MICROCAPITAL BRIEF: Cambodian Government: Microfinance Interest Rates of Up to 50 Percent Threaten Loss of Land, “Social Instability”

Cambodian government officials reportedly are looking to negotiate down the interest rates on microfinance loans, arguing that current rates are unsustainable for the country’s rural farming population and that defaults are causing many farmers to become landless. [1] The Cambodia Rural Development Bank, an autonomous public enterprise established by the government to fund microfinance institutions (MFIs), is negotiating with the 10 institutions it supports to lower rates. [1] [3] Meanwhile, MFIs argue that rural customers understand interest rates and that if rates were too high, they would go to other lenders. However, operating costs for MFIs also remain high, since farmers consult individually for loans rather than borrowing in groups, and much of MFIs’ funding comes from overseas, which is more expensive than local funding. [1]

According to the Cambodia Microfinance Association, a trade association of 26 MFIs, the aggregate gross loan portfolio of its members has increased almost 20 percent since December 2008 to USD 510 million as of March 2010. [2] Loan size averaged USD 500. [1]

By Natalie Baer, Research Associate

About the Cambodian Microfinance Association: The Cambodian Microfinance Association (CMA) is an NGO that was formally established in 2004 by seven microfinance institutions (MFIs). As of May 26, 2011, CMA has 26 active members. Its main function is to strengthen communication among MFIs and other groups such as government authorities, donors, creditors and investors.

Source and Resources:

[1] “Debt fears for farmers Calls for lower microfinance rates”
http://www.phnompenhpost.com/index.php/2012011153889/Business/debt-fears-for-farmers-calls-for-lower-microfinance-rates.html

[2] Mix Market: Microfinance in Cambodia
http://www.mixmarket.org/mfi/country/Cambodia/report

[3] Cambodia Rural Development Bank http://www.rdb.com.kh/data/about%20RDB.htm

MicroCapital Universe Profile: Cambodian Microfinance Association https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Cambodian+Microfinance+Association+%28CMA%29#Description_140_word_limit_

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