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Warning for illegal MFIs

Warning for illegal MFIs

The governor of the National Bank of Cambodia hit out at unlicensed microfinance institutions or lenders, who he said were the reason why interest rates in the sector were high, despite interest rates falling among registered lenders.

Chea Chanto, governor of the National Bank of Cambodia’s (NBC), said high interest rates from unlicensed lenders were resulting in repayment issues for debtors who were losing their property and even migrating.

“The main reason of high interest rates is from the operations of NGOs, associations, and unofficial lenders, which are not under control and have not registered with NBC for taking profit via rural loans,” Chanto said at a workshop with the Ministry of Economy and Finance and the central bank in Siem Reap yesterday.

He said that many of these unlicensed lenders behave like legal MFIs and charge high interest rates, without doing much research into whether these loans should be approved or not.

The governor encouraged these institutions, individual unofficial lenders and NGOs to get registered, or face the legal consequences.

Stephen Higgins, a managing partner at Cambodia-based investment firm Mekong Strategic Partners, said unlicensed lenders have given the sector a bad reputation.

“Unlicensed money lenders do tend to charge much higher rates,” Higgins said.

He added that the average rate on microfinance loans was 24.7 per cent last year, down from 33 per cent in 2008.

“At 24.7 per cent, it’s amongst the lowest globally. So, Cambodian microfinance customers are getting a very good deal compared to other countries.”

Sim Senacheert, president and CEO of microfinance institution Prasac, said the announcement will help bring down the number of unlicensed lenders in the sector.

“We are happy because they can get registered and operate in a fair market.

But, we are not concerned with that because they have a very small market share,” he said.

Cambodia had 39 licensed MFIs and 38 registered rural credit operators nationwide at the end of 2014.

Loan portfolio of the MFIs reached $2 billion across 1.8 million customers, according to NBC’s 2014 annual data. .

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