Microfinance
institutions have seen rapid growth over the last few years, and continue to
form an important and expanding part of Cambodia’s emerging economy.
Prasac, Cambodia’s biggest MFI when measured by outstanding loans, has
grown to the point where it now plans to become a licensed commercial bank,
which the Post reported last week. Post reporter May Kunmakara sat down with
Prasac president and CEO Sim Senacheert to discuss the state of the Kingdom’s
MFI industry.
How did the floods
affect the industry late last year?
Of course, we were worried when the floods began because many people were affected. When the floods continued, we did a survey and found that just about 10 per cent of MFI borrowers were affected. But after further research later on, we found that even fewer people were in fact affected. Some of our clients were able to diversify their revenue because they had options in areas other than farming.
Why do MFI interest rates seem to be so high?
I agree that rates are still high when compared to those offered by the banks. It is because our source of funding stands at 8.2 to 8.5 per cent per year. Second, our operation costs are also still high, so our interest rates have to be set based on these parameters.
If we can find a source of funding that will charge us between one and two per cent, our rates will follow. What we are trying to do now is lower our operating costs and increase effective performance. Right now, we see our interest rate gradually declining to around 25 per cent a year, whereas it has been around 30 per cent over the past few years.
Right now, there are seven MFIs that the National Bank of Cambodia has allowed to take deposits. How does this help the industry?
I think it supplies an extra source of funding. First, the interest rate gets much cheaper and more stable when compared to foreign lenders. In addition, it will make people aware of the MFIs' new ability to take in deposits.
This awareness has also increased noticeably after we got our licenses over the past few years. We have seen that other MFIs with licenses to receive deposits had 40 per cent of their portfolios made up from savings. I think that in the next few years, MFIs will have better ability to access deposits as people start to know more about it.
Why are most MFIs funded by foreign institutions?
We do, of course, try to seek funds from the local banks, and some of us have already found it. But there are big challenges involved, such as the banks here requiring us to have loan guarantees like collateral, and many don't actually give us what we need. But we are now seeing that some local banks are starting to consider giving us more. As experience will tell us, the domestic rates can be a bit higher that foreign ones, when taking into account the required conditions and collateral.
Because many MFIs receive funding from the European Union, are they concerned about the current economic downturn?
More than 80 per cent of our funds are sourced from abroad, mainly from the EU and United States, so we are of course concerned. Their problems have impacted on us quite a bit, because sometimes there's not enough money to provide loans. The problem has caused them to diversify their portfolios, and in the process limit their loans. For instance, they used to loan us 20 per cent of total assets, but now it is just 10 per cent.
Cambodia’s credit bureau will be officially functional quite soon. What impact will this have on MFIs?
I think it will bring a lot of benefits, not only to MFIs but also banking and financial industries. I do believe that the credit bureau will play an important role by providing us with enough information about a client’s financial record concerning loaning and repayment before we hand out loans.
What challenges remain for the industry?
Our main challenge is securing a source of funding, because with loan demands being so high, we sometimes need to keep looking for a source of foreign funding. It can also be hard to find domestic funds. One other challenge is the competition. There are a lot of competitors, even with the problems securing loans. Overlapping loans can also present some challenges.
What is your projection for the industry this year?
In particular, I am still optimistic the sector will continue to increase, because our economy will improve as the agricultural sector grows. Because the growth of our industry corresponds with our source of funding, it is important to acquire more. If we can get more, we will grow more.
Of course, we were worried when the floods began because many people were affected. When the floods continued, we did a survey and found that just about 10 per cent of MFI borrowers were affected. But after further research later on, we found that even fewer people were in fact affected. Some of our clients were able to diversify their revenue because they had options in areas other than farming.
Why do MFI interest rates seem to be so high?
I agree that rates are still high when compared to those offered by the banks. It is because our source of funding stands at 8.2 to 8.5 per cent per year. Second, our operation costs are also still high, so our interest rates have to be set based on these parameters.
If we can find a source of funding that will charge us between one and two per cent, our rates will follow. What we are trying to do now is lower our operating costs and increase effective performance. Right now, we see our interest rate gradually declining to around 25 per cent a year, whereas it has been around 30 per cent over the past few years.
Right now, there are seven MFIs that the National Bank of Cambodia has allowed to take deposits. How does this help the industry?
I think it supplies an extra source of funding. First, the interest rate gets much cheaper and more stable when compared to foreign lenders. In addition, it will make people aware of the MFIs' new ability to take in deposits.
This awareness has also increased noticeably after we got our licenses over the past few years. We have seen that other MFIs with licenses to receive deposits had 40 per cent of their portfolios made up from savings. I think that in the next few years, MFIs will have better ability to access deposits as people start to know more about it.
Why are most MFIs funded by foreign institutions?
We do, of course, try to seek funds from the local banks, and some of us have already found it. But there are big challenges involved, such as the banks here requiring us to have loan guarantees like collateral, and many don't actually give us what we need. But we are now seeing that some local banks are starting to consider giving us more. As experience will tell us, the domestic rates can be a bit higher that foreign ones, when taking into account the required conditions and collateral.
Because many MFIs receive funding from the European Union, are they concerned about the current economic downturn?
More than 80 per cent of our funds are sourced from abroad, mainly from the EU and United States, so we are of course concerned. Their problems have impacted on us quite a bit, because sometimes there's not enough money to provide loans. The problem has caused them to diversify their portfolios, and in the process limit their loans. For instance, they used to loan us 20 per cent of total assets, but now it is just 10 per cent.
Cambodia’s credit bureau will be officially functional quite soon. What impact will this have on MFIs?
I think it will bring a lot of benefits, not only to MFIs but also banking and financial industries. I do believe that the credit bureau will play an important role by providing us with enough information about a client’s financial record concerning loaning and repayment before we hand out loans.
What challenges remain for the industry?
Our main challenge is securing a source of funding, because with loan demands being so high, we sometimes need to keep looking for a source of foreign funding. It can also be hard to find domestic funds. One other challenge is the competition. There are a lot of competitors, even with the problems securing loans. Overlapping loans can also present some challenges.
What is your projection for the industry this year?
In particular, I am still optimistic the sector will continue to increase, because our economy will improve as the agricultural sector grows. Because the growth of our industry corresponds with our source of funding, it is important to acquire more. If we can get more, we will grow more.
May Kunmakara
The Phnom Penh Post
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