Samdech, Excellencies, Lok Oknha, Ladies and Gentlemen, All participants
Today, I am very pleased to participate in the opening of the “Nation Conference on the Development of Microfinance in Cambodia”. It has been exactly 10 years since we organized the first national conference on microfinance development on 11-13 January 2006, in which we declared 2006 the year of microfinance in Cambodia. Today, we are gathering to congratulate on our achievements to date and to prepare ourselves for new challenges ahead in order to promote the development of microfinance sector in Cambodia.
Taking this opportunity, I express my high appreciation to the National Bank of Cambodia for initiating this conference with the aim of disseminating progress of the microfinance sector during the last decade to the public and enhancing consumer confidence in the banking and financial sector of Cambodia. Also, I express my high appreciation to the National Bank of Cambodia and all stakeholders for the contribution to rapid development of the microfinance sector, in terms of both capital and service coverage.
The banking sector has played an instrumental role in mobilizing savings from the pubic and other international sources of capital and injecting them into the national economy through financing and providing loans to investment projects, especially SMEs in the manufacturing sector with the aims of enhancing production capacity, modernizing production process, diversifying products and improving the standard of Cambodian products in an effort to enhance the economic efficiency. This intermediation role will become more economically efficient if Cambodian people have access to this service throughout country, as the United Nations acknowledged that the “rural and low-income dwellers’ access to affordable financial service is the key to poverty reduction and sustainable economic development”.
Microfinance sector in Cambodia has played an important role in reducing poverty, improving people’s living standards because financial service has been expanded to rural areas and credit is accessible by low-income earners who really need additional investment capital. Currently, approximately 51% of total Cambodian adults are using formal financial service. This number is a significant increase compared to ten years ago.
As a result, this sector has significantly contributed to reducing poverty and the gap between the rich and the poor and between the urban and rural areas. Indeed, we manage to reduce poverty by more than 1% per annum during the past years resulting in poverty rate declining from 53% in 2004 to 16% in 2013 while GDP per Capital increasing from USD 760 in 2008 to USD 1225 in 2015 which make Cambodia graduate to a lower-middle income country.
In the opening of the 2006 National Conference on Microfinance in Cambodia, the Royal government set out a number of recommendations to strengthen the efficiency and robustness of the financial sector aimed to effectively contribute to poverty reduction. During the past ten years, I have noticed significant progress of the microfinance sector in terms of both capital and service coverage. Truly, this development could not be achieved if there is no favorable business environment thanks to peace, political stability and macroeconomic stability, particularly the public financial reform which streamline the management and implementation of government fiscal policy.
At the same time, the National Bank of Cambodia has continually enhanced its prudential rules in accordance with market development and international standards and implement them effectively. These have contributed to the significant growth of microfinance sector and international recognition of its robustness in terms of regulatory framework, creativity and flexibility of microfinance institutions. In this sense, the National Bank of Cambodia has always shared its regulatory and monitoring experiences with central banks in other countries such as Central Bank of Nigeria, Central Bank of Laos PDR, Central Bank of Vietnam, Monitor Authority of Myanmar Microfinance etc. We indeed take great pride in our own effort to date.
In this regard, I strongly encourage the creation of new financial products in addition to traditional loans to meet the demand of the poor. For instance, Microfinance institutions should provide their clients a variety of services such as deposit service, money transfer service, automatic cash withdrawing and depositing service through ATM, micro-insurance service and mobile banking service etc. These services are parts of our effort to facilitate and improve financings for households as well as businesses and should be expanded to fully cover 25 provinces.
Regarding the registration, some NGOs have provided banking services without license, NGOs, associations and individual lenders have treated themselves as legal microfinance institutions and provide loans at very high rate, use inappropriate methods to calculate interest or manipulate interest calculation and rely on loose loan requirements resulting in a majority of their borrowers become heavily indebted and default. As a result, collaterals which include lands, houses, and rice fields have been seized by those NGOs, associations and lenders. Furthermore, some political parties and individuals have exploited the situation by telling those borrowers that microfinance institutions belong to the state, therefore, state loans should not be repaid. They also promised the invalidation of loans if they win the next election. This is indeed a fraud and exploitation. Those NGOs, associations and lenders have to be condemned and stop their activities immediately as stated in the joint declaration of the NBC and MEF dated February 2, 2015.
[Start of Selected Impromptu Comments]
Illegal Microfinance or Non-Governmental Organizations Use Loans as Baits
On this point, I should clarify to our people. Lately, there have been organizations who conducted works on their own, first as non-governmental organizations, but later transform themselves into microfinance institutions. They seem to have done that on purpose. For example, normally, loan principle would allow access only when creditors are aware of repayment ability of loans takers. What are they taking loans for, production or something else? The creditors do not seem to care about that and have been carefree for such loans. Some people asked for loans to purchase new motorbikes. In that case, how are they going to make up money to repay the debt? When they fail to repay on deadline, (creditors) started confiscating their houses or lands.
