Before 1990: Limited Financial Services
Prior to 1990, only banks provided financial services but mostly in the city and mostly to Cambodian people living around the city. The majority of Cambodian people, who lived in rural and remote areas, could not access formal, sustainable and timely financial services. During that time, moneylenders provided informal financial services in rural and remote areas with high interest rates ranging from 10% to 20% per month.
1990-1995: The First Microcredit Seeds are Planted
Microfinance in Cambodia emerged from nonprofit microcredit projects initiated by international donors, NGOs, and institutions in the early 1990s to fill the institutional void left by the virtually nonexistent banking sector. Without a working banking system, organizations such as GRET (1991), World Relief (1992), ACLEDA and CRS (1993) initially ran microcredit projects by physically handling cash transfers. After the international recognition of the new Cambodian government in 1993, aid started to pour into the country, particularly into community rehabilitation projects. Despite the long strides
attained, however, microfinance initiatives only reached isolated pockets of the
population, approximately 44,000 in 1994.
1995-2000: Government Supported Institutionalization
In 1995, the RGC established the Credit Committee for Rural Development (CCRD) with funding support from UNDP and AFD to formulate a strategy for rural credit development, strengthen management, and manage funding. In 1997, the NBC set up the Supervision Office of Decentralized Banking System Bureau which was then separated in 2000 into 2 branches: the Specialized Bank & MFIs Supervision Office, to oversee the coordination, supervision and regulation of the sector, and the Project to Support Microfinance Sector, to ensure capacity building within the sector. By 1998, the new industry served 214,000 individuals. Reaching a significant size also translated into increased risks for clients and
microfinance promoters, thereby building pressure on microfinance stakeholders to formulate a regulatory framework.
2000-2005: Commercialization Drives the Sector Up a Notch
In 1999, recognizing the MFIs’ wider breadth of the rural population, the RGC adopted a two‐tier system under the Law on Banking and Financial Institutions for supervising microfinance. A PRAKAS, or government decree, on microfinance regulation was enacted and implemented by the NBC in 2000. In October 2000, the industry leader, ACLEDA, transformed from a NGO into a specialized microfinance bank with the support of its founding donors and new institutional investors. This move set a precedent for other successful microcredit NGOs to transform into commercial MFIs.
However, the procurement of loans from local commercial banks have generally been limited, the RGC’s support of a free‐market economy and a more stable political environment attracted an astounding number of foreign private investors who financed approximately 80% of MFIs’ loan portfolios since 2000. Increasing competition has permitted MFIs to consecutively decrease their average annual interest rates charged to clients from 42% in 2003 to 32% in 2006. The establishment of CMA by 7 MFIs in 2004 encouraged the microfinance sector to foster internal collaboration, including information sharing and provision of training programs. Serving as a communication channel for MFI members and the CMA operates as a sub‐division of the Association of Banks in Cambodia (ABC) in accordance with the legal framework and is entitled to negotiate directly with the NBC on relevant microfinance matters.
2005-Present: An Integral Economic Player
Since 2005, the microfinance field has undergone significant changes. In 2006, the NBC, with technical assistance from the ADB, established a Credit Information System (CIS) designed to collect and share negative credit information from commercial banks. The scope of information available to MFIs has however been very limited, thereby decreasing incentives to use it. Between 2006 and 2008, microfinance activities fostered a healthy environment, with the number of borrowers growing from 23%, 29% to 31% during each respective year, while total MFI lending increased at a rate of more than 55% per year (see Figures 1.1 and 1.2).
Figure 1.1: Value of Loan Outstanding in Million USD for 14 MFIs in 2005 and 17 MFIs in 2008.
Figure 1.2: Growth in Number of Clients for 14 MFIs in 2005 and 17 MFIs in 2008.
This growth was, however, stymied by the global financial crisis between 2008 and 2009 which had adverse impacts on Cambodia’s national economy across all sectors without sparing its microfinance sector. This is reflected by the rising portfolios at risk (PAR) ratio. The PRAKAS on Licensing Microfinance Deposit Taking Institutions was issued in December 2007 by the NBC, which authorizes eligible MFIs to receive deposits from the general public. This has provided MFIs with cheaper sources of funds, mainly in the local currency, and comes at a critical time when foreign investment has contracted significantly due to the global economic slowdown.
