Cambodia’s finance industry has launched the ‘Banking and Financial Institutions Code of Conduct’ with plans to award institutions with ethical certifications aiming to increase the current level of trust and accountability of its members.
The three associations that launched the code included Cambodia Microfinance Association, Association of Banks in Cambodia and the Cambodia Association of Finance and Technology and is in line with the Financial Sector Development Strategy 2016-2025 and the National Financial Inclusion Strategy 2019-2025.
The code will guide all banks (both commercial and specialized), microfinance intuitions as well as payment service institutions licensed under the industry regulator, the National Bank of Cambodia and will be self-regulated.
In addition, the sector has also revised the current Lending Guidelines to Prevent Over-Indebtedness for loans under $20,000 introducing requirements for lenders to stop clients from obtaining multiple loans from different institutions.
Cambodia’s financial industry has come under scrutiny from non-government institutions highlighting misconduct by lenders and staff. Some of the most common complaints include aggressive selling and debt repayment techniques as well as non-transparent fees and charges.
In response, the key guidelines under the ‘Banking and Financial Institutions Code of Conduct’ include issuing clear marketing and advertising content, hassle-free debt collection and to stop aggressive selling techniques.
Members must also agree to maintain customer’s data privacy, provide financial literacy to their customers, encourage women enterprise, protect social causes and prevent over-indebtedness.
If institutions fail to adhere to these guidelines under the code consumers are provided a four-step dispute resolution mechanism that includes: the resolution of consumer complaints by the NBC, mediation with the relevant association, direct approach to NBC and finally the courts and authorities.
Institutions may dispute any perceived violation through a two-step mechanism of amicable resolution between stakeholder and then courts or authorities may be used.
Code of Conduct established with five main objectives
- Set business operating standards for banking and financial institutions to follow, as well as enhance efficiency, confidence, accountability and responsibility in providing financial services.
- Increase transparency for users to better understand what they expect from the services that will be provided.
- Build a good, honest and professional relationship between consumers and financial institutions based on the principles of equity and equality
- Increase confidence in the banking and financial system and
- Encourage a good business culture and honest competition.
Speaking at the launching ceremony ABC Chairman Dr. In Channy outlined the code was designed to prevent over-indebtedness and protect vulnerable customers as well as contribute to achieving a stable, efficient and diversified financial system support sustainable economic growth, increase people’s incomes and reduce poverty.
He added the code would be reviewed on a regular basis to monitor developments in the financial sector in Cambodia or when changes are made or required by applicable laws and regulations to ensure compliance with legal and regulatory frameworks.
Remi Pell, Chairman of Cambodian Association of Finance & Technology said in his keynote speech the code will be the first for Cambodia however would not be the last in its form. He added, the code sets out an inclusive ethical framework, “but it is not perfect and shall be revised based on market benchmarks and global best practices in the coming years”.
There were questions raised around the effectiveness of self-regulation and if financial penalties or expulsion from the associations would be imposed to those members that failed to adhere to the guidelines.
No direct answer was given to this question however the associations stated the use of awards would create a ‘market based’ incentive for institutions to follow the guidelines to attract more customers.
Client protections for loans below $20k
Cambodia’s microfinance sector has come under the most scrutiny by non-government organizations after a 2013 study on overindebtedness revealed concerns about the number of overindebted clients.
According to research conducted by the association, the findings on customers with multiple loans are “indisputable: customers with more than three loans have a significantly higher risk of over-indebtedness compared to those with fewer loans”.
In response, the new guidelines state lenders cannot issue loans active loans listed in the CBC from three or more financial institutions if none of those loans has an original disbursement amount greater than $20,000.
Sok Voeun, Chairman of Cambodia Microfinance Association said in his keynote speech that in addition to the ethical and professional standard of practices, the code focuses on responsible lending through the Lending Guidelines and Client Protection Pathway (CP Pathway).”
“The Lending Guidelines is primarily designed to reduce the risk of excessive debt by improving data reporting and preventing unhealthy competition through limiting the level of multiple lending and refinancing.
To ensure all Banking and Financial Institutions comply with the lending rules, the associations have also established a mechanism to monitor the implementation via a monthly monitoring dashboard. Moreover, CP Pathway is globally recognized as the golden standard for implementing strict standards and policies to ensure clients are protected,” he added.
Cambodia Investment Review has previously reported on the importance of ensuring a strong and robust financial sector to strengthen economic growth and reduce poverty in Cambodia.