More than a year into a government-backed campaign to clamp down on unlicensed lenders, nearly 130 small lenders operating under the radar have come into the fold, officials said yesterday.
The Ministry of Economy and Finance (MEF) and the National Bank of Cambodia (NBC) launched a joint campaign in February 2015 to clamp down on unlicensed lenders who often masquerade as do-good NGOs or charities to dupe individuals into borrowing at exorbitant interest rates.
The lenders operate outside the purview of the central bank and have been accused of cheating borrowers and driving them deeper into debt.
Mey Vann, director of MEF’s financial industry department, said a joint committee found nearly 400 lenders operating without the required NBC licence. In the last 18 months, 322 unlicensed lenders had applied for a licence, while 129 of those applications had been approved by the central bank.
“Those who have enough qualifications are already registered,” he said. “The remaining unrecognised [lenders] are those that have not yet met our criteria.”Vann explained that lenders whose applications had been rejected still need to improve their management structure and professionalism, and increase their operating capital.
He claimed that informal lenders often provide short-term loans at double or triple the rate of registered financial institutions. When the crackdown was originally announced, officials said unlicensed operators would need to prove their case or face legal consequences.
“We are still considering if we should close the operations for those who don’t have enough qualifications,” Vann said.
“We cannot allow them to operate by claiming they are an NGO or a charity, when in fact they offer loans with very high interest rates.”
Um Sovannarin, deputy director of TACA Microfinance, a microfinance institution (MFI) that obtained a licence from the central bank before the crackdown, said that becoming an official lender improved the company’s profile and gave it better access to industry information.
“Unlicensed lenders were hurting the reputation of legal lenders, like MFIs. So it is good that all of them must be formalised,” he said.
Hout Ieng Tong, president of Cambodian Microfinance Association (CMA), said the loan portfolio of unlicensed operators was just a small part of the total industry, but nevertheless needed to be regulated.
“We want fair competition, so we want them to be official like us so that it will be easier for regulators to control the sector,” he said.
Cambodia’s microfinance sector continued to expand rapidly during the first half of the year, but there is also rising concern as borrowers – particularly drought-stricken provincial farmers – struggle to repay their loans.
According to a report by the CMA, 47 microfinance institutions (MFIs) – plus seven NGOs – posted outstanding loan values at $3.26 billion as of June, an increase of 34 per cent compared to the same time last year.
Meanwhile, total non-performing loans (NPLs) for MFIs increased to $43 million, equalling 1.3 per cent sector-wide compared to 0.6 per cent a year ago.