Unlicensed lenders called out

Commuters bike and drive by the National Bank of Cambodia in 2012
Commuters bike and drive by the National Bank of Cambodia in 2012. The government is encouraging citizens to use established formal lenders, according to a new statement. Sovan Philong

Unlicensed lenders called out

Officials have released a public statement warning against a rise in unlicensed lenders they say are dangerously operating outside of Cambodian regulations and threatening financial stability.

In a joint declaration from the Ministry of Economy and Finance and the National Bank of Cambodia on Monday, authorities say that there is an increasing prevalence of unlicensed lenders, often operating in small groups and masquerading as NGOs or microfinance institutions (MFIs), claiming to be officially-licensed lenders.

Officials urged people to double check on the credentials of these lenders and warned that such bogus operators can have dangerous effects on people’s livelihoods.

“This act in giving a loan is [wrong], not only when operating without having a licence from National Bank of Cambodia, but also operating by cheating and charging a high interest rate,” the announcement reads.

“Such a practice makes loan takers fall more seriously into debt, separate from relatives [through migration due to indebtedness], and lose their property,” the statement continues.

The announcement calls on unlicensed operators to show a case for a licence or face a legal crackdown.

Mey Vann, director of the Industry and Finance Department at the Ministry of Economy and Finance, told the Post yesterday that the purpose of the announcement is to alert the public about the high risk of borrowing from an informal lender.

“These informal operators give loans to people with short-term payment, but charge interest rates twice or triple to [that of] a formal institution.”

Vann said that he had heard reports of lenders operating outside of government regulations also confiscating property.

“From now, we are going to work closer with the local authorities, like village and commune chiefs, to collect information about the [informal] group and will apply the necessary actions based on actual case,” he added.

Unlicensed lenders were hurting the reputation of legal lenders like MFIs, Vann said.

The NBC has provided licences to 39 microfinance institutions. Data from the Cambodian Microfinance Association (CMA) revealed that at the end of last year, 1.8 million Cambodians had MFI clients.

The industries loan portfolio was worth $2.03 billion at the end of 2014.

Of that loan book, $12 million is considered a non-performing loan, or late re-payments, which represent just 0.56 per cent of the country’s portfolio.

While the low rate reflects the strong repayment ability of MFI clients, there are also concerns that people are taking multiple loans from money lenders at higher rates in order to cover their MFI loans.

Bun Mony, president of Cambodian Microfinance Association, stopped short of saying informal loans were being used to prop up MFI loans, but acknowledged there was a increase of unlicensed groups who work under the guise of microfinance institutions, and are loaning on terms as short as a week.

Mony estimates that such unlicensed lending associations operating in Cambodia now number in the hundreds.

“They [unlicensed-lending groups] are making people lose out, they are creating a bad image for formal institutions, and they are also making the government lose revenue by not paying tax,” he said.

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