Microfinance and the Financial Services Sector
The
combination of a well designed regulatory framework, the shallow reach
of traditional banks, and Cambodia’s strong economic growth has provided
a strong foundation for the growth of the microfinance industry in
Cambodia over the past decade. By March 2010, the Cambodia Microfinance Association
(CMA), the country’s main microfinance support network, reported that
their members operated in all 24 provinces and had over 1 million
borrowers with a gross loan portfolio of almost 510 million USD, and
770,000 depositors with 750 million USD in aggregate deposits. These
figures represent a nearly 20 percent increase in gross loan portfolio
and a 56 percent growth of total deposits from December 2008. Despite
this rapid expansion, some observers still see room for growth in Cambodian microfinance,
as MFIs increase their ability to mobilize savings more efficiently and
use better information and financial training to reduce loan losses.
Nonetheless, falling returns and rising levels of non-performing loans
indicate that the Cambodian credit market has reached a degree of
maturation. Moreover, Cambodian MFIs face challenges as the economy
struggles to recover from the global recession which restricted the flow
of international trade, a key driver of domestic growth for much of the
past two decades. The global financial turmoil also severely damaged
many of the international financial institutions upon which Cambodian
MFIs rely for funding. As a result, many Cambodian banks and MFIs have downgraded their outlooks for 2010 and beyond
Cambodia’s
financial sector expanded rapidly after the country emerged from two
decades of conflict with the signing of the Paris Peace Accords in the
early 1990s. By June 2009, after a long period of export-fueled growth,
Cambodia had 32 banks, including 26 commercial banks and six
specialized, non-deposit taking banks. Despite this growth, bank assets,
totaling approximately 4.1 billion USD, accounted for only 40.5 percent
of GDP according to a 2008 NBC banking supervision report,
a low figure in comparison to other economies in the region. On the
other hand, licensed MFIs accounted for 333 million USD, nearly
one-twelfth that of the formal financial sector. The majority of the
country’s commercial banks serve only the urban elite in Phnom Penh and a
few provincial capitals, and only approximately 5 percent of the total
population has access to formal financial services, according to a 2009 CGAP report.
The lone exception to Cambodia’s highly liquid, conservative banks is
ACLEDA Bank, which began as an NGO MFI in 1993 and converted to a
commercial bank in 2003, but remains committed to microfinance. With 690
million USD in total assets, ACLEDA was Cambodia’s second largest
institution in 2008. Counting ACLEDA as an MFI rather than a commercial
bank, the microfinance sector’s total assets are about 30 percent of the
total assets of commercial banks not engaged in microfinance.
Microfinance
in Cambodia began in 1992 with several internationally-funded NGOs,
operating primarily in refugee camps along the Thai border that had been
established during the domestic turmoil. The success of these programs
attracted several foreign donors and investors, leading to the rapid
growth of the sector throughout the 1990s. The government and Central
Bank both recognized the importance of microfinance in expanding
financial access and economic opportunity, and incorporated microfinance
into the national financial regulatory system in 2000. The efforts of
the National Bank of Cambodia
(NBC), Cambodia’s central bank, to encourage transparency, promote
responsible lending practices, and solicit feedback are regarded by many
as a model for public-private partnership in microfinance.
Despite
the recent setbacks suffered by Cambodia’s economy, several
developments in its financial sector reflect the microfinance industry’s
potential. In an attempt to provide Cambodia’s rural population with
access to financial services, the Australia and New Zealand Banking Group (ANZ) launched its WING mobile banking platform in January 2009 and is providing cash exchange points through Visionfund’s
network of branch offices which reach 3,346 villages. Currently only 3
million Cambodians have mobile telephones and only about 500,000 have
bank accounts, numbers ANZ hopes to improve as it continues to market
its integrated platform, which attracted approximately 100,000 users in its first year.
In addition, as of August 2009, the NBC had reportedly engaged the IFC
to consult on the establishment of a private credit bureau to serve the
country’s major microfinance institutions. Lastly, ACLEDA Bank, which
converted to a commercial from an MFI in 2003, has received a
significant amount of international investment and is widely expected to go public during the debut of Cambodia’s national stock exchange,
an event scheduled for late 2010. This potential IPO, along with more
stringent capital requirements that come into effect at the end of 2010,
may prompt more consolidation in the banking industry and pressure
other commercial banks to downscale their services.
Supervision
The
National Bank of Cambodia, which has sole responsibility for
supervising the Cambodian banking sector, divides financial institutions
into three categories: commercial banks, specialized banks, and MFIs.
As of the end of 2010, commercial banks will be required to have at
least 37.5 million USD in registered capital and may engage in a full
range of banking activities. Specialized banks must have at least 7.5
million in capital, though they may only engage in specific activities
enumerated in their charters.
In
2000, the NBC made its initial effort to regulate MFIs by introducing
legislation which established two tiers: licensed MFIs and registered
MFIs. Any MFI with an outstanding loan portfolio of at least 25,000 USD,
250 USD in deposits, or 100 or more depositors is required to register
and obtain the most basic level of formal recognition. MFIs with a gross
loan portfolio of 250,000 USD or more, 10,000 or more borrowers, 25,000
USD or more in total deposits, or 1,000 or more depositors must obtain a
license from NBC. Both registered and licensed MFIs must adhere to a
strict set of reserve requirements and accounting practices, most of
which depend on deposit base and loan portfolio size.
In
2007, in an effort to better mobilize savings, the NBC issued new
regulations that allowed certain MFIs more freedom in taking deposits
from the public. To qualify for the new deposit-taking MFI license, MFIs
must have a minimum of 2.5 million USD in capital to ensure adequate
deposit protection. This capital requirement has proven difficult to
meet for most of Cambodia’s existing MFIs, and as of May 2010, only four
institutions – HKL, AMK, AMRET, and Sathapana
– have obtained licenses. Many other MFIs face severe restrictions on
the use of deposits to fund lending activities, and ACLEDA, the sole
commercial bank operating in the sector, continues to dominate the
market for micro-savings.
Source http://mixmarket.org