Participants in a microfinance seminar in Phnom Penh on Monday were overwhelmingly concerned with one issue—the high interest rates offered to poor borrowers in Cambodia.
The seminar, organized by the International Solidarity for Development and Investment, brought together government officials, delegates and members of microfinance organizations to discuss ideas, problems and trends in the sector. But even before the opening remarks were over, participants were asking about interest rates, which in some cases are as high as 5 percent per month for impoverished clients—a rate that some suggested was against the spirit of microfinance.
Son Koun Thor, chief executive officer of the Rural Development Bank, which supports microfinance services in rural areas, said rates would decline in time.
He said he expected the average microfinance interest rate to drop significantly as more people take out larger loans.
“When the amount of the loan increases from $10 to $200, then the interest rates will decrease,” he said.
In addition, the country’s relatively small population is widely dispersed, and it is difficult to access borrowers due to poorly maintained roads, said Phan Ho, director of the banking supervision department at the National Bank of Cambodia.
These factors lead to high operating costs as transportation and security fees pile up, he said.
Finally, rates are dictated largely by international development partners, who funnel money for microfinance institutes through wholesalers like the Rural Development Bank.
“It is a free market,” Son Koun Thor said, adding that his organization cannot set rates. “RDB itself recently got interest rates from its development partners between
6 and 10 percent” per year.
Alka Couet, area manager for ISDI, also stressed that microfinance is not a cure-all for development and poverty reduction.
“We never said that microfinance benefits everyone,” she said. “There are probably some people who are too poor or not entrepreneurial enough for credit. They should receive grants.”