Associations respond to German-funded study on Cambodia’s microfinance industry

Harrison White

Association of Banks in Cambodia (ABC) and Cambodia Microfinance Association (CMA) have responded to a study on the microfinance industry which found the sector overall has a positive impact on borrowers while also raising concerns about over-indebtedness and land sales.

The study “Micro” Finance in Cambodia: Development, Challenges, and Recommendations was commissioned by the Federal Ministry for Economic Cooperation and Development (BMZ) after ongoing concerns by donors in the sector.

To read the “Micro” Finance in Cambodia: Development, Challenges, and Recommendations report click here.

In a jointly released statement the ABC and CMA said: the study stated microfinance in Cambodia contributes greatly and has a positive impact on borrowers’ livelihood, especially increasing their income and their land ownership.

Adding, the study addressed that: “The majority of all respondents attribute a good effect to the current loan, above all in the economic domain. Income increases are mentioned first…”

Furthermore, the associations said this study clearly illustrates that “the majority of all loans have positive to very positive effects from the borrowers’ perspective. They also consider the cooperation with the lending institutions to be rather unproblematic on the whole.”

Concerns surrounding over-indebtedness 

Referring to over-indebtedness the study found that while private debt in Cambodia was only 2.5% of the gross national income (GNI) in 2010, it rose to 19.9% by 2019, with a very large jump to 29.2% by the end of 2020.

One of the key recommendations the study made was to set the floor for real estate collateral on loans reviewed by the CBC at an amount that could range from $2,000 to $,3000, depending on the purpose of the loan.

In addition, the study recommended separating the credit assessment by MFIs and banks from the question of whether the loans can be secured with land titles. Stopping overly aggressive door-to-door sales techniques was also highlighted.

“Besides the massive impact stated above, the study also confirmed that credit was almost never the main cause for child labor or migration. In contrast, majority of borrowers experienced a positive impact from their credit facilities; increase in their personal income as well as an increase in land ownership as stated above,” the joint statement said.

Kaing Tongngy, spokesman for the Cambodia Microfinance Association.

“The study has also pined some negative cases on loan assessment, aggressive marketing, and land sales. However, regarding to 1.2% p.a. of land sales, the author clearly states, “Not all land sales represent a profound economic and social collapse for the household, partly due to the progression of land prices in Cambodia,” the statement added.

According to the associations, they understand and respect concerns raised in the study, but we believe that the limitation of the study does not reflect the whole sector and that they could be caused by the different definitions of “over-indebtedness” or the different contexts of microfinance in Cambodia.

“We regret that some stakeholders have solely drawn attention to negative points, disregarding the full context of the report, to amplify their statement which is very misleading to the public. First and foremost, please be assured of our continued commitment to responsible lending which has always been the core agenda of the financial industry,” the joint statement said.

The industry code of conduct

Cambodia Investment Review recently spoke with the Chairman of CMA Mr. Sok Voeun about assuring the sector’s prosperity and sustainability for his members, addressing any negative perceptions and future trends.

To read the full CIR Leader Talks with Mr. Sok Voeun click here.

Most recently Cambodia’s three leading financial associations 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 ABC, CMA, and other relevant stakeholders have put a lot of effort to ensure the sustainable growth of the industry and a positive impact on clients.

The three institutions that launched the code included Cambodia Microfinance Association, Association of Banks in Cambodia and the Cambodia Association of Finance and Technology.

“This is clearly evidenced through introducing the Lending Guidelines, the Banks and Financial Institution Codes of Conducts, Regional Branch Manager Trainings, Standard Loan Contract, and Responsible Lending Certification program as well as client empowerment through financial literacy programs,” the joint statement said.

“On top of the above steps and initiatives that we have taken, we will be engaging an international independent external party to conduct an in-depth impact study on the microfinance sector,” it added.

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.

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