$20 Million Not Enough To Squash Rates for the Poor
Microcredit loans for rural people will likely remain accompanied by high interest rates despite the Asian Development Bank’s commitment to contributing $20 million to the Rural Development Bank.
Finance Minister Keat Chhon and ADB’s country representative Urooj Malik on Friday signed a $20 million loan agreement for strengthening the country’s rural credit activities in hope of reducing poverty.
That loan—$18 million of which goes directly into the Rural Development Bank—is expected to make credit loans more accessible for poor families and help lower interest rates, government officials said.
The Rural Development Bank is a wholesale financial institution that lends money to NGOs and other microfinancing institutions, which then provide affordable loans to the poor.
Bank Director General Son Koun Thor said Sunday the ADB loan would enable his bank to provide credit for 260,000 families.
Wholesale interest rates would be reduced to about 11 percent from the current 12 to 15 percent, he said.
However, microcredit institutions claim that the reduction is not enough for microcredit operators to reduce their retail interest rates to the poor.
“The 11 percent is still a commercial rate, not a subsidized rate,” said In Channy, managing director for Acleda, the largest microfinancing institution.
He claimed that the cost of operation is still high, and the small reduction in wholesale interest rates would not dramatically reduce retail interest rates to poor families.
Prime Minister Hun Sen earlier this year said Cambodia needs to provide $75 million to $125 million in loans per year to meet the needs of its rural poor.
But only $23 million was supplied to 334,000 families last year, 13 percent of which were originally funded by the Rural Development Bank.
The prime minister last year also criticized its rates as being too high—approximately 20 to 60 percent annually—and urged the microfinance industry to reduce the rates.
According to the National Bank, 72 operators officially provide microcredit loans in 18 provinces.
The government now requires all microfinancing institutions to be licensed, and only licensed operators will be entitled to receive the ADB funds.
