MICROCAPITAL.ORG STORY: Cambodian MFIs Cut Interest Rates: Observations From Phnom Penh-Based MFIs Hattha Kaksekar Limited, Prasac MFT Ltd and CHC Limited

A recent report in the Phnom Penh Post [1] states that microfinance lenders have cut interest rates by 0.2 to 0.5 percent in order to ‘attract customers amid an intensely competitive market’, according to the chairman of the Cambodian Microfinance Association (CMA) [2]. The cut in interest rates comes after Cambodian MFIs were criticised for applying high rates to their clients. Some MFIs stated that these high rates were necessary to cover their costs. According to Mr Hout Ieng Thong who is the CEO of Phnom Penh-based MFI Hattha Kaksekar Limited (Hattha) [3], the rate cut would not adversely affect the profitability of Cambodian MFIs nor expose them to possible bankruptcies. Mr Hout was quoted as stating that Hattha was not able to reduce rates earlier in the year due to operational costs but that they are now able to do so. Hattha reduced their rates from around 3 percent per month to 2.5 percent.

Hattha supplies data to the MIX Market portal [4], an online database that houses financial and other information on MFIs across the globe. Hattha [5], which was established in 1994, has a gross total loan portfolio of USD 29,050,403 and 44,467 borrowers as at 2008. Its total assets is 36,065,096 and it has a capital to asset ratio of 18.85 percent and a debt to equity ratio of 4.31.

Another Phnom Penh-based MFI, Prasac MFI Ltd (Prasac) [6], recently reduced rates from 3 percent to 2.7 percent per month, while rates on smaller loans were dropped from 2.2 percent to 1.6 percent, after borrower numbers dropped from 100,000 customer last year to 80,000 as of August 2009. General Manager Mr Sim Senacheert was quoted as stating that the economic downturn has had adverse effects on borrowers’ incomes and that this, together with increased competition among MFIs, were some of the reasons for the reduction in interest rates. He added that he is aware that this move will affect Prasac’s income levels but added that ‘we are willing to take the risk because we have reduced operating costs from 23 percent in 2003 to just 8 percent this year.’ Prasac submits data to the MIX Market portal [7] and has a gross loan portfolio of USD 59,380,115 as at 2008 with 100,116 active borrowers. It was established in 1995 and has total assets amounting to USD 61,262,237, a capital to asset ratio of 32.32 percent and a debt to equity ratio of 2.09.

A less positive view was provided by the General Manager of Phnom Penh-based MFI, CHC Limited (CHC) [8], Mr King Kap Kalyan. Mr King was quoted as stating that the rate cut exposed lenders to financial risks and that ‘MFIs really should not reduce interest rates at this time because our foreign lenders have increased their rates and non-perfoming loans have increased, but we don’t have a choice because of market competition’. He added that CHC reduced its average rates last month from 3 percent to 2.6 percent. CHC submits data to the MIX Market portal [9]. Established in 1994, CHC has a gross loan portfolio of USD 4,778,709 and 10,340 active borrowers as at 2008. It has total assets of 5.096,774, a capital to asset ratio of 18.12 percent and a debt to equity ratio of 4.52. The recent problems facing the microfinance sector in in Cambodia have been covered in previous Microcapital.Org stories [10], [11], [12], [13], [14].

Cambodian Economic Association [15] President Chan Sophal was quoted as being happy with the rate cut. He stated that Cambodian MFIs already charged too much interest compared with lenders in other countries. He added that ‘the interest rates charged by MFIs are too high, and they take a lot of profit as a result, so this initiative will give some of those profits back to customers’.

By Chinq Yee Chong, Research Assistant

Bibliography

[1] The Phnom Penh Post article ‘Microfinanciers Slash Rates’: http://www.phnompenhpost.com/index.php/2009090728213/Business/microfinanciers-slash-rates.html

[2] Cambodian Microfinance Association (CMA): www.cma-network.org/

[3] Hattha Kaksekar Limited: www.hkl.com.kh/

[4] MIX Market: www.mixmarket.org/

[5] MIX Market profile for Hattha Kaksekar Limited: http://www.mixmarket.org/mfi/hkl

[6] Prasac MFI Ltd: www.prasac.com.kh/

[7] MIX Market profile for Prasac MFI Ltd: http://www.mixmarket.org/mfi/prasac

[8] CHC Limited: www.chcmfi.com/

[9] MIX Market profile for CHC Limited: http://www.mixmarket.org/mfi/chc-limited

[10] MICROCAPITAL STORY: Microfinance Down in Cambodia: Microfinance Institutions (MFIs) Reduce Loan Volume in First Half 2009