Logo of Phnom Penh Post newspaper Phnom Penh Post - MFIs say sector insulated from global money crisis

MFIs say sector insulated from global money crisis

MFIs say sector insulated from global money crisis

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081215_16.jpg

Local microlenders are expecting strong growth in 2009, despite a slowing economy and a tighter credit market

Photo by: TRACEY SHELTON

A local bank teller smiles for the camera in this file photo. Industry experts expect more happy times for Cambodia's microfinance institutions, with growth of between 20 and 50 percent predicted for next year.

CAMBODIA'S microfinance institutions, or MFIs, may be one of the few bright spots in an otherwise gloomy economy, with strong growth  expected in 2009, say industry experts.

MFIs predict 20 percent to 50 percent growth next year - lower than the 2007 figures, but still well ahead of other sectors of the economy.

"MFIs have not been affected by the economic crisis, we are still insulated," said In Channy, president and CEO of ACLEDA Bank.

In Channy said that MFI portfolios are free from risky assets such as subprime mortgages and property, and their client base is not invested in similarly dangerous gambles.

"Most of our customers are small-scale business owners. They produce food or are involved in small-scale trade. These things are not being hit by the economic crisis."

Seventeen MFIs are registered in Cambodia serving more than 700,000 borrowers with about US$250 million in outstanding loans. The sector has grown rapidly, with ACLEDA's lending up 98 percent in 2007 and about 60 percent in 2008, In Channy said.

[Microlenders] have not been affected by the economic crisis.

Development agencies like the International Finance Corp  and the Asian Development Bank say that the conservative strategies of Cambodian MFIs have helped them weather hard times.

"[Cambodian MFIs] are very well positioned. ... They are very well managed, [they] meet high international standards and have capable people on the ground to assess the risk of lending and to closely supervise repayment," said Margarete Biallas, program manager for Access to Finance IFC Advisory Services.

The IFC, part of the World Bank group, said it expects as much as 50 percent growth in microlending next year, down from the 60 to 100 percent previously expected, based on information provided by MFIs.

A sound microfinance sector could have wider implications for Cambodia as it confronts the global economic slowdown, said ADB country director Arjun Goswami.

"MFIs are absolutely critical in Cambodia ... For the current crisis, there aren't the resources for a [Cambodian government] stimulus package and inflation is too high," Goswami said.

"MFIs could be an important way to stimulate demand," he added.

But even with the positive outlook, sources acknowledge that MFIs will feel some pressure from the slowdown.  

The main challenges are less availability of capital from abroad and  the possibility of higher default rates in Cambodia.

"MFIs are as vulnerable as other financial institutions to risks resulting from their lending business; ie clients not repaying. With the global economic downturn, MFI clients may find it more difficult to repay, which in turn may have a negative impact on MFIs." said the IFC's Biallas.

Local MFIs still rely on scarce foreign capital, but legal changes have allowed them to accept deposits.

ACLEDA estimates that more than $480 million has been raised by deposits, with that figures expected to increase.

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