Microfinancing Practices Don’t Help the Poor, Senators Say

Concerned that rural banks are more concerned with profit than the well-being of their borrowers, members of the Senate have called for microfinancing in­sti­tutions to lower their interest rates.

The Senate’s Finance and Bank­ing Committee met with eco­no­mists and representatives from the National Bank of Cam­bo­dia, mi­cro­financing institutions, and the Rural Development Bank Thurs­day to look for ways to create a formula for reduced rates and alleviate Cambodia’s crushing poverty.

According to World Bank statistics, the average per capita in­come is around $280 per year, among the lowest on the planet.

Thursday’s meeting was the first time the Senate had called all the players in microfinance to­gether. Microfinancing to farmers and small and medium enterprises has not solved the problem of rural poverty, the senators said.

“If micro-credit worked, it would stop migration of rural people to Phnom Penh” and Thai­land to look for work, Senate First Deputy President Prince Si­so­wath Chivanmonirak said.

Currently, loans to the rural poor have been passed first from the Asian Development Bank to the National Bank, then to the Ru­ral Development Bank and then to microfinancers, with interest rates for the rural poor, who do the final borrowing, reaching as high 60 per­cent annually, senators said.

High interest rates worsen conditions for the poor, who often don’t understand borrowing practices and who may not be able to repay the loans, senators said.

Some senators accused microfinance institutions of concerning themselves only with profits, and not the problems of the poor.

While some senators agreed that in­terest rates overall need reducing, at least one singled out Acleda Bank, the country’s lar­gest microfinancing bank, as having high interest rates.

“I ask you all, is this rate reducing poverty of poor people or is it reducing the poverty of Acleda?” said Senator Ou Bunlong, a member of the Sam Rainsy Party and the Senate Finance Committee.

The system needs work, Ou Bunlong said. “I believe the current microcredit policy is wrong. What will help [the poor] is to lower the interest rate,” he said.

Chan Serey, deputy director of Acleda, defended his bank’s practices, saying the interest rates it charged were barely enough to off­set the costs of operation in the provinces.

In the countryside, he said, poor infrastructure and scattered clients cost the bank a lot of mo­ney just for transportation. That, coupled with the small size of most loans, makes lending difficult.

“We travel on bad roads to meet people in the countryside, back and forth, every day,” he said.

Acleda charges an annual interest rate of 41 percent to 42 percent, he said. In order to decrease the rate, the country would have to have “many” microfinance in­stitutions lending large amounts of money and adhering to free-market practices.

The bank has also had problems with bad borrowers, he said.

“If we, the money lender, are to make money from lending mo­ney, the borrower must make sure they are able to pay back,” he said.

The bank has never done anything against the regulations of the National Bank, Chan Serey added.

Cambodia needs to loan the ru­ral poor between $70 million and $100 million to reduce poverty na­tion­wide, Cambodian De­vel­op­ment Resource Institute economist Sok Hach said.

The total amount of loans made to rural poor since such pro­grams began in 1997 is about $38 million, Rural De­vel­opment Bank Pres­i­dent Son Kunthor said.