Volunteering at the Cambodia Microfinance Association (CMA) during the last two months has given me a bird’s eye view of Cambodia’s microfinance sector. Prior to taking the full dive into my research, I naively assumed that Cambodia’s economy would benefit tremendously from Yunus’ highly-acclaimed Grameen Bank model. Unbeknownst to me Cambodia’s microfinance sector is already one of its claims to fame, whose business approach to microfinance would however not be endorsed by Yunus. Approximately 860,000 borrowers strong, the microfinance institutions (MFI) operate as private limited companies. The sector is bolstered by a continuously amending legal framework, international investors, and free-market competition. Having been bestowed multiple awards by the Consultative Group to Assist the Poor (CGAP), HE Prime Minister Hun Sen declared 2006 as Cambodia’s Year of Microfinance.
Laudable, yes; financial crisis-proof, no. Today’s global financial crisis is striking across all sectors of Cambodia’s economy and poignantly challenging the sustainability of its microfinance sector. I’ve landed right into the sector’s fight to tread water; most of my research is focused on the sector’s efforts to establish a private credit bureau in order to dampen the mounting cases of multiple loans. I recently attended a workshop wherein CMA invited 150 leaders in the Cambodian microfinance sector to participate in its third annual Healthy Competition Workshop in Sihanoukville in effort to strengthen the Cambodia microfinance industry. The workshop was presided over by Mr. Kim Vada, Deputy General Director of the NBC, and participants included leaders from the National Bank of Cambodia (NBC), Ministry of Economy and Finance (MEF), Rural Development Bank (RDB), ACLEDA Bank, CMA, 19 MFIs and 9 registered NGOs.
The two-day workshop focused primarily on the prevalence of multiple lending, whereby an individual has taken out loans from more than one MFI, and thereby unable or unwilling to commit to the terms of his or her multiple loans. These cases limit the involved MFIs to resort to suboptimal options, which include selling the client’s collateral, writing-off the respective loan outstanding as bad debt, restructuring or rescheduling the loan, or bringing the client to court. During the workshop participants outlined the root causes of this mounting problem as follows:
*Lack of a thorough preliminary credit assessment – Currently, loan officers are providing loans without conducting detailed assessments of clients’ credit history. Loan officers may lack proper capacity building and training or may feel pressure to reach a loan quota in order to receive commission and earn favorable opinion from their branch managers.
*Weak credit-reporting system – Today, the Cambodian financial sector is equipped with a dismal and incipient Credit Information Sharing System (CIS). It is based on a single database owned by the NBC, which MFIs have very limited access to, and is not user-friendly. Furthermore, the system provides only negative information and consumer rights regarding data are not properly addressed. The NBC is currently drafting a law to implement a credit bureau for use by both the banking and microfinance sectors. The credit bureau will include both positive and negative information of the client.
*Issuing of multiple land titles by local authorities – The Ministry of Land Management recently issued a Land Law to manage the issuing of land titles by local authorities. However loosely enforced, multiple land titles for the same land lot to villagers continue to be issued in return for kickback pay and constituent support. Clients often provide these duplicate land titles as collateral for their loans knowing that MFIs are unable to verify the authenticity of the land title. Hereby, in the event the client is unable to repay his or her loans, multiple claims on the same collateral will make it hard for MFIs to minimize their loan outstanding.
The workshop adjourned with CMA and its members drafting a Memorandum of Understanding (MOU) on healthy competition to address the problems at hand. The MOU included outlined alternative solutions to deal with existing cases of multiple loans and how to prevent future cases, improve capacity building for MFI staff, and strengthen relationships with potential competitors who operate within the same communities. The MOU will be agreed upon and signed by all CEO members in the next CEO meeting.
Beach Diversion in Sihanoukville with CMA Team
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