Premier Dubs 2006 ‘The Year of Microfinance’

Prime Minister Hun Sen on Wednesday called on Cam­bo­dia’s 16 microfinance institutions to lower their interest rates, at the start of a three-day meeting of donors, bankers and gov­ern­ment officials on how to ex­tend more badly-needed credit to the poor.

“I would like to call upon all mu­nicipal and provincial authorities to facilitate microfinance op­er­­­ations in their respective juris­dic­tion to be safe and able to ex­pand their activities throughout the country,” Hun Sen said be­fore declaring 2006 “The Year of Micro­finance.”

In his speech, he took on the is­sue of interest rates directly.

“I have noted that the microfinance interest rate has substantially declined when compared to that applied during the 1990s, meaning that it has declined al­most 50 percent, from 5 percent to 6 percent per month to only 2.5 percent to 3 percent,” he said. “However, the interest rate for microfinance is still considered to be high.”

Representatives of microfinance institutions at the conference said they charge the interest rates they do because of the elevated risks they face.

“We face a lot of risk when borrowers have no willingness to pay,” said Im Song, a researcher at Thaneakea Phum, adding that his institution charges an average of 3 percent per month.

“The use of collateral such as land titles is also important to ensure debt repayment,” he said.

UN Resident Coordinator Doug­las Gardner said that im­prov­ing the overarching business en­vironment in Cambodia would in turn extend the reach of micro­f­in­ance. He cited increased pre­dict­ability in the applications of re­gu­lations and taxation, corruption-free public services and civil ser­vants and health and education systems that strengthen the work force as factors. He also said that microfinance institutions need to concentrate on developing financial services that educate bor­rowers.

“The poor are sometimes viewed, unfortunately, as a drag on the economy, but in fact, global experience has shown that mi­cro­finance can provide the means and the dignity for the poor, especially women, to help themselves and indeed be a positive motor for the community and the economy,” he said.