital tool in the battle against poverty,

just a costly source of funds they'd prefer not to have to use."

But financial experts have generally dismissed the comments and explained that profitability

is simply the natural progression of a successful financial institution, and that

profits allow more, and better, services to be offered to the poor.

"We're not perfect. We, as MFIs could do better, but perhaps he's ignoring some

of the positive developments," Brinsden said.

"There's a school of thought that says microfinance should be a charity and

this may cause some resentment. But the world trend is to make MFIs sustainable -

and that means profitable. It allows you to attract more funds, shareholders, and

in the case of Acleda, a Moody's rating."

According to Brinsden, deposit growth from the 153 Acleda branches is doubling every

year and the ratio of non-performing loans is less than .2 percent. Acleda defines

a "non-performer" to be any loan with a monthly installment at least 30

days overdue.

"Those so-called rural poor may be poor in dollar terms, but they can be very

sophisticated in running a business," he said. "We've found that there

are times in the year, after harvest, when they want savings. These are first-time

depositors They've been keeping their money under the bed. Now they can put it in

the bank and get some interest."

Originally funded by the UNDP and the ILO, Acleda was established to aid small, competitively

priced loans to microenterprises and small businesses, rural producers and home-based

entrepreneurs who lacked access to credit or who became dependent on local money-lenders

or middlemen.

500,000 customers

Adam Sack, general manager of the International Finance Corporation, the private

sector arm of the World Bank, said the licensed MFIs are well managed by the National

Bank of Cambodia and now provide services to more then 500,000 Cambodians, most of

whom are from low-income households. An IFC official said that industry competition

has reduced average interest on loans from 5 percent per month - or 60 percent annually

- down to 3 percent - or 36 percent over 12 months - and the trend seems to be going

down.

"It always surprises me to hear views rooted in the obligation of MFIs to singlehandedly

reduce poverty in Cambodia," Sack said.

Microfinance is not a panacea to reduce poverty. But when done sustainably, meaning

at a profit for the MFI, they can offer much needed services to lower income households

and help them make their way out of poverty. The MFIs will only continue to serve

the poor in Cambodia if they can do so profitably."

In a CCA study of 602 households, Mathews and Sarinda report that 15.2 percent of

all saving from the previous year is lost. Based on the most recent census, the report

claims this would amount to $60 million in losses every year among rural households.

The answer, they say, is community-finance organizations (CFOs) such as self-help

groups, village banks and credit unions.

"There are two ways to build trust," Mathews explained. "The formal

sector has a bricks and mortar approach: they build big, serious-looking branches

that look safe and solid. They have to do something to get people to put their money

in.

"The other way is solidarity. Neighbors know each other - we hang together or

separately. You can see that there are banks here, rice banks, informal labor exchange,

and sammakis."

The CCFN and CCA have released a 10-year strategic plan to reach 7,000 villagers

and 450,000 members with quality microfinance services by 2015.