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Big strides for savings in MFIs

A woman conducts business at Prasac Microfinance Institution
A woman conducts business at Prasac Microfinance Institution, the country’s largest MFI, in Phnom Penh. Pha Lina

Big strides for savings in MFIs

Microfinance deposits are on the rise, a positive trend that the industry says is moving the country towards a reduced dependency on foreign funding and that will eventually lead to greater control over interest rates.

The seven microfinance institutions licensed to take deposits collected $209 million from January to June this year, a 35 per cent increase from $154 million in same period last year, according to a report from the Cambodia Microfinance Association (CMA) and obtained by the Post yesterday.

Meanwhile, $309 million in loans were lent out during the first six months of the year across all 42 MFIs, which represents a narrowing of the gap with deposits. The cash used to fill that gap comes largely from foreign lenders.

Speaking to the Post yesterday, CMA president Bun Mony attributed the jump in deposits to rising incomes and growing understanding and confidence in the country’s financial system.

“It is a big gain reflecting that trust from the public in MFIs is gradually increasing,” Mony said.

“It is a positive sign to show that MFIs are playing their role as similar to banks.”

Mony added that with deposits growing, MFIs will in the future be less reliant on foreign sources of income and thus less at the mercy of foreign interest rates, which are passed on to Cambodian lenders.

At the point that an MFI’s deposits reach an equal footing with its loans, the institution will have greater control over interest rates, he said.

The seven institutions currently licensed to accept deposits are Prasac, Amret, Sathapana, Hattha Kaksekar Limited, AMK, Kredit and VisionFund Cambodia.

By the end of June, deposits across the whole banking industry totalled $654 million and loans $1.63 billion.

Sean Thorninn, a lecturer in economics at Limkokwing University and an expert on the Cambodian MFI industry, said it was critical for the gap between local deposits and loans to be closed.

Narrowing the difference, Thorninn said, reduces the risk of economic fluctuations or crises in the foreign countries from where the extra funds are sourced.

“Relying on international creditors is sensitive. If the world economy changes and has a negative impact on them [foreign creditors], the local MFIs might face a lack of source of funds,” he said.

Sim Senacheert, general manager of Prasac, Cambodia’s largest MFI, acknowledged that the rise in deposits was a good sign, but said more confidence was needed in the finance sector to eventually move away from a dependency on foreign lending – though that was still a long way off for the industry as a whole.

“The industry is gaining more confidence from the public,” he said.

“I do expect the deposits in the second semester will be even higher.”

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