Credit Bureau Cambodia expands database, makes switch to riel

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Credit histories of 4 million borrowers can now be accessed by banks and MFIs.

The credit histories of about 400,000 borrowers were added to its database last year, raising the number to slightly more than 4 million in credit bureau database, Credit Bureau Cambodia Interim CEO Mr. Oeur Sothearoath says at the bureau’s newly opened office in Vattanac Capital.

All of this data is stored on Power7 servers and managed locally with international expertise support from New Zealand, Mr. Oeur explains, noting that bureau itself has a mere 24 staff.

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It is a surprising number – 24 staff, 4 million credit histories – but as Mr. Oeur provides an overview of lending in Cambodia’s swiftly expanding economy another figure jumps out. Only about 5 percent of the total $12 billion in consumer lending in the Kingdom is in riel; the rest is in US dollars and Thai Bath.

Mr. Oeur points to the fact that banks and MFIs borrow their funding, for the most part, from outside Cambodia and the currency they borrow in is usually the US dollar. “Investors like to lend in US dollars [to banks and MFIs] to avoid forex risk,” he explains, referring to foreign exchange risks.

There are some MFIs that require investors to provide loans in riel and an effort is underway to encourage other lenders to follow suit. “If MFIs receive loans in riel it is easier for them to lend in riel,” Mr. Oeur notes.

One consequence of borrowing in US dollars is that lending rates are high. The foreign investors who lend to MFIs charge about 7 to 10 percent per year. This high cost of funds is one reason why microloans can carry hefty monthly interest rates. “If MFIs could access cheap funds they could lend at lower rates,” Mr. Oeur notes, adding, however that rates are declining due to increased competition among MFIs.

Some MFIs charge as little as 1 or 1.1 percent a month, while others have charged up to 3 percent a month. “Generally, what you see are high interest rates when an MFI enters an underserved area, but these fall when other MFIs follow them in,” he explains.

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Mr. Oeur also says that although there are more than 60 licensed MFIs in Cambodia, only several operate nationwide.

The size of loans has also rising: by about $200 to $300 last year. Mr. Oeur says the average loan size per borrower was $2,000 as of December 2016. Consumer and small business loans totalled about $12 billion last year, which is in line with the size of the economy and its growth rate, he adds.

Credit histories are vital for helping lenders shift from an overreliance on collateral when assessing loan applications to considering a client’s ability to repay, Mr. Oeur explains. It also helps prevent borrowers from taking out loans from multiple lenders. All commercial banks and microfinance institutions (MFIs) are required to upload information on clients once a month and examine credit reports before issuing or extending a loan. This accumulation of data is also part of the process of ensuring more efficient and prudent lending in Cambodia, where some have pointed to the rapid expansion in lending as a potential problem.

Mr. Oeur believes is not particularly concerned about this, pointing out that the rate of nonperforming loans among Cambodian microfinance institutions was, for example, only about 1.6 percent at the end of 2016, compared to a global average of 3 to 5 percent. Moreover, growth in lending is on a downward trend. It is on track to slow to about 20 percent this year, from over 23 percent last year and around 40 percent in 2014, he says.

The CBC, which had its five year anniversary on March 19, also began a three-step process of switching from the US dollar to the riel in January. It began with changing the billing process for credit report from US dollars to local currency. Already about 80 percent are paying in riel, Mr. Oeur said.

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This was accomplished by providing an incentive. Riel fees are slightly less expensive as the exchange rate is set at 4,000 riel to the dollar. The next step the bureau will take is to start converting expenses – such as paying salaries and rental fee – in local currency. By the end of the year it will change its functional currency to riel.

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