Interest rate cap welcomed
The National Bank of Cambodia (NBC) on Monday set an interest rate cap of 18 percent per annum for microfinance institutions (MFIs), deposit-taking MFIs and licensed rural credit institutions in a move to help the poor, curb over-indebtedness and reduce poverty. The interest rate cap will come into effect on April 1. Khmer Times’ Chea Vannak conducted a vox pop to gauge reactions to the government’s latest move.
Oeun Mengly, a client of MFI Prasac
“I think that if interest rates are lower it will help borrowers apply for higher loans because it would not be too much of a burden to pay off the interest. This is the first time that I’m using Prasac’s financial services. With lower interest rates, I think, like other borrowers I will ask for a higher loan to expand my business.”
Chum Ravy, a borrower from Prey Veng province
“Currently, the interest rate for loans is high. I think the interest rate cap is a good move because it will help borrowers like me, who seek small loans, pay less interest. I think at the moment I’m paying quite high interest rates. I once applied for a loan of $1,000 and could only afford to pay a 1.8 percent interest rate a month. If MFIs can offer lower interest rates, I’ll be happy. It’ll be good for my small business.”
Chan Sophal, director of the Center for Policy Studies
“This interest rate cap must be seen in a rational manner. It is not a drop in interest rate across the board for borrowers. If MFIs are forced to lend at lower interest rates, they could reduce the amount given out as loans. Also the lower interest rates might force smaller MFIs to close shop. So you have to see things from both sides – and not only from the perspective of the borrower.
“If interest rates were about two percent previously, they could be cut to 1.5 percent. I, however, want to make a point. If MFIs have to reduce their lending, due to lower interest rates, there will not be enough loans for clients.”
Khon Bunthy, another client of MFI Prasac
“I think the interest rate cap is good at helping people with low incomes borrow money from MFIs. If the interest rate is high, we tend to worry a lot about whether we can meet the monthly interest payments. If the interest rate is low, we can borrow more money to expand our business.
“I applied for a loan twice from another MFI. If Prasac offers me a loan, with an interest rate that is lower than what has been offered to me, I will gladly take it. That will be very encouraging.”
Chhim Ny, a businesswoman from Sa Ang district in Kandal province
“I think it is a good move. The interest rate cap protects customers from being charged high interest rates from financial institutions. I heard of this move by the NBC on Facebook. Let’s see whether the MFIs follow this directive.
“For five years I have been trying to get a loan from an MFI for my business. But the interest rates quoted to me were just too high. I could not afford to make the monthly interest payments. I am quite desperate to get a loan to expand my business, as I do not have enough capital of my own to do so.
“I hope to submit a new loan application next month when the interest rate cap is implemented by the government.”
Interior Minister Sar Kheng
“The NBC set the ceiling rate of 18 percent a year to protect people from cheats. Some poor people have been charged interest rates of between two to four percent a month. Multiply that for a year and the interest rate could be between 24 percent and 48 percent. This situation is a recipe for disaster. If interest rates are not capped, the poor will become further indebted.
“The government is trying to help both sides – the lenders and borrowers. But we don’t want our rural poor to go further into debt.”
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