Credit crunch hits MFIs

Photo by: TRACEY SHELTON
The ACLEDA head office in Phnom Penh. MFIs say credit has tightened this year.

Falling loan growth
- ACLEDA 48pc in 2008, 30-35pc growth expected in 2009
- MFI Sathapana 61pc in 2008, 10-20pc expected in 2009
- AMK Finance 124pc in 2008, 56pc expected in 2009

The Phnom Penh Post

Written by NGUON SOVAN AND GEORGE MCLEOD
Friday, 06 March 2009

Microfinance institutions say that a reduced willingness to lend among foreign entities is squeezing domestic market

MICROFINANCE organisations said they expect slower growth and higher interest rates as the credit crunch hits foreign lenders who had been a key source of funding to local MFIs.

The main threat, sources said, stems from the decrease in available capital as foreign backers trim their emerging market investments, leaving microfinancers less able to serve local demand.

Prior to the global economic downturn about 50 foreign banks were lining up to lend to local MFIs, said Bun Mony, a member of the board of the Cambodian Microfinance Association (CMA) and general manager of the MFI Sathapana Limited.

But since the onset of the crisis, he said the number had fallen to zero.

"A large number of microfinance institutions have been seriously affected by the global financial crisis because 80 percent of our capital is from abroad," Bun Mony said.

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We may have to raise local rates more to make up for our higher costs.
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He said portfolio loans to customers increased by 61 percent last year, "but we forecast that growth will slow from 10 to 20 percent this year".

Other MFIs, including AMK Microfinance and ACLEDA, told the Post they also expect some growth in 2009, albeit below original expectations.

Bun Mony also warned that interest rates - currently at two to three percent per month - could rise in response to loan restrictions by foreign creditors.

"If we want to take out new loans, we have to pay one or two percent more per year, so we are hesitating to borrow. We may have to raise local rates more to make up for our higher costs," he said.

CMA Chairman Hout Ieng Tong said the number of MFI borrowers hit one million last year, up from 970,152 in 2007. He said loans totalled US$740 million, consisting of $438 million from 17 microfinance institutions, with the rest from ACLEDA Bank.

Hout Ieng Tong said the number of depositors rose to 529,789 last year from 355,956 in 2007, with $492 million in deposits, excluding ACLEDA.

"The portfolio risk is still very low," he said, estimating 0.67 percent risk, or $2.95 million.

Bun Mony said there had been instances of collateral such as land and houses being seized for auction to repay debts, but he said less than one percent of loans were nonperforming.

ACLEDA President In Channy said Thursday that local deposits at ACLEDA Bank had increased to $512 million, with $463 million in loans outstanding.

"Nonperforming loans at ACLEDA were 0.4 percent last year," he said. "We lend to farmers without requiring land or houses as collateral, but third parties insure the borrowers."

But Tal Nay Im, director general of the National Bank of Cambodia, said she was worried that farmers were at risk of losing their assets if they defaulted. "They risk being deprived of their houses, but it is their only choice if they want to borrow money," she said.