New Interest Rate Cap Could Make Some MFIs Unsustainable

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The Ly Hour Microfinance Institution in Phnom Penh. A new decision by Cambodia’s central bank to cap interest rates could turn microlending into a loss-making activity. KHMER TIMES / FABIEN MOURET

Dozens of Cambodia’s microfinance institutions (MFIs) could face bankruptcy and credit channels for the Kingdom’s poorest people could be at risk of drying up following the National Bank of Cambodia (NBC)’s unprecedented decision to slash and cap microfinance interest rates at 18 percent a year, allegedly on the orders of Prime Minister Hun Sen, according to industry analysts.

“In general, there would be a few [MFIs] like Prasac, Sathapana and HKL that may survive. The rest will be unsustainable,” said Emerging Markets Consulting senior consultant Ngeth Chou, who noted that 18 percent was nearly half the prevalent rate charged by most MFIs.

“As MFIs close, rural clients will not have access to the same services that were once provided to them that are used to cover immediate financial needs,” added Chou. “Previous clients will have to turn to private money lenders that generally charge from 5 percent to 10 percent per month, which is far more expensive than what have been charged by MFIs.”

NBC records at the end of 2016 show 54 licensed MFIs and seven microfinance deposit-taking institutions (MDIs) in Cambodia, with a total of 1.9 million clients and a combined loan portfolio of $3 billion. Several prominent banks, such as ACLEDA Bank and Sathapana Bank, provide a large volume of microfinance loans to farmers, small businesses and consumers.

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