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.