Cambodia's microfinance industry yesterday responded to Prime Minister Hun Sen’s call to aid farmers affected by the worst floods in a decade by claiming lenders were already taking steps to offer relief.

About 350,000 Cambodians were affected by floods that swept through large areas of the country between September and November last year, Hun Sen said during a speech on Tuesday at the Ministry of Rural Development.

As a result, thousands were struggling to repay loans to MFIs.

Hun Sen then requested that interest rates on outstanding loans be frozen and payment deadlines suspended.

But yesterday, the 30-member Cambodian Microfinance Association claimed during a meeting with Economy and Finance Minister Keat Chhon that it had already eliminated interest on loans to families affected by last year’s floods and would not seize property from flood victims in the event of default.

Microfinance institutions had not publicised the measures extended to flood victims because they feared an influx of false claims, CMA director Bun Mony told the Post.

“We had already taken the measures before the prime minister suggested them, but we did not publicly announce it because we wanted to avoid some clients who wanted to take advantage,” he said.

“What we are afraid of is someone who wants to spoil the industry.”

Bun Mony claimed that no property had been, or would be, confiscated from flood-affected borrowers who defaulted on their loans.

Fewer than one per cent of microfinance borrowers had been affected by the floods, and the ratio of non-performing loans had decreased in 2011 to 0.25 per cent from   0.9 per cent the year before, he said.  

According a survey conducted in January by Oxfam, Care, Pact and CRS, nearly two-thirds of the 400 flood-affected households surveyed had taken loans from MFIs or unofficial lenders.

About 60 per cent of households said they had difficulty repaying the loans, and about six per cent said they had no hope of making repayments.

MFIs have been under fire  for practices some economists have called unsustainable.

Interest rates between 25 and 45 per cent a year have the potential to destabilise Cambodia’s agriculture sector as farmers default on loans, some of the Kingdom’s leading economists have said.

Concerns about informal microlending, which some Cambodian farmers employ to pay off debt to microfinancers, still exist among government officials and members of civil society. 

Informal loans often carry interest rates of more than 50 per cent a year.

Economy and Finance Minister Keat Chhon told the meeting with MFIs the government would take measures to deal with unofficial lenders.

In Channy, president and CEO of ACLEDA Bank, said the bank lent US$167 million in microloans but had only 63 borrowers affected by floods.

“Our bank had already suspended repayments and frozen interest on the loans. No property seizures have been made,” In Channy said.

The floods had only slightly affected the industry, National Bank of Cambodia governor Chea Chanto said.

He confirmed that MFIs had been quietly helping borrowers affected by the floods.