Micro-finance

The COVID-19 pandemic has hit global and Cambodia’s economies hard, having a spillover on the stability of the banking system. Banks and financial institutions have continued to provide services to customers, which can be seen through the rise in the number of depositors’ accounts to 8.9 million and borrowers’ accounts to 3.2 million and expansion of networks to 2,542 locations and 3,177 ATMs, according to the annual supervision report 2020 by the National Bank of Cambodia (NBC).¹

Despite the crisis, the microfinance sector (MFI) remains strong due to the public confidence and increase in the usage of financial services in rural areas. According to the NBC report, in 2019, the total assets of microfinance were valued at KHR 35.9 trillion, a steady increase from 2016 before experiencing a sharp decline to KHR 34.3 trillion in 2020.²

Microfinance debt

According to the NBC data, the total value of the loan stood at KHR 27.5 trillion in 2020.³ The growth in the loan was for the needs of the under-served small and medium enterprise market.⁴ Many borrowers have benefited from the loan. In contrast, others have become over-indebted and eventually will lose their assets. The land is usually used as collateral, so those who cannot keep up with repayment risk of losing their lands, which shows how people lack financial literacy. “... Having said so, the NBC has a clear plan in promoting financial literacy through different seminars to educate people on finance matters and dangers of having multiple loans with Microfinance and informal lenders.”, said Chea Serey, Director General of NBC. She further added that financial literacy supports not only their own interests but also the economic health of the nation.⁵

According to a report issued in 2019, most MFI clients suffered from human rights abuses due to their debts. The researchers interviewed 28 households, of which 22 had experienced coercive land sale, 13 in child labor, 18 in migration, and 26 in having less or lower quality food. Also, 20 households had taken out another loan to repay the existing MFI loan while 22 had borrowed from a private lender while they were still borrowing from MFI.⁶ Microfinance debt was also the cause of migration, according to the research conducted by the Cambodian League for the Promotion and Defense of Human Rights (LICADHO) on the relationship between migration and microfinance in the northwestern province of Banteay Meanchey.⁷ A 2019 report from IOM noted that it is the nature of microfinance in Cambodia that uses the land as collateral, which can lead to human rights abuses. The report further added that “The potential to lose a home or land can create tremendous pressures for repayment and lead would-be migrants to make risky choices, and can create an urgency that is unique to this form of borrowing”.⁸

Website features "Right to Relief: Indebted Land Communities in Cambodia Speak Out"

The researchers could also observe the reckless lending of many MFI credit officers since the officers still offered loans to those who clearly could not repay them and pressured them to pay off the loans through coercive land sales or other unethical measures.⁹ MFIs, commercial banks and their investors are responsible for the over-indebtedness since they have continued to fund the expansion of microloan and loan portfolio sizes though there are warnings from economists and human rights NGOs. At the end of 2019, more than 2.6 million people held over $10 billion in microloans, of which borrowers held $3,804 as an average - the highest average microloan in the world, exceeding the GDP per capita or annual incomes in Cambodia.¹⁰

After introducing the ceiling rate in 2017, the number of borrowers reduced though the total microloans remains increasing. A working paper, Impact of Interest Rate Cap on Financial Inclusion in Cambodia, by International Monetary Fund, offered policies to enhance the borrower protection framework, foster healthy competition and promote the microfinance industry efficiency, which allows the protection of borrowers from excessive interest rates and negative impact of the cap.¹¹

Cambodia Microfinance Association

Cambodia Microfinance Association (CMA), an NGO and association ensuring the microfinance sector’s prosperity and sustainability, has played an essential role in facilitating microfinance operations and communication with authorities, national and international donors, creditors, and investors.¹²

Screenshot of the Cambodia Microfinance Association website, dated on 24 December 2021. Licensed not specified.

On April 07, 2021,​ the CMA and the Association of Banks in Cambodia, an official organization recognized by the Royal Government to represent the country’s private banking sector, issued a joint statement to encourage the financial institutions to further relax repayment measures through six debt relief measures during lockdowns and spread-prevention of the pandemic.¹³

On April 27, 2021, the CMA also urged its members to release more credit since the February community transmission impacted all businesses. Kaing Tongngy, CMA Communications Department, said that the issues were likely to spill over to other sectors. He encouraged the public to seek mediation or intervention from CMA if the member institutions could not resolve the problems. He further requested that the customers who had less or no impact from the pandemic should repay their loans regularly to allow the institutions to help other customers.¹⁴

Related to Micro-finance

• Banking and financial services
• Banking and financial services policy and regulation
• SDG 10 Reduced inequalities