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MFIs easing Covid impact stresses

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MFIs have redefined the lending model in agricultural communities across the Kingdom. Photo supplied

MFIs easing Covid impact stresses

Microfinance institutions (MFIs) have expressed optimism that they will move into a buoyant phase in 2021.

After navigating a difficult 2020, microfinance lenders are upbeat, with economic activity set to return to pre-pandemic levels and the imminent arrival of a much-awaited vaccine for Covid-19.

Fewer borrowers are now asking for loan restructuring – requests have currently dropped to around 1,000 per week compared to 20,000 per week between April and May, according to the Cambodia Microfinance Association (CMA).

Such figures indicate that small-scale businesses affected by the outbreak are enjoying steady business.

“Based on our monthly data, the situation for MFIs began improving in June, such as a decrease in NPLs [non-performing loans] and an increase in new loans and deposits.

“With the recent announcements of vaccines for Covid-19, the CMA is optimistic that the negative impacts from the pandemic will decrease in 2021 and the economy will recover,” chairman Kea Borann told The Post.

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Cambodia Microfinance Association chairman Kea Borann. Heng Chivoan

Around 81 MFIs, seven microfinance deposit-taking institutions, 15 financial leasing institutions and more than 200 rural credit operators bring financial services to thousands of Cambodians, especially to low-income rural borrowers, the majority of whom are women.

Their business model has helped to expedite much-needed financial inclusion by providing financial services to the Kingdom’s unbanked.

According to the association, there are nearly two million borrowers in Cambodia, with loans reaching a staggering $6.5 billion.

But non-bank lenders suffered as the coronavirus outbreak dampened economic activity in the Kingdom.

The sudden shuttering of micro-businesses crippled incomes, with borrowers struggling to repay loans on time, while the heavy floods during rainy season heaped further pressure on them – which triggered credit and liquidity stress on MFIs.

Borrowers from mainly the tourism, hotel and guesthouse, construction and logistics sectors bore the brunt of the slowing economy.

Based on CMA data, NPLs from MFIs almost doubled from around 1.5 per cent to nearly three per cent during the Covid-19 outbreak – but this has continued to decrease since June.

“The level of NPLs from MFIs has improved since June, dropping to 2.27 per cent in October. Most businesses and economic activities have been slowly returning to normal since June, and that is helping MFIs’ clients to repay their loans,” Borann said.

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At least 80 per cent of microloan borrowers are women. Photo supplied

The CMA said the micro-finance sector did not grow a great deal in 2020 due to the impact of Covid-19, with demand for new loans dropping significantly during the worst hit months of April and May, but increasing following that.

Borann said the CMA is working with members and other stakeholders, such as the Small and Medium Enterprise Bank of Cambodia (SME Bank) and the Credit Guarantee Scheme, to assist cash-strapped SMEs.

“Since March, CMA members have provided loan restructuring schemes to over 270,000 clients with a total value of loans of more than $1.4 billion.

“MFIs in particular have a special place in post-war Cambodian society, and the vast majority of our members put social impact at the heart of their operations.

“MFIs will ensure access to financial services, including funding for SMEs to recover or expand their businesses.

“Loan restructuring will also be available until at least mid-2021 for SMEs that are still impacted,” Borann said.

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