Borrowing Gap Widens as MFI Sector Grows

Cambodia’s microfinance sector continued its rapid expansion in the first nine months of the year, according to the latest figures from the Cambodia Microfinance Association (CMA), although the gap between loans and deposits in the sector also continued to widen.

The country’s 40 registered microfinance institutions (MFIs) and seven NGOs registered as lenders with the National Bank disbursed about $2.72 billion in the first nine months of 2015, an increase of 52 percent over the same period last year, while the seven MFIs licensed to take deposits took in $1.24 billion, an increase of 53 percent, according to a report released by the CMA on Wednesday.

CMA president Bun Mony said that most of the loans went to farms and other small businesses. He acknowledged that more needed to be done in the sector to narrow the gap between deposits and loans, which has increased from $0.98 billion to $1.46 billion this year.

“The inequality between the deposits and loans is a challenge to the long-term development of the microfinance industry in the country,” said Mr. Mony, who is also the CEO of MFI Sathapana Limited.

“The financial law has only allowed us to get deposits for about eight years, for eight MFIs. That’s why we lack funds to use as credit, and so this lack has been filled by extra funds from stakeholders and loans from overseas and local banks,” he added.

“We need to build more confidence so that more people put their money in [MFIs], and more people should learn to use micro-financial services in their normal living.”

Economist Srey Chanthy attributed the sharp increase in loans to more people starting and expanding businesses, as well as a drought that has hit farmers in many parts of the country.

“Drought, and late and limited rain is negatively affecting farming. Thus, farmers need loans for pumping to rescue crops, new inputs (including seeds [and] fertilizers) to recover or replace lost or damaged crops, repay debts, pay for consumption (e.g., food, healthcare), etc.” he wrote in an email.

Stephen Higgins, managing partner of corporate consultancy Mekong Strategic Partners, said the government needs to be more actively involved in controlling credit growth in the sector.

“While it is encouraging to see deposit growth slightly higher than credit growth, I think policy makers would still be concerned at the level of credit growth,” he said in an email.

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