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Microfinance industry wants more Riel to lend

Microfinance industry wants more Riel to lend

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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

UNDP advisor.

"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

and UNDP.

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

grow.

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,

said Mony.

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.

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