The Association of Banks in Cambodia and the Cambodia Microfinance Association on Monday conducted a workshop to raise awareness about a set of guidelines to promote responsible lending and fight over-indebtedness.
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The ‘Lending Guidelines’, the focus of the workshop, were drafted by CMA in 2017 to mitigate lending risks and ensure that clients are able to repay their loans.
Kea Boran, CMA chairman, said they are an important tool to keep the sector “healthy” by reducing risks and protecting against excessive lending.
“These guidelines are part of our efforts to protect the market against over-indebtedness,” he said.
He noted a remarkable increase in the number of loans approved in the country. From January to May, the number of loans disbursed was 10 percent higher than during the same period last year.
“For clients that have taken out loans with multiple organisations, we must assess their capacity to pay us back before we granted them a new loan,” he said.
“If over-indebtedness gets out of hand, it will severely impact the MFI sector,” he warned.
With ABC’s help, CMA is now reviewing the guidelines, Mr Boran noted.
Oeur Sothea Roath, CEO of the Credit Bureau of Cambodia, said his institution is critical in the fight against over-indebtedness. He said CBC collects information from banks and MFIs that lenders can access before granting a loan.
“MFIs feed us weekly and monthly data that other institutions can use free-of-charge. Using this information helps reduce risk and protects the client,” he said.
Ron Bevacqua, an advisor to CMA, said over-indebtedness may have social and political repercussions if left unchecked.
“Even if most banks are not exposed to microfinance clients, they will be affected if there is a widespread crisis,” he said.
According to the National Bank of Cambodia, as of last year, there were 43 commercial banks, 14 specialised banks, and 74 MFIs.
Last year, credit from microfinance deposit taking institutions (MDIs) and MFIs was dominated by households, accounting for 36 percent and 40 percent of total loans respectively.