Local MFIs roll with the changes

16 Jul 2018  2054 | Cambodia Travel News

Content image - Phnom Penh Post
Kea Borann, the chairman of the Cambodia Microfinance Association talks about the state of the microfinance industry at his office last week. Heng Chivoan

The Cambodian microfinance sector has seen major changes over the past two years.

After being required to declare themselves as private institutions to differentiate from state-owned enterprises, the firms were subject to an 18 percent cap on annual interest rates, effective from April 1 last year. Recently, there has been an increase in illegal lenders offering risky loans to the public.

The Post’s Hor Kimsay talked to Kea Borann, chairman of the Cambodia Microfinance Association (CMA) about the recent changes in the sector.

Since the interest rate cap was implemented in April last year, have you seen any changes among microfinance institutions (MFIs)?

Yes, there have been changes. We found that last year, the number of clients in the MFI industry as a whole declined by nearly 200,000. This is the first time that this has occurred in the sector’s history. This happened after the central bank applied the interest rate cap.

So, where did the clients go? If those clients still take loans and go to private money lenders because they are unable to get one from an official institution, it is worrying. If so, the interest rate cap did not help but brought about a negative impact.

On behalf of CMA, however, we cannot assume anything yet. I cannot say this occurred because of the interest rate cap. There could be other factors. We can only prove this if we conduct a study.

How has net profit changed in the MFI industry after the interest rate cap?

Almost all microfinance operators have seen a decrease in profits and return on equity [ROE]. For instance, AMK Microfinance has seen ROE decline from 20 percent to 13.8 percent.

There is an increasing trend where MFIs sell a majority stake to commercial banks abroad. What are the factors behind that and how will it impact the industry?

I think it is normal. During the 1990s, all lending institutions were set up by NGO funds and operated as NGOs. In the late 2000s, there was commercialisation in the sector as institutions shifted to become private enterprises.

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