Request to review interest rate cap
A week after the central bank capped interest rates at 18 percent per annum for all microfinance institutions (MFIs), the Cambodia Microfinance Association (CMA) said it plans to ask the central bank to review the cap as well as seek sources of foreign funding to provide loans to MFIs.
CMA president Hout Ieng Tong said yesterday his association had discussed with its members and proposed some ideas regarding the cap, which it plans to submit to the National Bank of Cambodia (NBC).
“In addition, we will ask for help from the NBC to seek a source of foreign funding with a low interest rate to lend to MFIs,” he said, adding that no date has been set for the submission of the request.
“If we [MFIs] seek this source of foreign funding ourselves, the interest rate will be higher than if the NBC does.”
Mr. Ieng Tong said if MFIs take outside loans, the interest rate will be high. They charge an interest rate of about eight to 10 percent including government tax, which increases operational costs and prohibits MFIs from offering microloans to people at low interest rates.
“Not all MFIs will be affected by the interest rate cap to offer microloans as the interest rate they offer is low compared with the cap, but some MFIs will find it difficult,” he said.
“An 18 percent interest rate cap would work for loans from $5,000, but it is difficult for loans below $1,000.”
Mr. Ieng Tong added that each MFI will have to find sustainable strategies to grow and survive such as by cutting operational costs and small loans.
The NBC announced last week it decided to set the interest rate cap to back government policy that protects the people, especially the poor, curbs indebtedness and alleviates poverty. The cap will come into force on April 1.
Sim Senacheert, the president and CEO of leading MFI Prasac, said his institution was prepared for the interest rate cap, but that other institutions might not be as lucky.
“Once the interest rate is low, some institutions will be unsustainable and won’t survive.
“This will affect customers as they will not be able to easily seek small loans as the institutions will move to larger loans and downsize to curb operation costs,” he said.
“This will push customers to seek unofficial money lenders who charge high interest.”
Chan Sophal, director of the Center for Policy Studies, said the interest rate cap must be seen in a rational manner.
If MFIs are forced to lend at lower interest rates, they could reduce the amount given out as loans, he said. In addition, the lower interest rates might force smaller MFIs to close shop.
You must see things from both sides and not only from the perspective of the borrower, Mr. Sophal added.
“If [monthly] interest rates were about two percent previously, they could be cut to 1.5 percent.
“However, if MFIs have to reduce their lending, due to lower interest rates, there will not be enough loans for clients,” Mr. Sophal said.
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