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NGO Statement, 2000 Consultative Group Meeting On Cambodia


 MICROFINANCE 

TABLE OF CONTENTS


NGO Statement to the 2000 Consultative Group Meeting on Cambodia

- Home.................................
- About us.............................
- Message.............................

- Introduction........................
- Progress.............................
- Good Governance................
- Human Resource 
- Development
......................
- Reaching the Poor...............
- Conclusion..........................

Sectoral Papers..................

- Agriculture..........................
- Child’s Rights....................
- Commune Administration 
- and Decentralization
............
- Commune Elections..........
- Disability and Rehabilitation..
- Education............................
- Fisheries.............................
- Forestry Reform..................
- Gender and Development.....
- Good Governance................
- Health................................
- HIV/AIDS...........................
- Human Rights......................
- Landmines..........................
- Land Reform.......................
- Microfinance.....................
- Weapons Reduction.............

General NGO Information...

References.........................

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


INTRODUCTION

Access by the poor to micro-credit and savings programs is crucial in alleviating Cambodia's extreme poverty and accelerating economic growth. The vast majority of Cambodian people have no, or very limited access to credit and savings services. Cambodia's few commercial banks (31) are predominantly concentrated in Phnom Penh and in 1998 only six banks had branches outside the city. There were no bank branches in 16 provinces containing 48% of the total population. Impoverished Cambodians even living in proximity to commercial banks are denied services. As a result, only one percent of total respondents to a recent socio-economic survey reported having borrowed from a bank.

To fill this gap, NGO micro-credit programs have expanded rapidly since 1992. In 1999 approximately 72 NGO credit programs were operating in 18 provinces. Among the 47 larger programs which responded to a survey for the National Bank, as of 31 December 1999 the total amount of loans outstanding was approximately $23 million lent to 334,145 families (18% of Cambodia's families). These 47 programs represent an estimated 90% of NGO-related lending. The average loan in 1999 was 259,000 Riel (approximately US$68). Loans larger than 380,000 Riel (US$100) are usually lent in hard currency. It is estimated that a further US$10 million in credit is supplied through friends, relatives and moneylenders. Demand for rural credit is estimated to be in the range of US$100-$150 million resulting in a credit gap of US$77-$175 million. Therefore, the current supply of micro-credit is still considered very inadequate.

In October 1999 the Royal Government of Cambodia passed a commercial banking law. An attachment directive was passed in early January 2000 on the licensing of the few more extensively developed micro-finance institutions. 

KEY ISSUES

  • Limited access to financial services
    The vast majority of Cambodian people have limited access to financial services. With limited access to financial services other than family and friends, people have relied on moneylenders and traders for investment capital to finance essential inputs for agricultural production or micro- enterprises. 

  • High Interest Rates
    With moneylenders' nominal interest rates ranging from 10 to 30 percent per month, this has seriously constrained economic growth among the poor as extremely high interest rates have undermined the borrower's ability to achieve an adequate profit. Furthermore, with such high rates of interest, borrowers run the risk of entering a perpetual cycle of indebtedness. The interest rates of NGO credit programs in Riel averaged approximately 4% in 1999 and by comparison to the market were quite favorable. Interest rates on hard currencies differ.

RECOMMENDATIONS

NGO recommendations with regards to the development of the micro-financial sector are as follows:
Royal Government of Cambodia

  • Continue to adopt economic policies that encourage private investment, lower inflation and maintain a stable exchange rate for the country as a whole in order to promote rural economic growth.

  • Enforce laws recently passed for the banking and micro-finance sector and enforce inter- nationally accepted prudential regulations to build strength and confidence in the Cambodian banking system.

  • Formulate a policy, legal and regulatory framework that allows for diversity in institutional structures and credit delivery schemes for both formal and non-formal financial institutions.

  • Credit policy should allow the free market to determine interest rates for credit and promote positive real interest rates on deposits.

  • Avoid implementation or funding of subsidized or directed credit schemes or interest rate controls as they undermine the development of the micro-financial system.

Donors

  • Introduce complementary development programs to address the constraints to micro-enterprise development and rural economic growth.

  • Provide substantial support for training and technical assistance to develop Cambodia's human resource and institutional capacity at all levels.

  • Enhance donor coordination to ensure that donor funded programs complement the development of the micro-finance system.

  • Avoid supporting programs which are neither transparent nor accountable to external controls. Avoid supporting subsidized, directed credit schemes.

  • Supported microfinance programs should be designed for financial and organizational sustainability and be committed to demonstrating best practices and good governance.


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