Microfinance, one of the fastest growing sectors in the Kingdom of Cambodia, is all set to weather the current economic crisis with strong growth, according to industry experts. According to a press release on The Phnom Penh Post, although the growth of the microfinance sector this year would be at a slower pace than previous years, the industry is still stable and expected to grow at double-digit rates. Commenting on the slight slowdown but stable situation of Cambodia’s microfinance sector this year, Paul Luchtenburg, the Chief Executive Officer of the Cambodian microfinance institution (MFI) AMK microfinance said that although the decrease in financing and foreign capital have made Cambodian MFIs more conservative in their lending practices this year, the sector overall was still heading towards positive, albeit slightly slower growth.
Cambodia is one of the most rapidly developing microfinance sectors globally, according to a report by the International Finance Corporation (IFC), the private sector lending arm of the World Bank. An IFC study reveals that microfinance in Cambodia has been growing at the rate of about 20 percent since 2004. By the end of 2008, the National Bank of Cambodia (NBC) had recognized and licensed 18 Microfinance Institutions (MFIs) in Cambodia, each with an asset portfolio greater than Reil 100 million (approximately equivalent to USD 25 thousand). In addition, 25 NGOs providing microfinance services are also registered with the NBC.
According to the 2008 Microfinance Policy and Regulation survey published by the International Development Law Organization in association with Cambodia Ministry of Economics and Finance, the Cambodian microfinance sector needs about USD 20 million (p4) in investments per year. Foreign direct investment (FDI) in Cambodia has so far reached around USD 600 million, according to CREDIT, the Cambodian MFI established by the US based organization, World Relief. In view of the economic crisis, the Cambodian Microfinance Association stated that lower foreign investments would result in a 20 percent reduction in Cambodia’s anticipated fulfillment of customer credit needs. MicroCapital had also previously reported on the reliance of Cambodia’s microfinance sector on foreign capital and the impact of the global economic crisis on FDI in Cambodia; the full text of the story is available here.
In 2008, the government of Cambodia permitted Cambodian MFIs to start accepting deposits. This greatly increased access to capital and helped reduce dependence on foreign investors. The release states that Cambodians have been ‘quick to embrace savings accounts’, and deposits now make up a sizable chunk of MFI assets. The presence of strong local deposits and a greater awareness of banking are expected to keep microfinance growing despite the financial crisis. Explaining the relative stability of Cambodia’s microfinance sector, the President and CEO of ACLEDA Bank (a Cambodian MFI), In Channy, said the growing deposit base of MFIs was strong enough to compensate for the decrease in foreign capital. He added that low exposure of Cambodian banks to risky real estates also helped shelter microfinance from the economic slowdown. No further information is available in this regard.
IFC estimates that a total of 800, 000 Cambodians saved nearly USD 423 million in 2008 alone. According to Margarete Biallas, the program manager at the Finance Advisory Services for the IFC, the past five years have witnessed a significant increase in the number of savers in all provinces of Cambodia with the total number of savers reaching over 400,000 as opposed to over 800,000 borrowers. The press release quoted Ms. Biallas as saying that because MFIs are the only financial services available for most of Cambodia’s population, the Cambodian microfinance sector would only expand and grow as long as MFIs have the funds to lend.
By Bharathi Ram, Research Assistant
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