Prime Minister Hun Sen told a summit on microfinance development yesterday that stricter rules needed to be applied to organizations and institutions lending money as many people were being cheated, embezzled and losing their collateral to unscrupulous lenders.
In a speech to the National Summit on Microfinance Development yesterday, the prime minister said there were non-government organizations, associations and brokers offering financial services and businesses claiming to be licensed Microfinance Institutions (MFIs) charging interest rates that were bankrupting borrowers.
“They have used certain methods to calculate interest rates in a way to cheat and embezzle borrowers,” he said. “This way of providing loans is less strict and made in a short-time process.
“It seems like they encourage people to go into debt with quick loans and when the people borrowing money don’t have enough to pay them back, the lenders seize their property.”
Mr. Hun Sen criticized some MFIs that were previously NGOs and are now intentionally providing loans with the aim of seizing houses, buildings and land from borrowers. “Some [MFIs] provide loans to clients who use their loans for the wrong goals, and this is a problem,” he said.
The prime minister’s criticisms came after a widely-watched television show highlighted a case where an unidentified lender seized a house after its owner was late paying a loan installment of 720,000 riel ($180).
Mr. Hun Sen called on the Ministry of Economy and Finance and the National Bank of Cambodia (NBC) to take legal action against NGOs offering loans and MFIs that are violating the law.
Last week the NBC issued a directive to banks, MFIs and rural loan operators to stop taking national identification cards or family records as collateral for loans. The directive was made after many of these documents were used as collateral when people sought financial services.
Chea Phalarin, the CEO of leading MFI Amret, said the issues raised by the prime minister were important for all MFIs, which need to be professionally run and managed.
“We operate a microfinance operation not to make people poor or seize their property, but to help them progress and improve their living standards,” he said.
The MFIs will work together on this issue to give their clients efficient and effective financial services with low interest rates, added Mr. Phalarin, who is a board member of the Cambodia Microfinance Association (CMA).
Hout Ieng Tong, the newly-elected president of the CMA and the CEO of Hattha Kaksekar Limited, one of the largest MFIs in Cambodia, said the CMA will encourage those unlicensed financial providers and NGOs to get licenses from the NBC to operate legally.
About 400 NGOs now have licenses from the NBC after the government called on unofficial lenders last year to register with the NBC, Mr. Ieng Tong said. “The rest should register at the NBC and hopefully they will gain more experience in the financial sector from other MFIs so they will become professional institutions providing loans to people,” he said.
Son Chhay, the deputy chair of the National Assembly’s Banking and Finance Commission, welcomed and supported the prime minister’s comments and added that some MFIs had encouraged people to take loans at high monthly interest rates, pushing them deep into debt.
“The changes mentioned are a good move,” Mr. Chhay said. “But the government should set a policy for specific interest rates and have a reserve budget to help people hit by unexpected natural disasters,” he added.
The NBC and the Ministry of Economy and Finance made a joint declaration in February last year, appealing to borrowers to beware of the increasing number of unofficial lenders, many of which claim to be NGOs or microfinance institutions. The interest rates charged for loans from these unofficial lenders were so high that they threatened people’s livelihoods, while the lenders did not have proper financial credentials, it said.
Mr. Hun Sen said he recognized that MFIs’ financial services had helped improve people’s living standards significantly over the past decade. He said about 51 percent of the adult population have used this financial service, which has helped reduce poverty, and reduce the gaps between the rich and the poor as well as urban and rural areas.
According a CMA report, outstanding loans totaled nearly $3 billion last year, up from $425,921 in 2010, an annual growth rate of 42-53 percent, and the portfolio at risk rate was at 0.67 percent last year, which the CMA said is still a healthy figure.
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Prime Minister Hun Sen speaks at the National Summit on Microfinance Development at the Peace Palace in Phnom Penh.
KT/ Vireak Mai