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Student Loans Remain a Heavy Risk for Lenders

A lack of protections and an unpredictable job market have made lending institutions reluctant to provide student loans, banking officials say.

Students may be hard-pressed to find work after they graduate a university or they may simply not finish school. This has led to closed doors for poor students, especially in the countryside.

“If we do this, it is very risky, because we don't know whether students will finish their educations,” Sophan Nary, deputy CEO for Acleda Bank, told VOA Khmer Tuesday. “Only if the students can earn some income to pay the bank back monthly can we consider offering them loans. Or only if they have guarantees to make sure the bank can get back the money it lent.”

But even with some guarantees, lending institutions are reluctant.

“Some students are orphans, so we need to consider the guarantees also,” said Horn Rozana, the chief executive officer’s secretary for Phnom Penh Commercial Bank.

Nearly 40,000 students graduate from high school in 2007, the latest figures from the Ministry of Education show, and officials say the number is increasing yearly. But the high cost of education means that many do not finish their university studies, which cost an average $1,600 for four years.

And with no system in place to avoid risks for lenders, much of that money has to be saved ahead of time or earned along the way.

“Unlike in developed countries where they have social security numbers for their citizens, in Cambodia an individual identity cannot be tracked down,” Chea Phalarin, general manager of Amret, a microfinance institution, said. “If the person goes to a far away province or somewhere else, how can we get him to pay back the money he owes if we do not know where he is?”

Amret will sometimes offer loans to parents, who are less risk, he said. “We can’t lend to students directly because we are not confident they can pay back the money.”

In places like the US, where student loans are common, graduates begin paying back their loans after they find employment. But in Cambodia, the job market is uncertain, creating another roadblock to lending.

More than 28,000 students graduated from 45 private and 18 state institutions last year, but the number who went on to jobs is not known.

“A student may end up jobless after graduation, so this is a high risk business,” said Kong Phean, a brand developer for Cambodia Mutual Savings and Credit Network, or CMSC.

CMSC did provide 13 students with loans in 2009, but that went to students at well-known universities who were at least in their third year.

“Those in third year are less likely to drop out of school,” Kong Phean said.

There is also a belief among some lenders that school tuition is not high enough to warrant loans.

“Tuition at the moment is still affordable for most families to support their children’s education, so the demand for student loans is still not huge,” said Bun Mony, CEO of Sathapana Ltd., a microfinance lender.

Mak Vann, a secretary of state for the Education Ministry, said the ministry wants as many students to go to university as possible, but Cambodia needs to put a system in place.

“There is still a lot more to learn, say, on how it is done in the US for example,” he said.

And the ministry does offer up as many as 4,000 scholarships a year to poor high school graduates, he said.

For students like Mok Socheat, who borrowed $400 a year ago from CMSC, loans are worth it, even if he has to pay interest.

“It helped reach my goal,” he said, having landed a job as a machine operator for an electric company after graduating from the Cambodian Institute of Technology. “Without the loans, I would probably not have finished my students and would not have this job.”