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Microfinance sector may shrink in 2020, says CMA chair

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CMA chairman Kea Borann said a potential slowdown in economic growth will have limited impact on the Kingdom’s MFIs, which work mostly in the agricultural, commerce and small-scale production. Hong Menea

Microfinance sector may shrink in 2020, says CMA chair

Cambodia's microfinance sector is expected to slow this year, Cambodia Microfinance Association (CMA) chairman Kea Borann said on Friday.

Speaking at the CMA’s 14th annual general assembly, Borann said several external factors such as the outbreak of the novel coronavirus and the potential withdrawal of the EU’s Everything But Arms (EBA) preferential scheme had led major national and international institutions to lower their economic growth forecasts for the Kingdom to six per cent this year.

“Normally, if gross domestic product growth in Cambodia slows down, it’ll have some impact on the financial sector too, because we are investing in the economy.

“If economic growth slows down, the demand for loans will be diminished as well,” he said.

However, the impact will be limited, as microfinance institutions (MFIs) work mostly in the agricultural, commerce and small-scale production sectors, Borann said.

He said the Kingdom’s financial sector showed good performance last year despite facing credit problems earlier in the year due to drought.

The total gross loan portfolio increased by around 30 per cent last year. The total amount of savings also increased, while non-performing loans were about one per cent, he said.

As of September, the CMA said in a statement, Cambodia’s microfinance sector has provided approximately $7 billion in loans to more than two million clients. Nearly three million savers have savings accounts totalling almost $4 billion at 1,400 offices.

It said the Kingdom’s microfinance industry has undergone significant changes over the last 10 years.

To help clients access microfinance services and to reduce their heavy debt burden, the National Bank of Cambodia (NBC) in April 2017 set a ceiling on the interest rate on credit at 18 per cent per annum.

Before the cap, interest rates at some MFIs could be as high as 50 per cent per annum.

NBC data shows that riel-denominated interest rates on deposit/savings accounts averaged eight per cent last year, while US dollar-denominated rates averaged 7.8 per cent. Neither changed much from their 2018 levels.

Meanwhile, riel-denominated loan interest rates averaged 15 per cent last year, while US dollar-denominated rates averaged 16 per cent, the data shows. Both decreased from their 2018 levels.

The NBC said as of the second quarter of last year, there were 45 commercial banks in Cambodia, 15 specialised banks, and 81 MFIs, of which seven are microfinance deposit-taking institutions.

It said there were also 254 rural credit operators, 15 leasing companies and 16 payment service providers.

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