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IDs are not ‘sufficient guarantee’ for loans

A man holds a Cambodian national identification card last year in Phnom Penh.
A man holds a Cambodian national identification card last year in Phnom Penh. Hong Menea

IDs are not ‘sufficient guarantee’ for loans

Cambodia’s central bank has asked all financial institutions, especially rural lenders, to refrain from accepting personal identity cards, residential records and family books as a guarantee while giving out loans to consumers.

In a circular released on Friday, the National Bank of Cambodia (NBC) said the use of documents like a personal identity card or family book – a record of members in a particular family – could not be used as a guarantee, given that they had no “economical value” and was against banking regulations.

“ID cards, family books or residence books are authentic letters issued by authorities only for personal identification,” the circular read. “All banking and financial institutions and rural creditors must immediately stop taking such documents to ensure a loan.”

The NBC added that lenders who continued to accept these documents would be penalised under the banking and financial institutions law.

Sim Senacheert, president and CEO of Prasac, one of the country’s largest microfinance institutions, said formal lenders do not use these documents to guarantee a loan but only as identification proof.

Using these documents, he said, puts lenders themselves at risk, given that identity proof gives no indication of a customer’s financial background. He added that the practice was common among unlicensed lenders but with subsequent crackdowns by the NBC there are fewer cases now.

“When informal lending increases, formal lenders cannot evaluate the debt repayment capacity of a client because the loan is not registered in Credit Bureau system,” said Senacheert. “We don’t know how much the client can borrow and we do not know if they are in debt.”

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