Backed by a strong rural clientele, microfinance institutions (MFIs) could amplify the wider usage of the riel as the circulation of the national currency is much higher outside the city.

An estimated 80 MFIs operate across the country, offering a boutique of services ranging from small loans, deposit taking, loans to refurbish houses, finance to purchase motorbikes, education loans, internet banking to money transfers.  

They play a pivotal role in the domestic financial sector, providing accessible and affordable loans to rural people who are invisible to the main banking sector, especially low income earners without proper collateral.    

“The riel plays a big role in the microfinance sector because we work with low income people. We are well penetrated in the provinces and rural areas where the riel is mostly dominant. About 60 per cent of our clients are from the agriculture sector."

“Most microfinance (institutions) work in rural areas and at least 65 per cent to 75 per cent of our loan portfolios are from the rural sector, mostly farmers. Sixty per cent of our saving deposits are in riel."

“This is exceptional in the market and not everyone has such high exposure [to the riel],” Cambodian Microfinance Association (CMA) Chairman Kea Borann told the Post.

MFIs have become a lifeline for rural farmers, especially those involved in cultivating rice, cassava, beans and those engaged in animal husbandry, who need funding to improve their livelihoods.   

But there is a snag. Over the last 10 years, the trend has been changing as more MFIs shift their focus to urban areas – providing loans to small and medium industries (SMEs), consumer finance, mortgage and personal loans – inadvertently relying more on the dollar, said Borann.

“At least 50 per cent of the MFIs are facing difficulties achieving the 10 per cent loan riel portfolio required by the NBC (National Bank of Cambodia). They can only achieve about seven per cent to eight per cent. The association is working closely among members to find a solution to achieve the target by end of this year,” he added. 

In December 2016, the NBC issued a prakas directing all financial institutions to maintain 10 per cent of their loan portfolios in riel as part of its effort to promote wider usage of the national currency.

However, the pull and push factors in the economy allow the dollar to continue to dominate the business realm and Cambodians have become accustomed to the US greenback.

“The high usage of the dollar is due to consumer behaviour and it is market driven. Cambodians have become more used to the dollar than the Khmer riel and it is cheaper and easier to obtain loans in dollars."

“And from the operational perspective, costs of MFIs dealing in riel tends to be higher because more staff are required, for instance to count the money [due to multiple denominations], in [physically] transporting the cash and storage problems,” said Borann.

He said, as an example, about 90 per cent of MFIs involved in financing leasing activities are heavily exposed to the dollar.

Interestingly, the software used by some MFIs can only support the two-currency system and these institutions have to upgrade their systems to allow the use of the riel only, which will take some time and involves costs for the operators.

“However, MFIs are better than banks in terms of riel usage but we cannot claim to be the champions in this. But the association is pushing for higher usage of the riel and to help change people’s mindset to become more familiar with the riel. We are also having discussions with staff to pay salaries in riel instead of dollars,” he said.

But he cautioned that if salaries are paid in riel and most transactions like rental and goods and services are charged in dollars, workers will lose out in the long run.

“To achieve the riel objective, it is not only the role of NBC and the government but all parties, including the private sector, have to play their role,” said Borann.