After recent success as one of the fastest growing sectors in the
Kingdom, microfinance is set to weather the current economic malaise
with strong growth, the industry says
An office of microfinance institution Prasak in Kampot. Microfinance has seen a period of sharp growth in recent years and will continue to do so through the downturn, albeit at a slower pace, sources in the industry say.
Cambodia's sky-high microlending growth will continue at double-digit rates in 2009, albeit at a slower pace than previous years, according to the industry.
"There is a bit of a slowdown, but overall, the sector is OK. It means slower growth, rather than the rapid growth we have seen before," said Paul Luchtenburg, CEO of AMK microfinance. "We are being a little more conservative [in 2009]. There is less financing around."
Microfinance has been one of the country's fastest growing sectors, with annual borrower growth of about 20 percent since 2004, according to International Finance Corporation (IFC) figures.
Cambodia had 18 microfinance institutions at the end of 2008, according to a report by the NGO Forum of Cambodia, an umbrella organisation.
Less access to foreign capital and a jittery economy will see the sector cut back lending this year, but strong local deposits and greater awareness of banking are expected to keep microfinance growing.
In 2008, the government permitted microfinance institutions to accept deposits, which has greatly increased access to capital, while reducing dependence on foreign investors.
Cambodians have been quick to embrace savings accounts, and deposits now make up a sizable chunk of bank assets. "The microfinance sector in Cambodia has experienced significant growth over the past five years, reaching over 800,000 borrowers and nearly 400,000 savers in all provinces of Cambodia," said Margarete Biallas, program manager at Access to Finance Advisory Services for the IFC.
AMK alone expects to add 60,000 clients this year, an increase of 30 percent over the previous year. The figures are promising, says Luchtenburg, but a sharp drop from the more than 70 percent growth the company has seen for the past few years.
"[The crisis] could mean less funds available to the poor.... Part of our mission is to help poor people ... with the slowdown, people who need funds might not get them," Biallas said.
The International Monetary Fund and the World Bank released reports this month that raised stark warnings about the Cambodian banking sector, saying they may be under "increasing strain" affecting their "financial soundness".
But the microfinance industry says the findings apply to commercial banks that have lent heavily to the sagging property sector and not to microlenders.
Cambodia's microfinance institutions are small relative to commercial banks, accounting for six percent of bank assets and 10 percent of loans at the end of 2007, according to the World Bank.
But microlenders are critical to Cambodia's rural population and have 76 percent of the country's more than 800,000 borrowers, say World Bank figures.
"The crisis doesn't affect our [segments]. Deposits are still growing. We don't need foreign capital because our local deposit base is strong enough," said In Channy, president and CEO of ACLEDA bank.
In Channy says that low exposure to risky real estate has helped shelter microfinance from the slowdown. The bank reports $490 million on local deposits, with $463 million in loans, and expects 40 percent to 45 percent growth rate for 2009. He added that ACLEDA's exposure to real estate was below the 15 percent of the total loan portfolio and that non-performing loans are a low 0.4 percent. "MFIs are safe and sound," said In Channy.
Figures from the IFC - a major backer of local microfinance - show the sector has a strong deposit base and loan ratio, with roughly 800,000 Cambodians saving about $423 million in 2008.
"The total microfinance portfolio growth has increased sixfold in the last three years, which shows microfinance popularity with people who previously had no access to reasonably priced and properly regulated financial services.
As long as microfinance institutions have the funds to lend, they will expand even more in future because they are the only financial services available for most of Cambodia's population," Biallas added.