Cambodia Investment Review
The Association of Banks in Cambodia (ABC) and the Cambodia Microfinance Association (CMA) have jointly introduced new regulations aimed at bolstering responsible business practices within Cambodia’s banking and financial sectors. These measures are designed to ensure a robust, sustainable, and highly responsible financial environment, providing enhanced consumer protections and maintaining the stability of the sector.
According to a joint announcement by the two associations, the newly adopted rules are intended to address several critical areas of concern, particularly regarding the use of certain types of land as collateral for loans, the handling of personal identification documents, and the provision of credit to vulnerable households.
Key Provisions of the New Regulations:
- Restrictions on Land Collateral: The regulations strictly prohibit banking and financial institutions from accepting various types of collectively-owned land as collateral for new loans. This includes private land, public state land that is already registered, indigenous community land, and land under the jurisdiction of the APSARA Authority, among other protected areas. The intent behind this rule is to safeguard community-held or state-owned lands from being encumbered by financial agreements that could jeopardize communal ownership or public interests.
- Ethical Handling of Collateral: In cases where an institution holds collateral consisting of such lands, they are now expressly forbidden from using coercive sales methods or encouraging customers to sell these lands. Furthermore, the regulations mandate that titles used as collateral must be returned to the customer upon the completion of loan repayment, ensuring that the borrower’s property rights are respected throughout the transaction.
- Personal Identification Document Protections: The associations have also emphasized the importance of protecting borrowers’ personal identification documents. The new rules forbid institutions from accepting National Identity Cards, family books, residence books, passports, birth certificates, and equity cards (ID Poor) as collateral for credit purposes. This measure aims to prevent the exploitation of borrowers’ essential personal documents in financial transactions.
- Thorough Assessment of Borrowers: For households that hold the equity card (ID Poor), banks and financial institutions are now required to conduct comprehensive assessments of the borrower’s ability to repay the loan. This is to prevent over-indebtedness and to ensure that loan amounts do not lead to excessive financial burdens on these households. This regulation highlights the importance of financial institutions taking greater responsibility in evaluating the financial capacity of vulnerable borrowers.
- Promotion of Financial Inclusion: The associations are encouraging member institutions to continue providing credit to individuals and communities that utilize collectively-owned land, including state land and publicly registered state land. The new rules advocate for the use of unsecured lending approaches, thereby reducing reliance on traditional collateral. Lenders are also urged to carefully evaluate the repayment capacity of these borrowers, aligning loan terms with their financial circumstances to foster financial inclusion.
Protection Of Consumers While Promoting Responsible Banking Practices
Mr. Sok Chan, Head of Financial Inclusion and Public Relations at the Association of Banks in Cambodia, stressed the importance of these new rules in ensuring the protection of consumers while promoting responsible banking practices. “Our primary goal is to maintain the stability and integrity of the financial sector, particularly in protecting vulnerable groups who may be at risk of over-indebtedness,” he stated.
Mr. Kaing Tongngy, Head of Communication at the Cambodia Microfinance Association, echoed these sentiments, noting that the new regulations are a proactive step towards safeguarding consumer interests. “By implementing these measures, we are reinforcing the commitment of our member institutions to operate in a manner that is both ethical and sustainable, ensuring that the financial sector can continue to support the growth and development of the country.”
The ABC and CMA emphasized that these rules are intended to serve as an additional mechanism to strengthen the existing framework of protections within the financial sector. Both associations reiterated their commitment to ensuring that the sector remains resilient, stable, and responsible, with a focus on protecting the interests of customers.
