The concept of savings-led microfinance, whereby small community groups establish their own savings and loan funds, is slowly growing in popularity among rural Cambodians without access to traditional financing.

But some remain wary of these self-regulated savings groups.

Unlike their credit-led counterparts, in which microfinance organisations provide small loans, savings-led microfinance organisations have generally not been endorsed by local authorities.

Vong Sarinda, executive director of Co-operative Association of Cambodia, a savings fund of more than $1 million, told the Post yesterday that village chiefs and commune heads are less willing to participate in the savings group.

They would rather un-officially sanction credit-led microfinance organisations and local money lenders, who give them commission fees for their transaction, Sarinda said.

“Without active participation from the local authority, rumours can easily occur. When a rumour or warning about uncertainties or the unofficial recognition of a group arises, depositors raise their concerns,” said Sarinda, “Such worries slow the speed of savings funds and create a barrier to get the potential new members to join.”

Savings co-operatives are organised at the community level among rural farmers, and are self-managed and self-regulated.

For participants, ensuring transparency and legal recognition for the savings funds is crucial. A lack of participation from local authorities can raise concerns as to the funds’ security.

Seang Soleak, regional communication officer of Oxfam, said support from the provincial governments would likely encourage community participation. While microfinance is growing in Cambodia, it still is failing to reach many potential participants, Soleak added.

Brian Lund, regional director at Oxfam, said that poor rural families typically only require small loans, generally in the $20 to $50 range. But formal financial services such as commercial banks consider this population too risky.

“Savings-led microfinance projects teach even the poorest people to save money and create access to small loans in the community, without collateral,” Lund said.

Sarinda said that savings associations have helped reduce the dependency on private money lenders and have kept capital mobilised in villages.

“It is an effective way for villagers to make deposits, save money and access finance,” he said.

Sim Senacheert, president and CEO of Prasac, said microfinance institutions like Prasac hoped to see these saving groups become more popular and to make financial services available everywhere.

“If the group is well managed with good governance and transparency, it is a good strategy to develop rural livelihood.”