The National Bank of Cambodia (NBC) and National Police on February 2 issued a joint statement warning of the risks associated with informal financial services, which it said could put borrowers in excessive debt or otherwise upend their lives.

The statement mentioned that informal financial entities are haphazardly promoting and providing credit and other services through social media, mobile apps and other digital means without express permission from the NBC.

Many of these entities charge exorbitant interest rates and otherwise extract excessive profits from borrowers through misleading or fraudulent contracts or implementation thereof, saddling borrowers with crippling debt and leading to other socio-economic consequences, it noted.

This, it said, undermines financial stability and inclusion, as well as public trust and growth in the Cambodian banking sector as a whole.

The NBC and National Police “will take strict legal action against illegal lending and all forms of advertising related to the provision of unauthorised financial services”, the statement warned, calling on the public to refrain from borrowing money from lenders that are not authorised by the central bank, and to report suspicious activity to the authorities.

Cambodia Post Bank Plc (CPBank) CEO Toch Chaochek hailed the statement, commenting that certain digital loans from a host of illegal outfits have seriously impacted people’s lives and tarnished the image of properly licensed financial institutions.

“We always embrace advice from the NBC on lending to customers, we need to maintain a clear sense of professionalism and have our credit officers discuss with clients in an unambiguous manner the details concerning interest rates, purposes of loans, repayment periods, and anything else on the payment of principal and interest,” he said.

Most loans from online sources, mainly informal, have short repayment periods with high interest rates and additional service fees, which make it easier for people to fall into heavy indebtedness, he said, adding that this can adversely affect legitimate financial institutions.

The joint statement called on the public to seek financial services from formal institutions, those licensed by the NBC, which are subject to the central bank’s laws, regulations and supervision and whose clients are protected by law.

Different types of formal financial institutions include commercial banks, specialised banks, microfinance institutions (MFI), rural credit institutions, leasing companies and payment service providers, it noted.

In its 2022 annual report, the NBC said that Cambodia houses 59 commercial banks, nine specialised banks, five deposit-taking MFIs, 82 non-deposit-taking MFIs, 224 rural credit institutions, 16 leasing companies and 34 payment service providers.

For reference, the Kingdom’s five microfinance deposit-taking institutions (MDI) are: Amret Plc, AMK Microfinance Institution Plc, PRASAC Microfinance Institution Plc, LOLC (Cambodia) Plc, and Mohanokor Microfinance Institution Plc.