Bank of China Makes First Loan to MFI
Prasac Microfinance Institution, the largest microfinance institution in Cambodia, on Friday received an up to $10 million loan from the Bank of China to expand lending in rural areas.
This is the first loan from the Bank of China to a microfinance institution (MFI) since it commenced operations in Cambodia in 2010.
It comprises a three-year $2 million loan and an $8 million overdraft facility, according to a press release from Prasac announcing the loan.
Chen Changjiang, CEO of Bank of China’s Phnom Penh branch, said at the signing ceremony for the loan on Friday that Cambodia’s fast-growing economy was increasing the need for credit in rural areas and that this was why it was giving the loan to Prasac.
“We are providing funds to local leading players, including microfinance institutions,” Mr. Chen said. He added that more loans would be given to microfinance institutions in the future, and that these will assist in the development of Cambodia’s economy. “Prasac MFI is the number one microfinance player in Cambodia, so we are happy to offer this loan to support the Cambodian economy,” Mr. Chen added.
Sim Senacheert, president and CEO of Prasac, said that the loan is timely as demand for credit in rural areas is rising, especially to expand small and medium-sized enterprises and for start-ups.
“Although we have been growing very fast in the past few years, we still see more demand for credit,” Mr. Senacheert said. The loan from the Bank of China will help Prasac reduce the credit gap, he added.
Mr. Senacheert expressed confidence that the first loan from the Bank of China would not be the last. “I believe we will cooperate further. I hope that we can build business relations for other banking services or other facilities that can be mutually beneficial for economic development,” he explained.
In June, Prasac received a $65 million syndicated loan arranged by the International Finance Corporation from three Thai banks, which contributed $20 million each, and ING Bank NV, which contributed $5 million. The loan was intended to increase credit to micro, small, and medium-sized enterprises in rural areas, most of which are owned by women.
Private sector credit has grown by nearly 30 percent annually over the past three years, and expanded another 33 percent by the second quarter of this year. The credit-to-GDP rate doubled over this period to over 50 percent and the loan-to-deposit ratio surpassed 100 percent early this year, according to a report from International Monetary Fund released early last week. It warned that the growth could pose an increasing risk.
Mr. Senacheert said that although his financial institution continues expanding credit it is doing so cautiously. “I think that we are growing in the right way. If we see that we have any problem with non-performing loans, if we see that there is over indebtedness to clients we will not grow. So, we are growing in both quantity as well as quality,” he explained.
“Whenever we provide loans to our clients, to famers, to rural people, we are also taking care of their problems. We have to assess loans properly and we have to ensure that [clients] have the ability to repay,” Mr. Senacheert said.
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