A motorcycle taxi in Phnom Penh. (Photo: Ghbieler)
"The main concern in the microfinance sector in Cambodia is over indebtedness," he said, acknowledging that he had identified cases where loans his institution had made were being repaid by overlapping loans from other institutions or private lenders. "We need to commit ourselves to revise the policy, to guide our staff about the loan assessment."
Mach said Credit Microfinance Institution plans to conduct research with its clients to find out exactly how many of them have overlapping loans. To combat the problem, he said his institution is also giving training to its clients in family budgeting, saving techniques and debt management.
Hout Ieng Tong, general manager at Hatta Kaksekar Ltd, said that some microfinance institutions had problems with their credit officers' level of training and doubted the purpose of handing out loans of as little as US$100.
"To do some business here you must have some capital...otherwise you cannot do the business," he added. "I think the microfinance that lend with small amount, maybe it doesn't help the client. What can you do to a business with US$50 or US$100?"
Tong said that 10 percent, or US$1.5 million of total revenues at HKL, is spent on training staff every year to ensure that all employees are capable of carrying out robust loan assessments.
However, while less than 1 percent of microloans are considered non-performing, analysts say that number would be much higher if private lenders did not prevent borrowers from defaulting with microfinance institutions.
The National Bank of Cambodia says it is aware of the risks facing the microfinance sector and will include an entire chapter on how to ensure the industry's strength in its financial sector development strategy for 2011 to 2020, to be completed shortly.
"We will try to find a solution and a road map in order to strengthen the microfinance institutions," said Ngoun Sokha, director general of the National Bank of Cambodia. She said that part of the strategy would be to encourage MFIs to inform borrowers of the benefits of taking money from formal lenders--lower interest rates and more flexibility--rather than those which operate outside central bank regulation.
A credit bureau, which is due to be launched by the end of the year, will also help MFIs to better target suitable borrowers.
The circumstances there have drawn critics to accuse microfinance institutions of handing out loans with little regard for the ability of borrowers to make repayments. Analysts say that as the microfinance sector has grown its policy has come to be guided by a desire for profits rather than for reducing poverty.
"When a borrower has defaulted, the collateral land most often end up with the private lender, who has paid off the MFI," said Jan Ovesen, a professor of cultural anthropology at Uppsala University in Sweden, who has completed extensive research on microcredit lending in Cambodia. "We also have examples of private lenders taking MFI loans."
Ovesen said that research in Cambodia had shown that borrowers would take a private loan for a couple of days in order to pay the microcredit loan, because when the loan is paid according to schedule, the borrower is eligible for a new one. This scenario has brought about what she described as "predatory lending" among both microfinance institutions and private lenders in Cambodia.
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