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
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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.
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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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