Phnom Penh Provincial Branch Meeting

The provincial branch meeting (PBM) is a forum for CMA members to share and discuss current developments within their respective operational area. They are held on a quarterly basis and as needed with all middle management representatives invited to participate including branch managers and authorized decision-making staff. As of December 2009, CMA had conducted 71 PBMs with 637 participants in 15 provinces.

The Phnom Penh Provincial branch managers met on Wednesday, February 17th 2010 at the Amret Head Office to review the terms of reference (TOR) which provides guidelines for conducting PBMs. Only 7 out of 20 member MFIs attended the meeting. Those MFIs which were not represented had prior commitments while a few may not value the benefit in joining PBMs. Despite the small turnout the attendees proceeded with the session with comments on the TOR, raising issues concerning the representation of Phnom Penh’s microfinance network. The group drew up stricter parameters to define the duties of member MFIs in maintaining a healthy and sustainable microfinance sector. One such amendment was the shared responsibility of the chairperson to notify the CEO of the MFI whose representatives missed a determined number of PMBs. The group also iterated that CMA does not have an authoritative role, that which belongs to the National Bank of Cambodia, but rather serves as an independent and neutral coordinator for Cambodia’s microfinance sector. The signing of the TOR will take place next month to ensure that all members have the opportunity to contribute their comments.

National Bank Grants AMK Deposit License

On February 5th, the National Bank of Cambodia (NBC) issued a deposit license allowing AMK to collect voluntary savings from the public. AMK is the third MFI, along with Amret and Sathaphana, equipped with a deposit-taking license. The MFI will offer 11% for riel currency and 8% for dollars as savings account rates and lower yet still competitive rates for current accounts. These figures are considerably more attractive than those offered by commercial banks as many have excess liquidity and have lowered their interest rates.

Since the global financial crisis hit, deposits have become a high commodity for many MFIs financed by international lenders as they provide a more accessible (cheaper and faster) source of financing. Mobilizing savings has however presented a challenge for MFIs as clients in Cambodia's rural provinces continue to be suspicious of financial institutions, thereby traditionally storing their savings in kind viz. in gold and livestock.

Let me get 'em dollar dollar bills

I thought I had found a bargain deal when I hailed down a tuktuk to take me from the Independence Monument to the Central Market for 2.5 riels. After I handed him 3 USD, he asked me if I minded getting change in KHR. He really meant 2 USD, womp womp.

Cash money (preferrably USD) makes the world go round

Today, 1 USD will buy you 4,100 KHR but unless you want to have a wallet overflowing with KHR, there is no need to swap these currencies. Cambodia’s economy is heavily dollarized with most entrepreneurs and businesses preferring to make transactions in USD.

The dollarization of an economy is almost expected in the aftermath, of a post-conflict country, and longer thereafter. The destruction of the financial and banking sectors coupled with the lack of trust in the government make for a weak local currency. In Cambodia's case, the 1975-9 Khmer Rouge regime left the national bank baseless and the Khmer people looking elsewhere for income. It was the large influx of international aid after the signing of the 1991 Paris Peace Agreements which supplied the country with the more stable USD, enabling the country to rebuild itself. Thus today's payments in USD is simply business as usual.

What are the implications of a dollarized economy for the Cambodian microfinance sector?
1. Those who use neither USD nor KHR

Microfinance is generally applied as a poverty-alleviating tool in developing countries. It has been very successful with poor micro-entrepreneurs but is not a one-size fit all solution to end poverty. Many Cambodians who are unaccounted for in national surveys, make in-kind transactions rather than use cash either because they do not have access to hard currency or do not have the means to earn income. So USD or KHR, keep in mind that microfinance does not address the needs the Cambodians who line the bottom of the pyramid.

2. If the global economy is living la vie en rose, so is the microfinance sector - and vice versa

During the 1990s NGOs, such as the GRET and ACLEDA, first provided small microcredit loans as a poverty-alleviating tool. Most of these programs were of course funded by international donors in USD throughout the course of the decade. When the National Bank of Cambodia (NBC) finally issued the law on banking and financial institution in 1999 to grant legal status to the NGOs turned microfinance institutions, private investment and international assitance programs continued to finance the MFIs in USD. The microfinance sector experienced more than a decade of unyielding growth ...until the global financial crisis brought on its havoc.

As integral players in Cambodia's economy, the microfinance operators and their clients move in tandem with the macro-level policy and regulations in which they function. Thus, today’s particular crisis has surfaced the damaging yet corrigible arrears of Cambodia's heavily dollarized economy. With the curtailing of international investments, the supply of the USD has run tight. Thus MFIs have faced increasing interest rates while their clients have been unable to meet their payment schedules.

Despite the injuries caused, crises like these create opportunities for microfinance institutions to restructure themselves and to realign their operations with their social mission.