A deal between AMK Bank and the International Finance Corporation hopes to expand microfinance in Cambodia, but industry experts fear credit crunch

Photo by: HENG CHIVOAN

The CEO of Angkor Microfinance Kampuchea (left) speaks with the CEO of the International Finance Corporation (right) after a partnership was announced between the two organisations that aims to increase public access to microcredit.

DESPITE a tightening local and international credit market, the International Finance Corporation (IFC) inked an agreement with Angkor Microfinance Kampuchea (AMK) to support its microlending efforts in the Kingdom.

The IFC's CEO, Lars Thunell, announced the deal on Tuesday during a visit to Phnom Penh.

"Supporting AMK will help extend much-needed services to parts of the country where they are needed most," he said.

"Given the global financial crisis, this is especially important in a country where more than a third of the population live below the national poverty line," the IFC said in a separate statement.

Thunell said that the IFC will "advise AMK on overall strategy and the development of new financial products and services".

The IFC is the private-sector arm of the World Bank with about US$942 million in investments.

"IFC is eager to support AMK in its desire to upgrade and expand."

Microlending in Cambodia has expanded at a brisk 30 percent per year, and a private credit rating bureau is tentatively set for launch before mid-2009.  Thunell said the bureau will provide an extra boost to local lending.  

"[The credit bureau] will increase transparency and help facilitate the selection of new customers," he said.

Credit challenges

But even with IFC help, banking industry experts say the credit crunch may be putting the brakes on Cambodia's rapid microlending growth.

"All MFIs [Micro Finance Institutions] are cutting back ... I would estimate that most of the microfinancers are having to cut back their lending by about a quarter," said AMK CEO Paul Luchtenburg.

Most of the

microfinancers are having to cut back by about a quarter.”

A December 2007 legal amendment allowed MFIs to accept deposits, which Luchtenburg said has increased access to capital.

But even with these changes, local micro lenders remain dependent on foreign investment to finance local lending.

"Most [ local] finance comes from abroad.... We are the least leveraged, but the sector as a whole is exposed," he said.

"The [IFC partnership] will certainly help, though. IFC has a broad network and can provide guarantees," he said.

AMK is a microfinancer with more than 180,000 clients and 50 offices in the Kingdom, according to a statement.

AMK is strictly a microfinance bank, with most of its loans below $150.

Luchtenburg said that high overhead costs of microlending in Cambodia are also a challenge for local institutions.

"We work with the poorest segment, so costs are high. We work in riel, which is difficult to get, plus we have the credit crisis," he said.

Cambodian riel is unavailable in large amounts because most of the economy is based on US dollars.

Acleda Bank Vice Chairman John Brinsden said that all banks in Cambodia are feeling the credit crunch.

"[Acleda] is not hurting, but we are certainly watching," he said.

Acleda has a long-standing relationship with the IFC and has gone from being a microfinance non-governmental organisation to Cambodia's first international bank.

But Brinsden says the international slowdown is putting the squeeze on banks.

"For the first time since I have been here, the amount of money going out of the country exceeds the amount coming in.

"It's not so much that we are seeing capital flight. It's more that we are not seeing as much coming in," Brinsden said.

He added that the National Bank of Cambodia's stricter capital requirements have also slowed Cambodia's lending growth.