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Rise and Role of Microfinance in Cambodia

Updated On : November 2017

Microfinance is not a dole. Microfinance service providers are not in an altruist mission. They are special purpose vehicle
to address the need for easy access to finance for poor and underprivileged in developing economies. They are business
enterprises striving to work on a win-win model.

Cambodia presents a good case study for understanding the effectiveness of microcredit in a country which had
tumultuous birth and growth.

Cambodia became a free country in 1953. The country had gone through a politically volatile atmosphere. It was under
French protectorate for nearly 90 years, under Japanese occupation for 5 years. The country experienced a bitter civil
war for more than two decades and suffered a major genocide under Pol Pot regime. The relief and calm came in at 1991
when it was held under United Nations Transitional Authority. In 1993 it became a country, what is now called Kingdom
of Cambodia. In recent years, reconstruction efforts have progressed and led to some political stability through a
multiparty democracy under a constitutional monarchy.

Needless to say, the financial sector in Cambodia was in near shambles. The National Bank of Cambodia was
established in 1954. Owing to the political turmoil during the Khmer rouge regime the bank was closed and even the
building was destroyed. In 1993, it was rebuilt from scratch. Gradually, the banking system was strengthened and
modernized and Cambodia became one of the strongest growing economies. As of now per bank branch ratio in
Cambodia is 6 branches for every 1 lakh adult population

Given, the weak state of the financial sector, access to credit for the poor and marginalised was a great challenge facing
a fledgling economy. Initially, the source of micro credit was from donors and NGOs. Without a working banking system,
organizations such as GRET (1991), World Relief (1992), ACLEDA and CRS (1993) initially ran microcredit projects by
physically handling cash transfers.

In Cambodia , the opportunities for formal employment are scarce and many people turn to self-employment through
creating small businesses. Many of these self-employed entrepreneurs are women, who make a living with scarf weaving,
noodle making, hairdressing, tailoring, and silk weaving. Informal credit could not provide adequate working capital for
these small businesses, and the lack of financing often prevented them from growing and becoming sustainable

National Bank of Cambodia, since 1994, played an active part in providing a boost to the microfinance sector. In 2000 it
passed decree on microfinance regulation and it was formally implemented in the country. ACLEDA transformed from an
NGO to a microfinance bank. This was a pointer for other NGOs to enter formally into the business of microfinance.

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With a view to empower and embrace all the Microfinance operators, Cambodian Microfinance Association (CMA)
was established in 2004. It is an NGO and acts under Cambodian law. Membership of CMA is mandatory for microfinance
financial service providers. It acts as a friend, philosopher and guide for its members. Today CMA represents 86 members.

8 Deposit taking Microfinance Institutions.

54 Microfinance Institutions.
8 leasing companies
16 Rural credit operators.

Microfinance Activities
Currently there are many MFIs in Cambodia providing financial and non-financial products and
services to satisfy clients' needs.
micro-loans (group lending and individual lending)
micro-saving (voluntary Saving and fixed term deposits)
money transfer (local money transfer service, remittance and mobile banking)
micro-insurance (guarantees the loan where clients die or are accidentally injured, so that their relatives or group
guarantor are not responsible to pay the loan).

Non-financial products and services which MFIs usually offer to their clients are as follows:
Client education and reinforcement
Flexibility to maintain View/Maintain borrower and Group
Comprehensive Database for All Counterparties
Parameter Maintenance
Limit Allocation

The Impact of Cambodian Microfinance

Microfinance operations in Cambodia have well addressed the target group meant for the purpose. Nearly 80% of MFI
clients live in rural areas and 81% are women beneficiaries. The repayment rate from clients was almost up to 98% before
the financial crisis in 2008. MFIs in Cambodia have been shown to empower women as the head of the family who often
have good cash management skills.

Challenges for microfinance in Cambodia

Funds costly/ Need longer maturity loan
Low level of financial literacy
Strong demand in different types of loan product
Interest rate cap

With a view to get large-scale, reliable, and comparable information on client perceptions of the access to and quality of
services offered, Hivos and MIX developed the Voice of the Client (VoC) initiative. Mix is a partner to Cambodia
Microfinance association.

The data collection was done using Smart Campaign Client protection principles. The main
parameters for collecting and collating the data were :
appropriate product design
prevention of over-indebtedness

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fair and respectful treatment of clients
mechanisms for complaint resolution.

The major negative responses were received for fair and respectful treatment of clients. More than 80% of the
respondents to the query replied "No". Another important outcome was that more than 85% responded that financial
service provider's staff demanded an amount more than what was due from the client and did not provide a receipt for
the payment.

Cambodia economy will need a sustained support from microfinance service providers. Nearly 65% of the population is in
the age group of 30. Though an agrarian economy, the service industry is quite prominent. Garment export and tourism
are growing.

The ecosystem is now well established. National Bank of Cambodia is playing a regulator's role, frequently monitoring
and providing directives. Recently it has capped the rate of interest at 18% on micro credit.

The population of Cambodia compares with the population of Bangladesh. The annual household income per capita of
Bangladesh as measured for 2015-16 is USD 1314. The country has been upgraded to lower-middle income category
from poor. From the ruin of tyranny and genocide, Cambodia has come a long way in just about 20 years, taking 1995 as
the base for the counter.

Microfinance and financial inclusion is no more a choice. It is an inevitable infrastructure for growing economies.
National Bank of Cambodia has been playing a proactive role in the area of microfinance, but there are still a lot of
lacunas. Watch out, investors, mobile service providers and fintech software companies. Present day Cambodia is a big

These players may focus on demand side of the sector and innovate new lines of products and services. Software
applications may enable flexi credit products like Kisan Credit Card of India apart from fixed line of credit.

Droplets make an ocean, though a clichd statement, is relevant to the Cambodian economy. A steady growth of
microcredit is sure to have a major impact in directing the macroeconomics of the country the in the years to come.

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