Cambodia's central bank will temporarily suspend its eight-month campaign to bring informal moneylenders into its fold as it lacks the resources to review the mountain of registration applications it has received and needs time to tweak the licensing requirements, a National Bank of Cambodia (NBC) official said yesterday.
Khieu Bophaphuong, director of the NBC’s licensing department, said the NBC received 285 applications from NGOs and rural credit operators since announcing a registration drive in February aimed at expanding its oversight of unofficial lenders. Of these, 185 applications have been reviewed and the NBC has issued operating licences to 44 rural credit operators.
The registration drive aims at protecting consumers from the increasing prevalence of unlicensed moneylenders, who banking experts say often operate masquerading as NGOs or microfinance institutions, charging exorbitant interest rates.
Bophaphuong said the registration process is slow because the NBC must thoroughly investigate each applicant to assess the organisation’s credentials, source of capital and whether or not its loans are reaching their intended recipients.
“Before we issue any licence, we inspect the organisation’s physical office,” she said.
“We advise credit operators to set interest rates as low as possible, as we want to ensure financial stability and build public confidence.”
She added that the NBC has not taken any action against unlicensed lenders yet, but is responsible for ensuring that all lending organisations are registered and informing the Ministry of Interior of any that are not.
Bun Mony, chairman of the Cambodia Microfinance Association, said unlicensed rural credit operators often engage in irresponsible credit practices and charge high interest rates, driving people deeper into poverty.
He said formalising these lenders – who often lend without credit checks and recover their loans by intimidation or force – encourages their positive contribution to Cambodia’s development.
“We want all of them to abide by the law as microfinance plays an important role in society, which is rescuing citizens from poverty,” he said.
Heng Samorn, secretary-general of the Independent Democracy of Informal Economy Association (IDEA), said the NBC’s campaign to strictly enforce licensing regulations is a positive move, but could have some unintended negative consequences.
If the registration and operating requirements are too strict, it will drive rural credit operators to seek out less-regulated channels or lead them to operate underground.
One possibility, he said, is for moneylenders to establish themselves as cooperative farming associations, which fall under the supervision of the Ministry of Agriculture and are permitted to lend money to farmers.
“Stricter regulations could prevent small lenders from being able to register their operations,” Samorn said.
“When they don’t get a licence it doesn’t mean they will stop lending money. They will still provide loans at high interest rates, just unofficially, causing more problems for people.”
The central bank will revise regulations related to NGOs’ operations as it conducts assessments of the applications it has received to date, it said in a statement issued October 2.