Microfinance lenders say it's time to inject more Riel into the economy.
Microfinance industry leaders are planning to ask the National Bank of Cambodia to
loosen the purse strings on Riel in 2008 and put more Riel in circulation.
The predominant use of the U.S. dollar in the economy is preventing the lenders who
specialize in Riel loans from getting the funds they need, industry leaders said.
"For our clients the dollar is not appropriate. We have to have Riel,"
said Paul Luchtenburg, chief executive officer of Angkor Microfinance (AMK) and a
"We need $10 million worth of Riel next year."
He said AMK specializes in tiny loans with an average loan size of $85 to more than
120,000 clients in 15 provinces.
He estimated the industry will need about Riel 120 billion next year and that amount
is not available in the market for a variety of reasons. For one, Cambodia's commercial
banks don't save in Riel; they save in dollars so there is not a lot of Riel in the
banking system. Some say the National Bank is sitting on a large amount of Riel that
they don't want to put into circulation due to fears that too much Riel could lead
to the currency's depreciation.
Margarete Biallas of International Finance Corp. said she would like to see the government
pay civil servants in Riel, not dollars, to get more local currency in circulation.
The central bank is "not entirely enthusiastic" about the idea, she said.
"I don't think you're talking about a total de-dollarization just by paying
government employees in Riel," she said, but "I'm not sure it would be
slow enough for them."
The decision to approach the National Bank about the shortage of Riel was one of
the conclusions of a microfinance workshop in early December sponsored by the IFC
The workshop participants also said they want to move ahead with setting up a credit
information bureau so microfinance lenders can share confidential loan information
about their customers to help ensure that borrowers aren't getting in too deep with
loans from different MFIs. "The microfinance industry doesn't know if somebody
has taken out loans from another lender. We need a system that looks at $10 to $100,000
loans," said Biallas.
Another development for the industry coming in 2008 is a Prakas being drafted by
the National Bank to allow microfinance institutions to accept savings deposits from
a variety of customers, not just their own borrowers. Bun Mony, chairman and general
manager of Cambodia Entrepreneur Building Ltd., said the measure would help the industry
Although the microfinance industry is growing by 200,000 clients per year, it is
hampered not only by the lack of Riel, but by a lack of access to funds in general,
Mony said that the commercial banking industry in Cambodia has never cooperated well
with the microfinance industry, forcing the MFIs to go outside the country to get
funds for their credit operations. Although the foreign borrowers are charging interest
rates of 10 to 11 percent, that is cheaper than the money available locally, which
is more like 13 percent, he said.
The high cost of getting funds translates into higher loan rates. The MFIs must charge
interest rates of 24 to 36 percent per annum.