National Bank of Cambodia yesterday launched a book called “Building Inclusive Finance”. It traces the development of microfinance in Cambodia from its origins in rural development programmes in the early 1990s to the globalised industry it is today.
The book was written by Ron Bevacqua, the founder and managing director of Access Advisory.
Kea Borann, chairman of Cambodia Microfinance Association (CMA), said the book is to serve as a key document for the financial sector, focusing on the history and development of the microfinance sector in Cambodia over the past decades.
“I firmly believe this book will not only benefit Cambodia, but also share Cambodia’s valuable experience of the financial sector with other countries, both in the region and around the world, especially developing countries,” Borann said.
Director-general of Banking Supervision Rath Sovannorak said that microfinance plays an important role in bolstering the rural economy and poverty reduction and promotes financial inclusion. He quoted the National Bank of Cambodia’s (NBC’s) Governor Chea Chanto, as saying that in the past four decades, Cambodia’s history recorded clearly the recovery process of the Kingdom’s situation from scratch, when it was severely affected by war, especially the financial sector, which was completely damaged, leading the Cambodian people to lose trust in the financial sector.
However, he added because the right policies are now in place after being taken up by the government, with the participation of microfinance operators, relevant stakeholders and especially the NBC’s mechanism regarding regulations, market mechanism and international compliance for banking and finance, the financial sector developed fast.
“Through these previous achievements of the MFIs [microfinance institutions], as well as the idea to compile the book as an historical record, with documents for researchers, practitioners, investors and policy makers as well as stakeholders as the foundation for building and developing the Kingdom’s economy and society, the NBC, especially its governor, had the vision to come up with this book,” Sovannorak said.
He added Bevacqua started writing the book in April 2015 and finished it in September 2017. Then the NBC’s team translated it into a Khmer version and it was fully complete in 2019.
The book is divided into 11 chapters. The first is about Cambodia joining a new world order, while the second and third chapter are about life, land and debt in the Cambodian countryside and rural credit in Cambodia before microfinance.
Chapter four is about microfinance – a new approach to poverty reduction. Chapter five and six are about the birth of MFIs (1990-1994) and Cambodian microfinance in its infancy (1995-1997). Chapter seven discusses whether they are a help or a hindrance and regulating microfinance (1997-2000). Chapter eight discusses the transition of MFIs from a sector to an industry (2000-2006). Chapter nine concentrates on “beyond credit”: introducing deposit services. Chapter 10 and 11 focus on the maturing of the industry (2010-2016) and reconsiders microfiance and market-led approaches to poverty reduction.
The book also positions these developments in the wider context of economic development policy which, in the post-Cold War world, emphasised market-based approaches over government policies and was programmed to fight poverty.
It says that Cambodia did everything that modern microfinance theory said it should: It commercialised MFIs and integrated them into the mainstream financial system. Yet incomes from farms and micro-enterprises are rising more slowly that GDP growth and much of the population still lives just above the official poverty line. Worse, today the industry is concerned about an over-indebtedness crisis and criticism is increasing.
The book concludes that the problem is not with microfinance per se: It works as designed and poor people value its services. Instead, the Cambodian example demonstrates that the idea underling microfinance – that the heavy lifting in reducing poverty can be left to the private sector – is flawed. Poor people are disadvantaged in many ways, including lacking market power. Without any effort to tip the scales in their favour, market-based approaches simply privatise the problem of poverty.
By the second quarter of 2020, the CMAs’ 103 members, including MFIs, financial leasing institutions and rural credit operators have total credit outstanding of more than $7.3 billion to 2.1 million clients while total deposits are $3.7 billion from 2.8 million depositors. The industry employs more than 36,000 staff with a total of 1,500 representative offices across all provinces and cities. This data does not include banks. During the difficult circumstances caused by Covid-19, the CMA has been actively working with all members, stakeholders and government agencies including the NBC to support affected clients with loan restructuring and being highly professional and ethical to solve clients’ difficulties. By Aug 30, more than 270,000 clients had applied to CMA members for loan restructuring. More than 250,000 – 94 percent of them – have been approved for loan restructuring with a total loan size of approximately $1.25 billion.
- Tags: microfinance