The purpose of this paper is “to enable understanding of the finances of [microfinance institutions] in Cambodia and the potential role and expectations of investors in supporting the microfinance ecosystem of the country.” While other sources have sounded alarms about microborrowers in the country being unable to repay loans and losing their land amid the COVID-19 pandemic, Sanjay Sinha finds that the liquidity challenges faced by microfinance institutions (MFIs) in Cambodia as a result of COVID-19 are less significant than those in other Asian countries. The Cambodian government didn’t impose a lockdown on travel, so the impact on collections has been minimal. The decline that did occur has been offset by lower levels of loan disbursement.
Based on a review of data from nine large MFIs, which have a combined portfolio of KHR 46 trillion (USD 11.4 billion), the author estimates a liquidity shortfall of KHR 1.3 trillion (USD 320 million) for the calendar year 2020. This shortfall amounts to 2.1 percent of the MFIs’ total assets. The liquidity analysis was based on the following assumptions: (1) disbursements will drop by 10 percent from 2019, and collections will drop by 15 percent; (2) balance sheets will grow at a rate of 33 percent from 2019; (3) borrowers mostly offer agricultural land as collateral for loans above USD 750, while smaller loans are generally collateral-free; and (4) borrowers don’t default on MFI claims on “non-operational transactions.”
To explain the relatively low impact on the microfinance industry in Cambodia, Mr Sinha notes that the MFIs studied have relatively: (1) low levels of loans as a proportion of total assets; (2) long average loan maturity periods, which are less likely to require loan rescheduling; (3) high rates of funding from deposits – near 60 percent – with much lower rates of withdrawals during the pandemic than countries such as India and Nepal.
Meanwhile, Mr Sinha warns that a liquidity crisis may still develop in Cambodia as the pandemic continues. Even in the absence of such a crisis, he anticipates a decline in return on equity, which had ranged from 20 to 30 percent during 2019. Mr Sinha estimates this decline could bring return on equity as low as 5 to 10 percent for 2020.
This is a summary of a paper by Sanjay Sinha, published by M-CRIL, September 2020, 7 pages, available at http://www.m-cril.com/pdfs/20-09-17%20Cambodia%20MFI-MFbanks%20liquidity%20analysis.pdf
By Romil Pandey, Research Associate
Additional Resources
M-CRIL homepage
https://www.m-cril.com/
Thomson Reuters Foundation article on Cambodia’s debt crisis
https://longreads.trust.org/item/cambodia-coronavirus-compounds-debt-crisis
MicroCapital news on Cambodia
https://www.microcapital.org/?s=cambodia
Did you know that MicroCapital publishes the MicroCapital Monitor newspaper each month? Find out more at: https://www.microcapital.org/products-page.
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