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Microfinance sector praised, but some lenders called out

A cashier counts banknotes at a microfinance institution in Phnom Penh in 2011.
A cashier counts banknotes at a microfinance institution in Phnom Penh in 2011. Pha Lina

Microfinance sector praised, but some lenders called out

Prime Minister Hun Sen has lauded the microfinance sector’s efforts to increase rural access to finance, while blasting certain unnamed microfinance institutions (MFIs) and NGOs he accused of gouging consumers with high-interest loans and confiscating land assets when they failed to pay them back.

Speaking at the “National Summit on the Development of Microfinance Sector in Cambodia” yesterday, the prime minister acknowledged the sector’s contribution to providing capital for farmers and small firms, but said some institutions were still taking advantage of consumers’ low financial education.

“It seems that these MFIs have a plan to take advantage of the people,” he said, without naming names.

Hun Sen warned consumers to be wary of microfinance firms, citing examples of people losing their homes over debts or being promised unrealistically high interest rates for their deposits. He also held officials and provincial authorities to account for not stopping these activities.

“Which MFIs are doing this and why haven’t we taken action?” he asked. “Are all of you [government authorities] supporting this action too?”

The prime minister’s keynote speech kicked off a two-day summit on microfinance development, which was organised to commemorate the 10th anniversary of Hun Sen declaring 2006 as the “Year of Microfinance for Cambodia”.

Figures released at the summit by the Cambodia Microfinance Association charted a stunning decade of growth. The sector’s loan portfolio grew from $83 million in 2005 to roughly $2.9 billion in 2015, with a reach of more than 2 million households.

“The MFI sector has been growing very strong, with 51 per cent of adults having used their services,” said Hun Sen. “I encourage the sector to extend new services for the people beyond just giving loans.”

Despite the industry’s growth, Te Taing Por, president of the Federation of Associations for Small and Medium Enterprises of Cambodia (FASMEC), said it was still difficult for small and medium enterprises (SMEs) to obtain loans, given the high requirements of MFIs.

“They have a lot of requirements for collateral, like needing property with high value in Phnom Penh as security,” he said. “Some SMEs do not have these documents and we cannot expect them to meet these requirements.”

He said a little leniency in the type of assets that could be used as collateral, such as a firm’s inventory, and different standards for risk classification of a consumer, could help ease the pressure on SMEs to comply with the requirements.

Sim Senacheert, CEO and president of Prasac Microfinance, agreed that lending to SMEs was difficult, but said that this was due to the financial and human resources limitations faced by MFIs.

“We have to source funds from abroad and that is at a high interest rate,” he said, adding that this meant they had to be careful with the loans they give out. “MFIs are also facing a lack of capacity to assess SMEs [loan applications].”

The microfinance summit continues today with a series of presentations and panel discussions on potential gaps in access to financing, policy measures to increase formal lending and mobile banking services.

Additionally, the National Bank of Cambodia announced yesterday the launch of a financial education campaign called “Let’s Talk Money”.

The 12-week campaign will use six short videos and radio spots to educate young Cambodians, aged 15 to 30, on themes, such as the benefits of savings, risks of taking multiple loans, as well communicating with financial institutions, in an attempt to increase financial participation and empower at-risk households and communities.

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