Harrison White

The newly elected Chairman of Cambodia’s Microfinance Association Mr. Sok Voeun spoke with CIR Leader Talks about assuring the sector’s prosperity and sustainability for his members, addressing any negative perceptions and future trends.

The current Chief Executive Officer of LOLC (Cambodia) and previous Vice-Chairman of CMA, Sok Voeun has taken over the role from AMK Microfinance CEO Mr. Kea Borann as the industry looks to normalize after the COVID-19 pandemic.

Launched in 2004 the CMA was established as an NGO and professional association that aims to ensure the prosperity and sustainability of the microfinance sector in Cambodia. The association has over 120 members including 5 banks with a combined loan portfolio of approximately $12 billion and 2.5 million clients as of March 2022.

The CMA plays a vital role in creating local and international networks as well as seeking equity and loan funds, implementing new technologies and overseeing conflict resolution between microfinance operators.

“I take over the Chairman’s role after a few challenging year for the Microfinance sector and overall general economy due to the COVID-19 pandemic which was greatly assisted after unprecedented interventions from the National Bank of Cambodia,” Sok Voeun said.

To read more about the NBC’s COVID-19 response click here.

“These COVID-19 allowances which included multiple loan restructuring helped alleviating the burden and gave concession to clients during the impacts as well as allowing the financial sector to remain sustainable.” Sok Voeun said.

“However, while the NBC’s intervention was necessary during the pandemic, now it is important that as an industry we begin the path to back normalcy. We also need to address any underlying sustainability issues in line with the government’s financial development and inclusion agenda,” he added.

Ensuring members adhere to guidelines

Addressing these concerns, Cambodia’s three leading financial associations have recently launched their flagship Banking and Financial Institutions Code of Conduct and updated Lending Guidelines to Prevent Over-Indebtedness aiming to increase the current level of trust and accountability of members.

The guidelines aim to address some of the most common complaints by critics of the industry including aggressive selling and debt repayment techniques as well as non-transparent fees and charges.

In addition, lenders cannot approve loans to customers that already have debts with three or more lenders for an amount greater than $20,000.

To read more about the new code of conduct and updated guidelines click here.

“One of my main tasks as Chairman will be to ensure all members conduct themselves under the ethical and professional standard of practices set by the code which focuses on responsible lending through the Lending Guidelines and Client Protection Pathway,” Sok Voeun said.

“The Lending Guidelines have been 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,” he added.

To assist members, the association has been conducting a series of workshops for its member’s district and provincial branch managers across Cambodia to strengthen their capacity for effective, sustainable, ethical and professional branch management.

Questions have been raised around the effectiveness of self-regulation and the fact no member has ever been publically disciplined. However, Sok Voeun insists members that failed to adhere to the guidelines will be referred to the regulator who can impose financial penalties or expulsion from the association.

Responding to constructive feedback

As Cambodia’s microfinance sector has developed away from its traditional framework of a charity based financial service in the 1990s towards ‘for profit’ financial institutions, the industry has come under scrutiny from both non-governmental organizations as well as international media outlets.

In response, Sok Voeun agreed that Cambodia’s microfinance sector had grown significantly over the past 30 years from post-war charity-based projects to a much more sophisticated financial system.

“Cambodia’s microfinance sector is considered to be among the top three in the world with large investors from different continents. Such reputation, of course, draws significantly high expectation,” he added.

The most recent high-profile international buyout occurred this year when the New York Stock Exchange listed KB Financial Group (NYSE:KB) fully acquired Cambodia’s largest microfinance institution PRASAC Microfinance paying $322 million for a remaining 30% of the company.

To read more about the PRASAC Microfinance buyout click here.

“Over the last several years, Cambodia’s microfinance reputation like those of other countries has come under scrutiny from allegation of unethical practices and human rights abuses. While we admit that this sector is not perfect, we are working tirelessly to improve it as the sector keeps growing,” Sok Voeun said.

“Microfinance in Cambodia involves 2 million borrowers, 3 million depositors, 40 thousand employees, and a huge number of stakeholders. The sector is significantly complex, and each stakeholder has a different interest. Finding the balance and building harmony is no easy task,” he added.

Consolidation and digitization coming for the sector

In addition to addressing any ongoing sustainability concerns Sok Voeun is also looking to future prosperity. He outlined that the current number of lending institutions will not be sustainable in the long-term expecting that smaller lenders will be absorbed by the big microfinance institutions.

Last year the regulator announced it would stop issuing new licenses for microfinance deposit-taking institutions encouraging mergers among existing banking and financial institutions as a viable strategy.

To read more about the regulator banning additional microfinance deposit licenses click here.

“Ongoing digitalization of the industry is also rapidly progressing with the local sector ready to take the next step in digitalization by embracing emerging technology such as blockchain, artificial intelligence, and alternative data over the coming years,” he added.

To read more about CMA’s digital transformation click here.

Sok Voeun hopes the CMA can continue to increase the level of financial literacy in the market, in particular about income and expenditure management, savings, debt management, and financial planning.

“Ensuring every Cambodian has a certain level of financial literacy is vital for people’s daily lives. The CMA believes that when its customers have better financial knowledge the sector can perform better and continuing to lift people out of poverty,” he said.