One of the clearest sectors in Cambodia
to be hit by the global credit crunch will be microfinance, limiting loans for
small businesses among Cambodia’s
poorest at a time when the system is just taking off, financial experts say.
The financial crisis that spread from a US mortgage
meltdown and has shaken global markets will take money away from the
international lenders that make microfinance possible, leaders of several
Cambodian microfinance institutions said in recent interviews.
For Cambodia’s rising number of microfinance
borrowers—mostly the rural poor who take small loans to start or expand local
businesses—that means less money to go around and higher interest rates to pay
Micro-lender Amret will cut 10 percent of its loans to the
poor in the coming year, the institution’s general manager, Chea Phalarin,
“We will reduce our mission in response to less foreign
resources,” he said. “We will cut down the number of lenders.”
Amret had expected to make small loans to around 250,000
families in 2009, he said, but that number has been cut to an estimated
230,000. An extended financial crisis could mean even less people will be
eligible for loans, he said.
Sem Senacheat, general manager of Prasac, a microfinance
lender, said it will be a hard task now to find foreign lenders. Prasac has
already seen a $10 million loan canceled thanks to the financial crisis.
“Loans that we had negotiated before were suspended by the
lenders, and recently we have tried to contact many institutions we used to
borrow from,” he said. “But most of them can’t offer us the money.”
Foreign lenders that can afford to make loans are doing so
at higher interest, experts said, raising rates from an average 9 percent to as
much as 11 percent. The higher interest will be passed on to borrowers.
An estimated 1 million Cambodians are benefiting from
microfinance programs, up 73 percent from the beginning of 2008. The country
has 17 microfinance institutions with a total capital of $270 million,
typically loaned to rural villagers for small-sized businesses.
Chea Chanto, governor of the National Bank of Cambodia, has
called microfinance the key to reducing poverty in rural areas.
But a slowdown means “people who need money to create new
businesses or extend their businesses will be hurt,” said Kang Chandararoth, director
of the Economic Development Institute.
Now, he said, microfinance lenders will have to amass local
deposits, something local lenders say will be limited and far from able to
reach the amounts of money foreign lenders can provide.
Micro-lenders also say they can’t seek loans from local
commercial banks, because these are still not confident with microfinance
The National Bank can’t help either; its reserves are too
“The National Bank can’t release much capital,” said Pal Nay
Im, director of the National Bank of Cambodia. “Microfinance must find
other new partners, especially the [World Bank’s International Finance
Corporation], that don’t face a financial crisis.”
This will be hard as well, micro-lenders said. Lenders like
the IFC or Asian Development Bank usually offer loans with higher interest
rates, which would hurt borrowers.
For now, lenders are waiting to see how long the credit
crunch will last.
“If the global financial crisis is not resolved as soon as
possible, I am concerned that there will be a crisis in 2009," said Bun
Mony, chairman of the Sathapana microfinance institution. “It means that our
mission will be reduced to its lowest point.”