The National Bank of Cambodia (NBC) has made it clear that the whole microfinance industry should not be held accountable for some of the unregulated microloans that are pushing people deeper into debt.
Chea Serey, Director General of the National Bank of Cambodia, said: “It is unfair to blame everything on the microfinance industry. An enormous amount of effort is being put in from the formal sector in terms of education and information. People are led to believe that anyone with a micro loan falls into the microfinance regulated sector and this is simply not true. You can’t just bundle everything under one umbrella.”
Microfinance institutions represent the main providers of financial services in Cambodia’s rural areas. There are however several challenges within the industry, including issues concerning external funding, financial regulations, credit access and signs of non-performing loans. Furthermore, over the last few years NGO’s have published multiple reports about the dangerous growth of the sector and how people are not educated in financial literacy.
During the growth of the Microfinance industry, many borrowers have benefited and been able to release themselves from poverty while other borrowers have unfortunately become over-indebted and have lost their assets. This has been put down to a lack of financial literacy and how easy it is to borrow multiple and unregulated loans.
Industry data from 2019 has shown that the fastest growth in lending is now from the MFIs which are providing new and larger loans to people who have not yet repaid their prior loans. Now that land is often used as collateral, farmers who cannot sustain repayments face the risk of losing their land.
Borrowers who have trouble in keeping up with repayments, often turn to loan sharks that offer instant cash at rates as high as 50 percent.
The NBC has stressed that education is the key to stopping this through educating people on financial literacy at an early age as it will help Cambodia move forward economically.
“With the development of the banking industry, building capacity of the banking system is important. This would start from developing financial literacy for the people, financial service users and financial service providers. Having said so, the NBC has a clear plan in promoting financial literacy through different seminars to educate people on finance matters and dangers of having multiple loanswith Microfinance and informal lenders.”
“Furthermore, the NBC and Ministry of Education, Youth and Sport (MoEYS) are coming together to integrate financial literacy into the school curriculum for primary and secondary schools.”
“Financial literacy supports not only individual well-being, but also the economic health of our nation. As the recent financial crisis illustrates, consumers who make informed decisions about financial products and services not only serve their own best interests, but, collectively, they also help promote broader economic stability,” Serey went on to say.
She stressed that civil society organisations who have information about indebted people should come forward and discuss with the NBC rather than just publishing reports of indebetedness and poverty because of Microfinance loans.
“Come discuss and together we could find solutions. We have taken penal action against a number of informal lenders who give the entire industry a bad name.
“With information from NGO’S and CSO’s, we can crack down on informal lenders and also help the affected people to find solutions instead of suffering in silence,” Serey added.
This article was first published in Khmer Times. All contents and images are copyright to their respective owners and sources.