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Lending to those with little capital

Lending to those with little capital

Hout Ieng Tong, general manager of Hattha Kaksekar Limited, a microfinance institution, says the economic downturn has hit rural incomes, and that lending has declined in turn


What is the major obstacle operating a microfinance institution in these tough economic times?
Since the financial crisis began until now, we at HKL haven't seen any major problems.
Some clients are paying later compared against previous years, but we have well-trained staff and a good accounting system.
Because of this transparency, our overseas funders continue to trust us. We have sufficient capital.

If the downturn drags on for another three or four years, what effect will that have?
If it takes years to recover, then there will be a serious effect on the MFI sector.
We've seen that people's incomes have declined, so they borrow less, and we are unable to expand our lending.
We need to assess people's ability to repay, and if the number of nonperforming loans rises, we lend less.

Tell us what services you provide.
We offer loans and money transfers within our branch network.
We also have several types of loans, including commercial loans and agricultural loans, and there are different ways of repaying.

Which loan product is most popular among your clients?
The commercial loan, because many people want to grow their small businesses, and we also focus on that market.
They tend to repay faster, too, which means we can recycle those payments into new loans, which helps to boost national economic growth.

Do your staff provide business advice to clients once they have received a loan?
Generally not - we encourage clients to create their own business ideas. We give them some idea of different business methods, but it would be too high a risk if we were to tell clients how to run their businesses.

We've seen people's income has declined, so they borrow less.

What types of small business should poor people in remote areas look to set up with loans from MFIs?
I think that the most resilient are businesses that supply food products. On the other hand, those wanting to run a business and spend the money on equipment rather than stock won't be able to earn a profit.
And those looking to import will also face challenges.
You may already be aware that prices of agriculture products are low because of lower market demand. Are farmers cutting their borrowing in response?
Farmers continue to borrow from MFIs, but they have reduced the amounts loaned to ensure they are earning enough to meet repayments.

Those who are smart already know how to work out what they need to repay their debt. Our clients are clever in terms of working out the size of loan needed and the repayments involved.

How do you compete with other MFIs?
As far as I am concerned, the more competition, the better. That's because I want to see economic growth, and people can't borrow at high interest rates.

The more competition there is, the lower rates must go.

Have you laid off staff?

No, and in fact we are planning to recruit more.
In late 2008 we had 450 staff, and earlier this year we recruited another 200. We budgeted for lower profits by the year-end, but we will have helped a lot of people.

I understand that the CMA wanted to borrow money from local commercial banks rather than having to attract funding from outside. How has that developed?
It hasn't developed - we continue to borrow from abroad at high interest rates, which means we have to lend locally with high interest rates.

Local banks have piles of savings, but they aren't yet allowed to lend to us. The government and the National Bank of Cambodia (NBC) should look at this.

Do any MFIs have a licence to attract savings?
Two MFIs have licences from the NBC: Amret and Sathapana.
I hope that another three or four will get licences, too. At my firm we wanted to walk one step behind the other two.
People don't yet fully trust commercial banks and aren't willing to place their savings with MFIs. So we need to improve the trust among the public.

Are you planning to switch HKL's status from an MFI to a specialised bank?
We have plans for that, but in the distant future. HKL's portfolio is US$27 million, and even in these hard times we are growing by 30 percent.

Some critics say MFIs enrich their owners by keeping the borrowers poor. Presumably you have a different point of view.
Yes I do, and you can see the changes in the remote areas.

In the 1990s, most people lived in small huts, but since MFIs started loaning money for rural development, 80 percent of people have seen their living conditions improve.
You have to look at the forest, not just one tree.

Have any of your clients lost land or cows or other property?
We should praise people who are willing to repay debts - we don't want to see clients avoiding paying by running away.
We must thank those who are willing to take responsibility for their debt. They are good people.
We wanted to see people behave highly responsibly - they might lose their property, but not their reputations.

How many clients do you have?
We have 50,000 clients. In terms of assets we are ranked fourth, and in terms of number of clients we are ranked fifth.

You may have seen that some people want to use their homes or land as collateral for loans from MFIs or commercial banks. However land titles are still an issue. What are your thoughts?
This will help the sector if the government can resolve this.

I see our government is working very hard to issue land titles in provinces such as Kampong Thom, Kampot and Battambang. A land title is important as collateral.


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