Micro-finance operators were bluntly told at a Senate forum May 9 that the interest

rates they charge the poor - up to 60 percent a year - are far too high.

That was the consensus of representatives from government, the National Bank of Cambodia

(NBC), and senators. The operators replied that high rates were necessary to stay

in business.

The idea behind micro-credit schemes, which are run successfully in many developing

countries, is to help alleviate poverty by allowing the poor access to small loans.

Prime Minister Hun Sen famously accused Acleda, a high profile lender, in December

last year of jailing debt defaulters. The bank denied the charge.

Funcinpec senator Khieu San spoke for many when he asked that interest rates be lowered

and people educated about the consequences of taking on small loans.

"Having interest rates of 5 percent a month, or 60 percent a year, is like cutting

the throats of the people," he said.

More than $30 million has been disbursed since 1993 under credit schemes, which have

allowed 20 percent of rural Cambodians access to funds. Widespread lack of education,

poor training of borrowers and the absence of micro finance legislation were highlighted

as major factors forcing impoverished rural borrowers to sell land and possessions

to repay loans.

Small lenders are a hodgepodge of registered and unregistered bodies: two are licensed

micro-finance institutions (MFIs), one - Acleda - is a specialized bank, 25

are registered as small loan operators, while at least as many more have no accreditation.

Acleda's credit department manager, Chan Serey, defended the bank saying annual interest

rates averaged 40 percent.

"If the interest rate is low, more people will borrow but this will create problems

as they can't pay back the money," he said. "If the interest rate is any

lower we cannot make a profit."

Chairman of the Senate's banking and finance commission, Chea Peng Chheang, said

access to funds was the "lifeblood" of the poor. He pointed out that the

rules of the Asian Development Bank meant interest rates could not be fixed.

SRP senator Meng Rita accused MFIs of acting "like beer girls".

"The more they try to persuade people to drink beer, the more money and profit

they get," Rita said. He called on the NBC to help educate poor people about

micro-credit and blamed the authorities for not training borrowers before they took

on loans.

"In the last few months 100 people have been arrested and put in jail. Twenty

percent of borrowers have lost their houses," he said.

Acleda's Serey dismissed that, saying the problems of many borrowers existed before

they received loans. Only one person had been jailed by Acleda, and late repayments

on its individual loans and group loans amounted to only 5 percent.

Rin Seyha of the Enterprise Development Cambodia, which assists would-be borrowers,

said that although loan conditions existed on paper, borrowers received no explanation

on how to use the money. He agreed with senators who complained there was insufficient

follow-up once loans were issued.