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Government should impose MFI interest caps

Government should impose MFI interest caps

Dear Editor,
I read the article "Microfinancier backs high rates" (August 20) with great concern.

Does the legal framework that allows microfinance institutions (MFIs) and other credit operators to charge interest really assist the poor in improving their incomes and livelihood?

Very recently, I conducted a small survey on the level of debt among farmers in three villages in Prey Veng province.

Of the 63 households interviewed, 52 were indebted to at least one MFI, with an average debt of US$300 per household. Generally, they paid 3 percent per month for the loan. Between 20 and 30 percent of those households used loans for non-productive and survival needs, such as buying food and paying for medical treatment.

MFIs, rural credit operators and NGO credit programmes need to obtain a license from the National Bank of Cambodia (NBC). A spokesman for the NBC, the national body in charge of regulating all commercial banks, MFIs and credit operators, recently said: "Cambodia is a free market and the central bank cannot intervene. Rates should be set by lenders and borrowers."

A spokesman for the Cambodia Microfinance Association agreed, saying: "If the rates are too high and the market cannot accept them, then we wouldn't be able to disburse the loans." He also noted that interest rates were "anywhere from 28 percent to 34 percent per annum". This rate is set by the MFI, and any borrower must agree to it before taking out a loan.

Apart from informal credit, which charges usurious interest, most people have no other option but to agree to the interest rates set by MFIs and other credit operators.

I would like to appeal to the government to introduce laws and regulations that put caps on the interest rates that MFIs, rural credit operators and NGO credit programmes can charge their borrowers. It is crucial to ensure that borrowers, and not just lending institutions, can profit from loans.

Sim Socheata
Phnom Penh

Send letters to: [email protected] or PO Box 146, Phnom Penh, Cambodia. The Post reserves the right to edit letters to a shorter length.
The views expressed above are solely the author's and do not reflect any positions taken by The Phnom Penh Post.

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