Given the ongoing problem of inflation faced by the Kingdom’s economy, two economic researchers endorsed the move by the Cambodian Microfinance Association when it recently called on Cambodians to deposit cash they keep at home or as gold into savings accounts with microfinance institutions and banks to benefit from higher interest rates.
Economic researcher Ngeth Chou said that doing so would be beneficial to the national economy and enough people putting their money into savings would have the cumulative effect of reducing inflation.
“It is good for the economy. If he leaves it at home the risk is that losses can easily occur. If they are saving it anyways then it won’t be used to stimulate economic growth by spending it. Also, the value of money can fall due to inflation and this risk worsens if they keep it at home but if they keep it at the bank they will have the interest to curb inflation losses. For example, inflation may cause currency values to drop four per cent, but if they get six per cent interest they still get a profit,” he said.
Chou also urged people to put their trust in the banking system because it is fully modernized with a monitoring system by responsible regulators at the National Bank of Cambodia.
Royal Academy of Cambodia economics researcher Ky Sereyvath acknowledges that when people put savings in banks or microfinance institutions it benefits the national economy and it also reduces citizens’ impulse spending on unnecessary expenses.
“If the money is in the hands of the people, they may spend it on some unnecessary things that won’t make them wealthier and in economic theory savings are equal to investments. So when people have savings, their savings will eventually be given to others who will invest them,” he said.
Cambodia Microfinance Association (CMA) spokesman Kaing Tongngy said on October 12 that their suggestion to the public did not mean that the banking and microfinance institutions in Cambodia lacked cash to operate as Cambodia remains an attractive destination for international financial investments.
“On the contrary, our message was put out there because we see that rising global interest rates increase the value of foreign capital, so we also see increased domestic deposit rates. In fact, the US government’s banks have raised interest rates to reduce inflation in the US, and as we all know, the US dollar is the reserve currency used to settle debts in international trade, so a US rate hike will cause global interest rates to fluctuate,” he said.
While urging people to deposit their savings kept at home – which are often hidden under mats or in a pillow and other odd locations – Tongngy noted that some banks are starting to raise interest rates for loans, especially those that rely heavily on capital sources from abroad.
“For the members of the Cambodian Microfinance Association, we are determined not to raise interest rates for credit or on loans in the current situation, even though we have raised interest rates for deposits.
“We are willing to bear the pressure of rising costs without pushing this pressure to the customers and we hope that this is seen as a part of our contribution to restoring people’s livelihoods and boosting economic growth in the context of Covid-19,” he added.
According to Tongngy, as of the second quarter of 2022 the deposits at microfinance institutions that are members of the Cambodian Microfinance Association have reached $4.65 billion, which is an increase of $247 million compared to the first quarter of 2022 across 2,623,910 customer accounts. For the banking and financial sector as a whole the total deposits amounted to nearly $50 billion.
Sok Voeun, CEO of bond-listed and Sri Lankan-owned LOLC Cambodia Plc, emphasized that when people take their savings to a bank or microfinance institution and deposit them it ensures the security of their money and promotes national economic growth.
“This is a strategy by the banking and microfinance institutions to disseminate financial knowledge to people of all walks of life about the benefits of depositing with microfinance institutions or banks that will pay them interest,” he said.
According to Voeun, LOLC has received deposits into interest-bearing accounts from half a million customers with the total amount of cash reaching over $770 million.