There was a case the other day that loan taker paid the debt later than schedule and creditors hesitated to accept and tried to establish reason to bar house owners from entering their home and put the house on sale. If someone did not see and intervene, the family would have lost their land and house. We must not forgive those non-governmental organizations that operate illegally. The Ministry of Economy and Finance, and the National Bank of Cambodia should keep eyes on this issue. Their action would destroy our people (‘s wealth and living condition) through using loans as baits to extort interests from them. (Judging from what happened) it seems that they plotted for families to owe debts beyond their ability to repay so that they proceed to confiscate their houses and lands. I think it is an urgent matter to look into […]
Every Level Authority Not to Collude with Microfinance in Confiscations
… I must advise local authority of every level, the police head included, if there were no clear instruction, they should not go right in to support actions of microfinance in confiscation people’s homes or lands. Normally, the issue would have to go through court first. Why, as I mentioned the case of the other day, microfinance (agents) barred people from entering their homes when they finally got money to repay? It was (creditor’s) intention. Loan taker owed 720,000 Riels and they just wished to take the house and sell it off. Where is the bank coming from? Why take no actions on it? Would you mayors, head of Khan or police posts support its action too? Please readdress this issue. (I also call for microfinance institutions) to check out (if loan takers would use loan in a business) to let them get a loan […]
There is one other concern about cheating. It happened in Battambang province, if I am not mistaken, and I issued an urgent statement on it. A microfinance institution lured people to deposit money promising to pay them 12% interest per month, or 144% in one year. Our people lured by high interest did what they could to attain money and deposit in those banks. I wish our people to think about this together, would there be any bank (or microfinance institution) in this world give interest over 100% per annum. Some people who have small sum of money, as I found my way to know about it, had even borrowed from other banks at lower interest (about 7%) to deposit in microfinance institutions that promise higher interests (12%) to benefit from the 5% differences […]
RGC’s Deposit in National Bank of Cambodia
I wish to inform you that as far as state is concerned in this matter, National Bank of Cambodia is its only bank. It does not offer loans for interest. National Bank of Cambodia used to allow loans to the Royal Government, not to the people. You may remember that there was a time when we borrowed money from the National Bank of Cambodia to cover salary payment and HE Keat Chhon was the one that entered the loan-taking plea. It took us sometimes to repay the National Bank of Cambodia. When we borrowed from the NBC, it required us to pay both principle and interest. As the Royal Government of Cambodia has a reserved amount of fund deposited in the National Bank of Cambodia for time of economic emergency, has the NBC used the money (in giving loans to others)? They should give the RGC’s deposit some form of interest symbolizing that the state gives loan to the National Bank of Cambodia (to loan out for investment). We have put some money in the National Bank of Cambodia to get ready for disposal when it is necessary. No one would know whether this year there would or would not be a natural disaster […]
Political Party Must Stop Fooling about Cancelling People’s Debts
I am sending a message to political parties. They must stop doing cheap actions by cheating people that “should they win elections, they would cancel people’s debts.” If they say so, please record the voice and exercise arrest on spot. The person, though s/he may be a member of the National Assembly, would face arrest in flagrante delicto. As I am saying so, people would say I threaten so and so. It is an actual offense. They would do anything to cheat people for political gain. Was it not their claim that would urge people to borrow more? Last week even, someone told people they would not have to pay debts if s/he wins the elections. It is an actual crime in violation of financial regulation. I urge lawyers to study this matter to avoid someone performing demagogy in politics. It is not an amusing matter. While leader or members of a political party continue to make such promises, people would keep their mind in borrowing money, coupling with those who wanted them to borrow, leading to situation that people would lose their homes or land easily to debt […]
It is important in this case that I stressed on the three points. Firstly, in relation to illegal microfinance institutions, their objectives seemed (to loan) to confiscate. They give out loan without thinking of loan-takers’ ability to repay and/or caring nothing about if the loans are for business and income-generated production. Secondly, (people must be careful with) those who call themselves microfinance institutions or loans givers without legal recognition for high interest, but are in fact with nature of cheating. Thirdly, (people must be aware of) political parties or members of the National Assembly or political party leaders who would deceive people that they would cancel all debts because they are debts to the state. I would urge an arrest on the spot as it would be a deception and an actual offense in violation of financial regulation. It was not at all debts to the state. They cheated people. This kind of action must face arrest in flagrante delicto. Should we overlook this matter, people would continue to be victims of feeling to borrow more and would not have to repay. Before they did that when it was time to run for elections. They already started now. We also have to start action as of this moment too.
