AMK Chairman Paul Luchtenburg talks about the microfinance lender's recent gold medal for transparency in reporting and what can be done to reduce interest rates in the sector
By Kay Kimsong
It is part of our social mission; we want to help, we don't want to become the problem.
You won a gold award earlier this month from industry analyst the Microfinance Information Exchange. What was that for?
It was for transparency in reporting of social performance indicators. AMK has just been elected to head a steering committee looking at the issue of transparent reporting of a range of social performance indicators, which was quite an honour. So we are very active in social performance reporting, but we were surprised to get this award. We [were] one of only four institutions around the world, out of around 1,200 registered with the Microfinance Information Exchange, and the only one in Cambodia, so it is quite nice to have it. It shows that AMK is a world leader in social performance reporting.
Let's get back to more local issues such as the rising incidence of non-performing loans. How is AMK faring?
AMK's [non-performing loans] have gone up the same as everybody's. It's primarily a function of clients receiving too many loans from more than one institution and the industry growing too fast. Most organisations are now slowing down, like AMK, so that we can get our processes perfected to avoid problems in the future.
Has AMK confiscated collateral from any defaulters?
For us, our largest loan is only around $500, and individuals make up just 15 percent of our portfolio. Because our loan size is small, our organisation has never had any problems like that. But I think some organisations may be facing that challenge.
There are lots of stories about borrowers losing land, though the situation is complex and the stories can be hard to verify. What can be done about the problem?
Well, the problem started in Kampong Thom, where we had a few meetings to try and see how we could work together and resolve the issue. Our strategy is, we want to work with the clients as much as possible. If people don't have money, we won't take their land. It is part of our social mission; we want to help, we don't want to become the problem.
The other interesting and dynamic thing happening is that we are talking about financial transparency for things like interest rates, so that the industry is accountable for how much we charge. It costs money for us to go to Kampong Thom, to Ratanakkiri, to Stung Treng, to Preah Vihear, to all of these places, so we can justify the fact that rates are high. But we need to come together with each other and our clients to give them a better idea of how we set the rates.
Does anyone offer lower rates?
Not that I'm aware of. Last year, when inflation was very high, we should have put interest rates up to cover it, but no rates went up. With $25 million in loans out there, we lost a lot of money, but we didn't raise interest rates then. Now even with non-performing loans, I don't think there will be a raise. I think rates will come down slowly, but everything is now about 2009, about the world-wide financial crisis. It is not a good time for organisations to take risks with rates.
Has the financial crisis had an impact on rates?
Rates have gone up globally, which makes it harder for us. Our margins are already quite tight, so there is no way that we can reduce our rates now the cost of funds has increased. If the cost of funds come down, then we could lower rates more easily, but now we can't.
Also, we go to remote areas to meet clients, we go to the villages, and we don't expect them to come to us, which means our costs are high. The third problem is it's hard for us to get local currency, which we primarily lend in. No bank in Cambodia will lend to us in riel so we depend on external lenders.
Do any domestic commercial banks give loans to microfinance lenders?
The only one I am aware of is ANZ Royal, though ACLEDA may lend a small amount. Even in dollars we find it hard to borrow from commercial banks. It is no problem to borrow from international lenders in dollars, but we need to exchange those dollars to riel through the National Bank of Cambodia [NBC] or the Foreign Trade Bank, [and] that is quite expensive for us.
What measures can the NBC take to help the sector?
There are two things. First, when we borrow money from outside, we need to pay the NBC 15 percent tax on the interest. The other thing is that we don't have a savings licence yet. If we had that, it would help our communities, as people need places to save money, and it would give us a cheaper source of funds to lend to people. We applied to them quite a while ago, but we are still waiting for their approval.