Microfinance is supported in Cambodia by a regulatory framework that aims to assist the growth and development of MFIs. The Royal Government of Cambodia has instituted two major instruments to create this legal framework: The Law on Banking and Financial Institutions and Prakas.
Law on Banking and Financial Institutions
First enacted in November 1999, the Law on Banking and Financial Institutions aims to create confidence in the banking system, promote the use of savings and encourage financial sustainability. The legislation clearly defines the legal status of MFIs as a provider of loans and deposits to poor and low-income households and micro-enterprises.
Prakas on Licensing of Microfinance Institutions
Issued by the National Bank of Cambodia (NBC) in 2000 Prakas B7.00-06 outlines the process of MFI registration and licensing in Cambodia.
Registration is compulsory for any MFI that meets one or more of the following conditions:
a loan portfolio outstanding equal to or greater than KHR 100 million;
savings mobilized from the general public amounting to KHM1 million or more;
100 depositors or more.
Licensing is required for larger MFIs. It is compulsory for any MFI that meets one or more of the following conditions:
a loan portfolio outstanding equal to or greater than KHR 1,000 million;
1,000 borrowers or more;
savings mobilized from the general public amounting to KHM100 million or more;
1,000 depositors or more.
Regulations after licensing
After an MFI is licensed it must comply with a number of prudential regulations which include:
capital guarantee deposit of 5 percent of capital;
reserve requirement of 5 percent of total voluntary deposits;
capital adequacy ratio of 20 percent;
maintain liquid assets of at least 25 percent of total voluntary savings;
aggregate loan commitment to an individual borrower or a group of borrowers shall not exceed 10 percent of new worth.
Additionally, in line with Prakas B7.02-145, a licensed MFI must classify their loan portfolio into the four separate classes with different provision requirements defined below:
Loan class
Provision requirements
Description
1. Standard
no provision required
good financial condition and punctual payment of principal and interest.
2. Sub-standard
10%
some payments of principal and/or interest are overdue by 30 days or more.
3. Doubtful
30%
some payments of principal and/or interest are overdue as follows:
4. Loss
100%
some payments of principal and/or interest are overdue as follows:
Prakas relevant to microfinance
Some of the Prakas relevant to microfinance can be accessed here from the NBC website:
