Informal lending still thriving

The expanding banking sector and the spread of microfinance institutions (MFIs) in rural areas have failed to elbow informal, unlicensed money lending out of the market, industry experts say. Fast and easy access to money – as well as the fear of “losing face” by borrowing in public – are contributing factors keeping the sector afloat, especially in rural areas. … Loan portfolios of the 35 registered MFIs and four NGOs that are members of the Cambodia Microfinance Association reached $1 billion at the end of the first quarter, a 41 per cent increase from the same period last year. … But even with banks and microfinance giving informal lending a run for its money, five out of 10 Cambodian households that have at some stage borrowed money still access informal sources of credit, according to a study of rural and urban consumers conducted in June by Indochina Research. … Chandararot from the Cambodia Institute of Development Study scoffs at the idea of going after the sector. It poses “no risk to the economy and can make a financial system more flexible to demand,” he says. “Informal money lending is still filling a gap that formal institutions have not reached.” …  

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