Deposit day at a Ra Roessey savings bank in Battambang. This is one of many community-based microfinance organizations funded by CCA and VanCity Savings in Cambodia.
Last week, when Bangladeshi microfinance pioneer Mohammed Yunus won the Nobel Peace
Prize for his groundbreaking work with Grameen Bank, there were some very happy bankers
in Phnom Penh.
"I give him total credit with starting the microfinance movement," said
John Brinsden, vice chairman of Acleda Bank, Cambodia's largest licensed microfinance
institution (MFI) . "He's the grandfather to it all."
Another Yunus fan, Brett Mathews of the Canadian Cooperative Association, credits
the economist with popularizing the "solidarity group" - a structure that
allowed Yunus to lend money to very poor people without collateral. The Nobel Committee
stated that he won the prize because helping people out of poverty is a lasting contribution
to international peace.
But with the microfinance industry now in the international spotlight, a debate has
been sparked within Cambodia's own microfinance sector between proponents of the
credit union movement and the well-established, and much heralded MFIs.
Mathews, and his colleague Vong Sarinda, coordinator of the Cambodian Community Finance
Network (CCFN), have taken the presently high profile of the microfinance industry
to blast Cambodia's licensed microfinance institutions (MFIs) for putting the pursuit
of profits ahead of helping the poor. They're claiming, among other findings, that
the MFIs - for years the darling of Cambodia's banking sector - are not so much a
sacred cow, as a golden calf.
"Even if the MFIs here wanted to, they could not replicate Grameen's achievement,"
Mathews told the Post. "In order to even attempt to do so, they would have to
start having some respect for the need of poor rural people to save money."
In reports and statements obtained by the Post, Mathews and Sarinda have criticized
the 16 Cambodian MFIs on their ability to deliver quality financial services to impoverished
villagers and have claimed that the much-anticipated draft Financial Sector Blueprint
"whitewashes" the needs of the rural majority.
"MFIs are revealing to Cambodians that they see profits as more important than
the needs of the rural majority," reads a report released in September. "For
them, small-balance savings accounts are not a vital tool in the battle against poverty,
just a costly source of funds they'd prefer not to have to use."
But financial experts have generally dismissed the comments and explained that profitability
is simply the natural progression of a successful financial institution, and that
profits allow more, and better, services to be offered to the poor.
"We're not perfect. We, as MFIs could do better, but perhaps he's ignoring some
of the positive developments," Brinsden said.
"There's a school of thought that says microfinance should be a charity and
this may cause some resentment. But the world trend is to make MFIs sustainable -
and that means profitable. It allows you to attract more funds, shareholders, and
in the case of Acleda, a Moody's rating."
According to Brinsden, deposit growth from the 153 Acleda branches is doubling every
year and the ratio of non-performing loans is less than .2 percent. Acleda defines
a "non-performer" to be any loan with a monthly installment at least 30
"Those so-called rural poor may be poor in dollar terms, but they can be very
sophisticated in running a business," he said. "We've found that there
are times in the year, after harvest, when they want savings. These are first-time
depositors They've been keeping their money under the bed. Now they can put it in
the bank and get some interest."
Originally funded by the UNDP and the ILO, Acleda was established to aid small, competitively
priced loans to microenterprises and small businesses, rural producers and home-based
entrepreneurs who lacked access to credit or who became dependent on local money-lenders
Adam Sack, general manager of the International Finance Corporation, the private
sector arm of the World Bank, said the licensed MFIs are well managed by the National
Bank of Cambodia and now provide services to more then 500,000 Cambodians, most of
whom are from low-income households. An IFC official said that industry competition
has reduced average interest on loans from 5 percent per month - or 60 percent annually
- down to 3 percent - or 36 percent over 12 months - and the trend seems to be going
"It always surprises me to hear views rooted in the obligation of MFIs to singlehandedly
reduce poverty in Cambodia," Sack said.
Microfinance is not a panacea to reduce poverty. But when done sustainably, meaning
at a profit for the MFI, they can offer much needed services to lower income households
and help them make their way out of poverty. The MFIs will only continue to serve
the poor in Cambodia if they can do so profitably."
In a CCA study of 602 households, Mathews and Sarinda report that 15.2 percent of
all saving from the previous year is lost. Based on the most recent census, the report
claims this would amount to $60 million in losses every year among rural households.
The answer, they say, is community-finance organizations (CFOs) such as self-help
groups, village banks and credit unions.
"There are two ways to build trust," Mathews explained. "The formal
sector has a bricks and mortar approach: they build big, serious-looking branches
that look safe and solid. They have to do something to get people to put their money
"The other way is solidarity. Neighbors know each other - we hang together or
separately. You can see that there are banks here, rice banks, informal labor exchange,
The CCFN and CCA have released a 10-year strategic plan to reach 7,000 villagers
and 450,000 members with quality microfinance services by 2015.