Khmer Times’ Sok Chan discussed microfinance institutions (MFIs) in Cambodia with Sok Voeun, the CEO of LOLC Microfinance and a member of the board of directors of the Cambodia Microfinance Association.
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KT: How would you categorise the performance of your company in 2017, as well as the performance of the microfinance sector as a whole?
Mr Voeun: This year we saw about a two to three percent growth in terms of clients and a 40 percent rise in the loan portfolio. The growth in loans was mostly in agriculture, small and medium-sized enterprises (SMEs) and asset-based lending.
Regarding the sector as a whole, clients grew by about two to three percent and the loan portfolio rose by 25 to 30 percent on average.
However, non-performing loans (NPLs) also rose, by 1.6 to 1.7 percent, but we expect they will decrease in 2018.
All in all, the sector has performed well, and it has enjoyed a healthy growth.
KT: Could you talk about your asset, loan and deposit portfolio in 2017?
Mr Voeun: By the end of the year, total assets were valued at $380 million, while our loan portfolio was worth $325 million, with 220,000 borrowers. Up to 48 percent of our loans went to agriculture, particularly rice, cassava, corn, beans, cashew nuts and rubber. The commercial sector accounted for 25 percent of total loans, services for 15 percent and the rest was for production and manufacturing.
Our deposit portfolio is worth $90 million and we have 70,000 clients with a savings account.
KT: You said that NPLs rose in 2017. What caused this?
Mr Voeun: NPLs increased last year because loan performance in the agriculture sector was not very good throughout 2016 and early 2017. However, the situation is changing, with the agriculture sector bouncing back thanks to improvements in the markets for rice, cassava and cashew nuts. When the sector is performing well, farmers have more money to repay their loans, which reduces NPLs.
KT: In April last year, the National Bank of Cambodia set an interest rate cap of 18 percent for the sector. How has this impacted or will impact MFI performance?
Mr Voeun: As you said, the new interest rate cap came into effect in April last year, but it didn’t have a huge effect on the sector that year because a lot of the clients didn’t really move to new contracts with updated terms until this year. By the end of last year, about 30 percent of our clients were still under old contracts that didn’t have the cap. In 2018 is the year where the new cap will be felt.
I believe this cap is a good move for the sector because it will make it easier for people to respect the terms and conditions of their loans and pay them back on time.
KT: Despite the cap on the interest rate, we see that the number of players in the sector continues to increase. What do you make out of this?
Mr Voeun: We don’t see new companies as a threat. We want them to enter. But we must make sure that competition is fair. New players must pay their taxes, follow the rules, etc.
Competition is good. It gives more choices to clients and helps the market develop. We are only concerned when the new players do not have licences or are not professional.
KT: We have a national election coming up this year. How do you think it will affect your business and the sector? What is your strategy for this year?
Mr Voeun: We forecast similar growth to what we’ve been experiencing in previous years. We will continue to base our business model on small loans (less than $2,000) for SMEs because we want to continue lending to people in the countryside, which is an area that many MFIs don’t service anymore. With 1.5 percent interest rate per month, we don’t turn a profit with this type of loan, but we can’t leave these small farmers behind. We want to help them raise their living standards and hope they continue using our services.
Our vision is to focus on microbusinesses and SMEs, with loans ranging from $10,000 to $100,000, which is in line with government policy. When SMEs are strong, the economy is strong.
Finally, we are also focusing on leasing. In 2018, a lot of our growth will come from this. We are forecasting a 30 percent growth for 2018, year-on-year.
KT: Many SMEs in Cambodia complain that they face many difficulties securing new sources of finance. What’s your take on this?
Mr Voeun: This is a problem. We need to be strict about who we lend to. If not, we run the risk of them defaulting on their loans and having a high number of NPLs. If they don’t meet our requirements, we simply cannot work with them. Most SMEs that complain don’t have collateral, or are startups. They are new and need a lot of money at a very low interest, so we cannot work with them. MFIs cannot do a 10 percent rate. We have to charge at least 12 or 13 interest rate per year to turn a profit.
KT: The government recently announced plans for a new SME bank. What is your view on this?
Mr Voeun: We welcome this initiative and applaud the government’s efforts to aid the sector.
KT: What are your recommendations to strengthen the sector?
Mr Voeun: Operators must do more to help local MFIs and help the sector adopt regional and international standards. Clients, on the other hand, must be careful who they take money from, and use their money for a clear, productive purpose. All in all, we believe the outlook for the sector in the next few years is very positive. I don’t think the national elections will have a big impact on our business.