Amid one of the worst droughts in the last 50 years, Cambodia’s microlenders are taking preventative measures to avoid defaults by extending loan repayment plans and reducing monthly interest payments, albeit on a case-by-case basis.
According to Hout Ieng Tong, president of the Cambodian Microfinance Association (CMA) and the CEO of Hattha Kaksekar, the Kingdom’s fourth-largest microfinance institution (MFI) by assets, loan requests have surged on the back of poor agriculture yields and prolonged drought.
“The demand for MFI loans has increased because crops have been damaged and farmers need to buy more seeds to replant their fields,” he said.
While Ieng Tong added that the majority of clients who had taken out loans for farming had seen little to no profit in the last year, he shrugged off concerns that it would hamper the sector’s loan performance.
“Farmers in Cambodia don’t only rely on farming,” he said. “During the drought they need to survive, so they move into the construction or garment sector, or some of them travel to Thailand to find work.”
He said the industry’s non-performing loan (NPL) rate had shown a negligible increase, as clients had found other sources of income. Nonetheless, he said MFI agents are continually working with clients to find solutions and relief.
“The last thing we want to do is confiscate property that has been put down for collateral,” he said.
Farmers say the drought has increased their expenses on seeds and water, while decreasing their incomes. Many are relying increasingly on family members working abroad to cover their loan payments.
Yat Reaksmey, a 60-year-old rice farmer in Battambang province, said after the drought pushed up his daily expenses he sought additional loans to make ends meet. Most recently, he received a $400 loan from AMK Microfinance.
The risk of default looms large, he admits. Even with all six of his children having migrated to Thailand to find work, and sending money home, Reaksmey said he only has enough to cover the monthly interest payments on the loan.
“I can afford only the interest payment. I have no idea when I will be able to pay back the loan principal,” he said.
Sim Senacheert, CEO of Prasac Microfinance Institution Ltd, said that while there has not been a sector-wide approach to tackle drought concerns and repayment plans, his company has been proactively extending loan terms.
“We have seen that there are some areas [in the country] where people have had problems paying back their loans,” he said.
“So, although we don’t change their repayment schedule on the books, in the field our staff will reschedule with clients or delay the payments because of the drought.”
According to Senacheert, while interest payments have remained unchanged, by extending the loan term the overall repayment burden had been reduced.
“We don’t have specific policy on extending repayment plans,” he said. “It depends on the client’s situation and we reduce payment amounts on a case-by-case basis.”
Over the last six months Prasac’s NPL rate has inched up from 0.1 per cent to 0.4 per cent. Yet Senacheert insisted this was statistically negligible, and was a result in part of loans being issued for non-agricultural purposes that cannot be tied to a harvest season, thus demanding more flexible repayment plans.
Ou Sophannarith, director of finance at Canadia Bank, said it was still too early to see just how much the drought has affected lending and performance.
“I can’t say how much the drought has impacted loan performance,” he said.
“We will see in one or two more months what the impact will be once the rainy season begins and we start studying the quality of loans that have been given.”