I would remind diplomats not to raise this issue why arresting also members of National Assembly. If they are behaving wrong, an arrest in flagrante delicto is possible. No immunity would prevent authority from doing so. Immunity for them to have faith in speaking, not to deceive people. As we have police presence here, I would urge them not to quickly support actions to confiscate houses/lands. One reason, it is a court procedure and second thing when it was just request from microfinance institutions. On the contrary, when you hear (they say) ‘when I win the elections, no need to pay back debts,” go ahead, arrest them. They should not be that cunning. In politics, there must be integrity […]
[End of Selected Impromptu Comments]
In this connection, National Bank of Cambodia is now strictly reviewing the qualification and compliance as well as conducting on-site inspection to decide whether microfinance license should be issued. We all have noticed National Bank of Cambodia has contributed to improving knowledge about financial products at grass-roots level and raise public awareness that microfinance is not for humanitarian purpose. Consequently, we have witnessed notable decrease of microfinance interest rate. The average interest rate declined from 36% per annum in 2006 to 32% in 2009, further dropped to 27.4% in 2012 before declining to 23.7% in 2015. The rate is expected to drop further in coming years. This interest rate decline is the result of the implementation of market mechanism which encourage transparent competition aimed at enhancing service quality and financial products.
All in all, I have noticed 4 major factors that boost the growth of microfinance sector in Cambodia which are (1). Government incentives and supporting policy (2). Regulatory framework and vigilant supervision (3). Dynamism and creativity of microfinance institutions, and (4). The demand and support of customers with the clear understanding of how significant microfinance can help enhance financial inclusiveness.
I would like to stress that Royal Government of Cambodia has been firmly committed to maintaining the financial sector stability and promoting development of the banking and financial sector in general and the development of microfinance sector in particular, to contribute to economic development through laying out a number of policy measures and creating an environment conducive to economic development, especially the firm adherence to free market principle and fair competition. We have adopted a series of financial development strategies, including “Financial Sector Development Strategy 2011-2020” which focuses on the development and the establishment of microfinance regulatory framework with the aim of pooling and allocating the resources in order to promote financial inclusiveness to support the sustainable growth of the economy.
In particular, today’s conference raises not only the progress of microfinance sector, but also challenges, role and microfinance institution intermediation as well as the supporting role of the government especially relevant authorities to find ways forward for a smooth, efficient and sound microfinance sector to help promote financial inclusiveness.
Taking this opportunity, I would like to raise some recommendations for contributing to a more comprehensive, more diversified, more in-depth, more robust and efficient development of microfinance sector to support sustainable growth and poverty reduction as follows:
First, National Bank of Cambodia as the regulatory and monitoring authority of banking and finance institutions must continue to lay out regulatory and monitoring framework by striking an equitable balance and harmonizing the regulatory framework as well as the development of institutional and human capacity to achieve high level of professionalism in microfinance sector.
Second, National Bank of Cambodia must continue to track and take tough actions against informal lenders while pushing for more affordable microfinance service with more favorable condition for the poor such as agriculture communities in order to promote rural economy, along with the continued expansion of credit to SMEs to support Cambodia Industrial Development Policy 2015-2025 which is a new growth strategy for Cambodia.
Third, National Bank of Cambodia must prepare policy or strategy to promote financial inclusiveness and customer protection, aimed at facilitating access to financial service and encouraging people to use the service by ensuring that their benefits are transparently protected.
Fourth, National Bank of Cambodia must cooperate with related ministries particularly Ministry of Education, Youth, and Sport in order to prepare and integrate financial knowledge into primary or secondary school curriculum.
Fifth, National Bank of Cambodia must continue organize workshop, national and regional forums to disseminate knowledge about microfinance operation and risks to the public.
Once again, I would like to extend my sincere thanks to microfinance institutions in Cambodia for the concerted efforts to develop the sector with great pride. I also wish microfinance institutions and stakeholders of the microfinance sector new progress and success in coming years.
Before ending, I wish to quote an extract of Areisatha, which is an ancient Khmer educational poem as follows:
“Know how much you have, know how much you spend, know how much you make profit, know how to do the calculation, know how to record, and know how to plan, so that your asset will keep growing”
Finally, along with of the opening of the “National Conference on the Development of Microfinance in Cambodia”, I would like to wish Excellencies, Ladies, Gentlemen and all participants the four gems of Buddhist blessing: Longevity, Nobility, Healthiness and Strength./.
