Microfinance Loans Up 47 Percent in First 6 Months

Cambodia’s microfinance sector is continuing to grow at a rapid pace, with loan disbursements in the first six months of this year increasing almost 50 percent on last year, according to an industry association.

The amount of loans issued by the country’s 39 microfinance institutions (MFIs) and six NGOs that provide microfinancing increased 47 percent, from $1.63 billion in the first six months of last year to about $2.4 billion over the same period this year, according to the Cambodia Microfinance Association.

Bun Mony, president of the association, said the rise in loans was thanks to a stable political situation and increased investment.

“In a stable political situation with no remarkable conflicts or clashes…microfinance institutions dare to disburse more loans, while foreign and local investors dare to give more loans to MFIs,” he said.

The International Finance Corporation has injected more than $230 million in the MFI sector this year.

Chan Mach, CEO of Kredit Microfinance Institution, said MFIs were also increasing the size of their maximum loans to meet rising consumer demand.

“Previously, some MFIs offered only $30,000 [per loan], but now they increase to $50,000 and up to $100,000,” he said.

Stephen Higgins, managing partner of corporate consultancy firm Mekong Strategic Partners, also said the rapid rise in loans did not reflect a parallel increase in borrowers, but rather larger loans.

“Much of this growth is coming from MFIs increasing their average loan sizes, with the actual number of customers increasing just 7 percent annualized,” he said in an email.

Mr. Higgins said the current growth was unsustainable.

“We think that credit growth in the MFI sector needs to slow. Growth rates of 40 percent to 50 percent are unsustainable, and if they continue you’d have to say we’re entering a bubble,” he said. “A rate of under 25 percent would be more sustainable.”

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