Logo of Phnom Penh Post newspaper Phnom Penh Post - Microfinance a catalyst to drive usage of national currency in the Kingdom

Microfinance a catalyst to drive usage of national currency in the Kingdom

Content image - Phnom Penh Post
About 60 per cent of microfinance institutions’ clients are from the agriculture sector. Hong Menea

Microfinance a catalyst to drive usage of national currency in the Kingdom

Backed by a strong rural clientele, microfinance institutions (MFIs) could amplify the wider usage of the riel as the circulation of the national currency is much higher outside the city.

An estimated 80 MFIs operate across the country, offering a boutique of services ranging from small loans, deposit taking, loans to refurbish houses, finance to purchase motorbikes, education loans, internet banking to money transfers.  

They play a pivotal role in the domestic financial sector, providing accessible and affordable loans to rural people who are invisible to the main banking sector, especially low income earners without proper collateral.    

“The riel plays a big role in the microfinance sector because we work with low income people. We are well penetrated in the provinces and rural areas where the riel is mostly dominant. About 60 per cent of our clients are from the agriculture sector."

“Most microfinance (institutions) work in rural areas and at least 65 per cent to 75 per cent of our loan portfolios are from the rural sector, mostly farmers. Sixty per cent of our saving deposits are in riel."

Content image - Phnom Penh Post
About 50 per cent of MFIs face difficulties to achieve the 10 per cent loan riel portfolio, says Borann. Post Staff

“This is exceptional in the market and not everyone has such high exposure [to the riel],” Cambodian Microfinance Association (CMA) Chairman Kea Borann told the Post.

MFIs have become a lifeline for rural farmers, especially those involved in cultivating rice, cassava, beans and those engaged in animal husbandry, who need funding to improve their livelihoods.   

But there is a snag. Over the last 10 years, the trend has been changing as more MFIs shift their focus to urban areas – providing loans to small and medium industries (SMEs), consumer finance, mortgage and personal loans – inadvertently relying more on the dollar, said Borann.

“At least 50 per cent of the MFIs are facing difficulties achieving the 10 per cent loan riel portfolio required by the NBC (National Bank of Cambodia). They can only achieve about seven per cent to eight per cent. The association is working closely among members to find a solution to achieve the target by end of this year,” he added. 

In December 2016, the NBC issued a prakas directing all financial institutions to maintain 10 per cent of their loan portfolios in riel as part of its effort to promote wider usage of the national currency.

However, the pull and push factors in the economy allow the dollar to continue to dominate the business realm and Cambodians have become accustomed to the US greenback.

“The high usage of the dollar is due to consumer behaviour and it is market driven. Cambodians have become more used to the dollar than the Khmer riel and it is cheaper and easier to obtain loans in dollars."

“And from the operational perspective, costs of MFIs dealing in riel tends to be higher because more staff are required, for instance to count the money [due to multiple denominations], in [physically] transporting the cash and storage problems,” said Borann.

Content image - Phnom Penh Post
There is a strong demand for riel in the rural economy. Voun Dara

He said, as an example, about 90 per cent of MFIs involved in financing leasing activities are heavily exposed to the dollar.

Interestingly, the software used by some MFIs can only support the two-currency system and these institutions have to upgrade their systems to allow the use of the riel only, which will take some time and involves costs for the operators.

“However, MFIs are better than banks in terms of riel usage but we cannot claim to be the champions in this. But the association is pushing for higher usage of the riel and to help change people’s mindset to become more familiar with the riel. We are also having discussions with staff to pay salaries in riel instead of dollars,” he said.

But he cautioned that if salaries are paid in riel and most transactions like rental and goods and services are charged in dollars, workers will lose out in the long run.

“To achieve the riel objective, it is not only the role of NBC and the government but all parties, including the private sector, have to play their role,” said Borann.

Content image - Phnom Penh Post
Loans are accessible and affordable for rural citizens. Voun Dara

MOST VIEWED

  • Cambodia armed with money laundering laws

    Money laundering will now carry a penalty of up to five years in prison while those convicted of financing terrorists will be jailed for up to 20 years, according to new laws promulgated by King Norodom Sihamoni and seen by The Post on Thursday. Comprising nine

  • Schools to be reopened in ‘three stages’

    With guidance from Prime Minister Hun Sen, the Ministry of Education, Youth and Sport, is in the process of reopening schools in three stages. But no timeline has been set, ministry spokesperson Ros Soveacha said on Thursday. Soveacha said the first stage will be to

  • Thai border crossings eased

    The Cambodian Embassy in Thailand said in an announcement on Wednesday that Thailand’s government has allowed certain passengers from several countries to enter its borders. The visitors must go back to their country immediately after their duties in Thailand are fulfilled, the embassy said.

  • Gov’t says tourism recovers slightly despite pandemic

    The Ministry of Tourism and the Phnom Penh municipal administration have recognised 33 tourism businesses in the capital which have consistently implemented safety measures for tourists and adhered to the code of conduct issued by the ministry. Recently, the ministry announced that tourism businesses had to

  • Mull ASEAN border opening, PM urges

    Prime Minister Hun Sen has requested that ASEAN launch a scenario for gradually reopening cross-border travel and trade between countries in the region. He said ASEAN has had more success combating Covid-19 compared to other regions. The prime minister’s request was made at the

  • Ministry reports 11 new Covid-19 cases, reiterates vigilance

    Minister of Health Mam Bun Heng has urged people to continue practising virus prevention techniques after 11 people tested positive for Covid-19 within two days after arriving in the Kingdom. Speaking on Sunday, Bun Heng stressed the importance of washing hands, wearing masks or scarves when

  • Koh Rong land ‘belongs to firm’

    Preah Sihanouk Provincial Administration spokesperson Kheang Phearum told The Post on Sunday that the 35ha being bulldozed by Royal Group Co Ltd in Koh Rong belongs to it after it was leased to it for 99 years by the government in 2008. Phearum said the land does

  • Nine on Indonesia flight Covid-19 positive

    The Ministry of Health on Saturday confirmed nine more imported cases of Covid-19. The nine ‒ eight Cambodians and one Indonesian, aged 22 to 26 ‒ arrived in Cambodia on Thursday via a direct flight from Indonesia and are receiving treatment at the Khmer-Soviet Friendship Hostipal in Phnom Penh.

  • Kingdom’s financial sector healthy

    Cambodia's financial sector remains on a sustainable growth path despite the Covid-19 pandemic squeezing crucial industries, National Bank of Cambodia (NBC) governor Chea Chanto said. Tourism, garments and footwear have borne the brunt of the Covid-19 impact, he said, whereas the financial and agriculture sectors

  • Vietnam told to remove border tents

    Kandal provincial governor Kong Sophoan has ordered local authorities to prohibit the construction of buildings in areas bordering Cambodia and to report any irregularities immediately. Recently, Vietnamese officials removed another seven tents from the border area with Cambodia. His remarks were made on Wednesday afternoon