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(i)
Introduction
Reliable
access to micro-credit and savings services by the poor is one crucial
component for alleviating poverty and accelerating economic growth in
Cambodia. The vast majority of Cambodian people have very limited or no
access to credit and savings services. To respond to this need, the NGO
micro-credit sector has been in the forefront of providing loan capital
for income generating activities of the poor. These NGO programs employing
varying methodologies have expanded rapidly since 1992.
The
Rural Development Bank (RDB) reports that as of February 2002
approximately 55 credit programs were operating in Cambodia with total
outreach of about 449,100 families and loans valued at 38 million US
dollars. Despite these efforts, only about 30% of the country’s total
capital requirement for micro finance are being met. Cambodia Development
Resource Institute (CDRI) research shows that in order to reduce poverty
nationwide, the rural poor would need between $70 and 100 million dollars
in loan capital.
Regulatory
Environment:
The
National Bank of Cambodia (NBC) with advice from the Asian Development
Bank (ADB) has been issuing new laws to monitor and gain more control of
the micro finance sector. All organizations giving credit must register
with the government and all organizations over a certain size must become
licensed. As of this date, one organization has become a specialized bank,
two organizations have been granted Micro-finance Institution (MFI)
licenses and another 8 are in the process of becoming formal MFIs.
(ii)
Key Issues
- Limited access to financial services.
The
vast majority of Cambodian people still have limited access to financial
services in the formal sector. With limited access to financial services
other than family and friends, people has relied on moneylenders and
traders for investment capital to finance essential inputs for
agricultural production or micro enterprises. The lack of capital results
in low productivity and hampers economic growth, particularly in the rural
areas where the majority of the population lives. This is a major
hindrance to Cambodia’s goal of reducing poverty and attaining full
economic development.
- Allowing for and maintaining a favorable
micro-finance environment.
To
effectively reach the great numbers of poor Cambodians with no access to
financial services, there must be a conducive policy and regulatory
environment, which allows microfinance and microenterprise to thrive.
Experience has shown that a free market approach allowing for different
methodologies with a minimum of government intervention is the most
effective means to achieve this.
(iii)
Recommendations
Royal
Government of Cambodia
-
Ensuring that every Cambodian,
particularly the poor, has access to credit
should be a primary concern. To do this, the government
must ensure the development of a strong micro-financial sector that
provides reliable access to credit to the poor,
particularly the rural poor.
-
There should be constant dialogue between the government and
implementers, both in the formation of laws but also in formulating methods of improving the sector.
-
Maintain a stable political and economic
environment Adopt economic and legal policies that encourage
private investment, lower inflation and maintain a stable exchange
rate in order to promote rural economic growth.
-
Avoid interest rate controls as they
undermine the development of the micro-financial system. Allow for the
free market to promote
positive real interest rates on both deposits and loans.
-
Amend the influential shareholder liability
requirement from the law and review the licensing period of three years,
which are disincentives for serious investors
interested in the microfinance sector.
-
Strengthen the legal system that allows for fair enforcement of
contractual obligation and fosters conflict resolution.
-
Avoid talks of debt moratorium
or politicians talking of paying debts of borrowers as this undermines the
successful implementation of credit and savings programs and can harm the medium term
goal of developing a strong rural financial market
-
Waive taxation on interest earnings of small savings
depositors to encourage local savings (e.g Thailand does not tax savings interest if interest on savings does not
exceed 1,000 baht).
-
Waive taxation on gross receipts of MFI for a limited
period of time (three to five years, similar to tax holidays given
to private
investors) to allow MFI to improve their services and strengthen their
financial and operational capacity. For this limited time
period, MFI will be exempt from gross receipt tax but will have to pay
taxes on net profit.
-
Consider waiving taxes on organizations
with strong social objectives.
-
Formulate a policy, legal and regulatory framework that allows
for diversity in institutional structures and credit delivery schemes for both the formal and non-formal
financial institutions concentrating on regulation and supervision
which creates a conducive environment for micro-credit
to thrive.
-
Organizations undergoing formalization should be given sufficient
time and adequate support and training to become licensed MFI.
-
proactively pursue establishment of deposit
guarantee institution (be it government or privately owned) to promote
client confidence in the financial sector and strengthen
deposit mobilization, a necessary component of a strong rural
finance sector.
Donors
-
Allow for diversity of implementation
strategies.
-
Introduce complementary development programs to address the
constraints to micro-enterprise development and rural economic growth.
-
Provide substantial
support for training and technical assistance to develop Cambodia’s
human resource and institutional capacity at all levels.
-
Provide funding assistance for organizations involved in
transformation.
-
Enhance donor coordination to ensure that donor funded
programs complement the development of the microfinance system.
-
Avoid supporting programs that are neither
transparent nor accountable to external controls.
-
Promote the formation of an Association of MFIs to avoid bad
practices, over-indebtedness of households and sharing of information. | Content| Back
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