Microfinance institutions are being asked to provide emergency loans with lower interest rates to farmers who lost crops in the worst floods to hit Cambodia in more than a decade.

However, the deputy chairman of the Cambodia Microfinance Association said that lowering interest rates could drive its members out of business.

Hout Ieng Tong, who is also the general manager of microfinance lender Hattha Kaksekar Ltd, told the Post yesterday that it was next to impossible for MFIs to lower monthly interest rates because it would cause them to lose money in addition to the licences required to operate.

“We borrow at slightly over 1 per cent a month, and with tax and operating costs we cannot provide [loans] under 1.5 per cent [per month],” he said.

If MFIs lowered their rates, they would lose money and as a result face the loss of their licences from the National Bank of Cambodia, he added, as the NBC puts a number of financial prudence regulations on the Kingdom’s MFIs, including rules for liquidity and capital reserves.

The appeal for lower interest rates and emergency loans was made by the Cambodian Centre for Study and Development in Agriculture on Tuesday, and non-government organisations providing emergency relief in flood-hit provinces are echoing that concern.

CEDAC called on the government and MFIs to create a “special credit program” for rice farmers who lost their crops in the floods that they could replant during the dry season. It recommended four-month loans at less than 1.5 per cent interest per month.

“The main problem for farmers, especially paddy rice growers, is lack of capital for planting,” CEDAC said.

CEDAC president Yang Saigkoma said the cost of planting a dry-season rice crop was between one million riel (about US$250) and 1.5 million riel per hectare. The emergency loans would help farmers buy seeds, fertiliser and petrol, and allow them to hire workers, he said.

CEDAC’s appeal was welcomed by Save the Children Cambodia, which is also urging other NGOs to support it.

“Save the Children strongly supports this appeal. We would like to urge microfinance institutions in Cambodia to take a step in helping to reduce people’s suff-ering, which is increasing,”  its emergencies communications manager, Jeunsafy Sen, said.

“This is a crucial issue to advocate on,” she said.

Hout Ieng Tong said all MFIs had clients who had been affected by the floods, but there was no industry-wide data on the numbers.

About 3,000 families who had secured loans from Hattha Kaksekar had been affected by the floods, he said, adding that its interest rates ranged between 2 and 2.5 per cent per month.

Prime Minister Hun Sen said last week that flooding had destroyed about 10 per cent of the wet season’s rice crop, and affected about a million people. Rural Development Bank general director Sun Kunthor said interest rates were set by MFIs in a free market and the government could not intervene.

Even so, lower interest rates would be welcome, he said.

“If they could lower interest rates it would be great, because an ann-ual rate of 36 per cent is too high,” Sun Kunthor said, referring to the industry-average interest rate.