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Financial institutions continue to see an uptake of Khmer Riels


The use of dollars in Cambodia has come a long way. The large inflows of US Dollars during the UNTAC period in the early 1990s, together with public’s experiences during the Khmer Rouge, have lead public to preferred US Dollar as means of payment. However, the dollarize limit central bank to implement effective monetary policy, and also to control the quality of the banknotes in circulation, increase difficulty for SMEs payment since most of their business settlements are in Khmer riels, and decrease the ability of central bank to play role as lender-of-last-resort for it can only fund in local currency.

In this regard, the National Bank of Cambodia (NBC) and financial institutions in Cambodia have recognized the importance of the Khmer riel (KHR) as a mean of economic resilience. Having said so, financial industry players, including banks, microfinance institutions, Association of Banks in Cambodia (ABC), and Cambodia Microfinance Association (CMA) have been playing a pivotal role in boosting riel circulation across the country.

The trend of KHR circulation has been greatly risen after the NBC issued a directive requiring all financial institutions to have at least 10 percent of their loan portfolio in the national currency, a measure that has now been adhered to by majority of financial institutions.

Therefore, it is useful to understand how financial institutions could boost riel circulation among their customers. Particularly, Yongjae Jang, Chief Financial Officer of Kookmin Bank Cambodia, illustrates that Kookmin Bank Cambodia is currently providing more favorable conditions such as lower interest rate and loan processing fees compared with US dollar loans. The bank provided various training programmes for Cambodia migrant workers in South Korea on how to remit funds between the two countries, on how to open bank accounts, as well as, other financial literacy programmes.

In addition, the executive vice-president of ACLEDA Bank, So Phonnary, mentions that loan in local currency of Acleda Bank has grown from 4 percent up to 13.25 percent of total outstanding loan amount of USD 3,7 billion at the end of 2019. It is also highlighted that the demand for the local currency is currently strongest among small and medium enterprises (SMEs) and the riel is used to dispense salaries for civil servants. Moreover, Riel deposit is more encouraged with higher interest rate, which deposits in riels amounted to more than KHR 2.5 trillion (around USD 614.75 million) from 881,505 deposit accounts.

The supporting is not only from banks, but also from microfinance institutions. PRASAC Microfinance Institution Senior Vice-President, Say Sony, says that PRASAC has 12.31 percent of its loans in riels with a total amount of USD 321 million. PRASAC also promotes its local currency loans to all provinces, especially for micro and small loans clients since their business transactions are in riels, and works with other banks in the country to allow riel transactions process through Bakong project, which initiated by the NBC to facilitate money transfers and payments across national borders for both riels and USD, while enhancing financial inclusion in the Kingdom.

Furthermore, Sok Voeun, Chief Executive Officer of LOLC (Cambodia), says the currently loan in local currency at LOLC is around 13 percent and he is optimistic for the trend of loan in Riel would increase to between 22 percent to 25 percent by the end of 2020.

As of last year, President of Cambodia Microfinance Association, Kea Borann, said that more and more financial institutions are disbursing and accepting riels in the rural areas because more earnings are derived from the national currency. Further, the tools that are developed by the NBC would allow for wider circulation of Riels and help promote national currency.

Similarly, President of the Association of Banks in Cambodia points out that the riel has gained significant traction over the last decade owing to the ease of using it to carry out daily transactions in comparison with the US dollar. Moreover, the ABC and ACLEDA bank are working together with the NBC in developing a riel QR code standard, which expected to be completed soon. Actually, end of February last month, the NBC and the Bank of Thailand (BOT) has jointly launched QR code-based retail payments linked between both countries, which allow Cambodian tourists visiting Thailand to use their mobile banking apps to pay in Riels by scanning the QR codes of Thai merchants.

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