On the basis that non-performing loans stood around 2.3 per cent as of August 31, 2020, credit risk in the microfinance sector remains relatively low, said National Bank of Cambodia assistant governor and director-general Chea Serey.
“This rate is relatively low compared to countries in Southeast Asia and across the globe,” she said.
Moreover, Serey told The Post that the credit issued to low-income households does not constitute 100 per cent of the sector’s loan portfolio.
“The focus of microfinance institutions [MFIs] is on different market segments from micro to small- and medium-sized enterprises,” she said.
Serey was asked to comment on the stability of the financial sector as the total value of MFI loans grew over $10 billion as of December 31, 2019.
The loans taken by some 2.6 million people averaged around $3,804 last year, a briefing paper by Centre for Alliance for Labour and Human Rights (Central), League for the Promotion and Defence of Human Rights (Licadho) and Cambodian Alliance of Trade Unions (Catu) said.
Recently, the Credit Bureau of Cambodia (CBC) reported an outstanding MFI balance of $6.3 billion, which it said is in line with the country’s economic growth.
However, the burgeoning loans have gained alleged notoriety over the years as groups levelled accusations against the government and NBC for not “arresting” the situation, and to a certain extent, “protecting” lower-income borrowers.
News reports highlight cases of borrowers losing their land titles to raise funds to service loans and becoming more leveraged in order to make ends meet as household economy contracts.
As the Covid-19 impact on economic sectors continues to play out in Cambodia, observers say the socioeconomic situation is not likely to improve any time soon, which could drive up indebtedness.
Early October, civil society organisations Central, Catu, Licadho and Sahmakum Teang Tnaut called for a full pardon of MFI debts held by poor households.
But there does not seem to be a likelihood of the NBC rising to that demand.
Instead, it will maintain its instruction to banks and financial institutions to restructure the loans of customers who are impacted by Covid-19.
Serey said about 270,000 client loans have been restructured as of August 31, 2020, which translates to some $3.6 billion in total.
On mechanisms to keep the MFI sector steady while protecting customers, she said the NBC has several prakas (sub-decrees) which are not just limited to credit risk grading and impairment provision.
“[We have] transparency in granting credit facilities of financial institutions, and resolution of customer complaint. [There is also] a direct hotline to NBC for public complaints,” she said.
Added to that is the key role played by the CBC in providing complete creditworthiness and credit risk assessment for the sector.
Serey said MFIs also have their own safeguards such as the lending guidelines drawn up by the Cambodia Microfinance Association.
The central bank has also worked on eliminating informal money lending which dropped to six per cent in 2016 from 32 per cent in 2004, according to NBC’s report on financial stability last year.
It said increased access to finance by MFIs and microfinance deposit-taking institutions reduced people’s reliance on borrowing from informal sources.
Although Serey said NBC does not have available data on the segment presently, it continues to focus on promoting financial inclusion and literacy.
“The [attention] is not only to bring more people into the formal sector but to also give them a basic knowledge of money management,” she said.
On that note, she assured that the NBC will continue monitoring the development of the banking sector “very closely”.
“We will add or enhance our regulatory framework as [and when] necessary [in line with] the sector’s development [as well as] macro-economic [development] both in Cambodia and globally,” she said.