September 9, 2011

NBC asks MFIs to diversify


The National Bank of Cambodia was pushing microfinance institutions to look to domestic banks for funding in an industry heavily reliant on foreign loans, experts said yesterday.

Although the NBC is seeking to foster healthier relationships between MFIs and the Kingdom’s commercial banks, a dearth of collateral among MFIs is hindering domestic borrowing.

“We encourage direct links between MFIs and commercial banks because we want to stop MFI reliance on external sources,” Ngoun Sokha, director- general of the National Bank of Cambodia, said yesterday. “We want to avoid external exposure.”

International borrowing increased the chances that financial turmoil in foreign markets, such as the sovereign-debt crises in Europe, would wreak domestic havoc, she added.

A high level of liquidity in Cambodia’s commercial banking sector, along with lower interest rates compared to foreign loans, were also incentives for domestic borrowing, Nguon Sokha said.

Cambodia’s 23 MFIs loaned more than US$420 million  in 2010, up from about $304 million in 2009, according to NBC data. The institutions held about $40.5 million in deposits at the end of 2010, according to the data.

Along with greater stability, processing domestic loans had become increasingly easy, Chea Phalarin, chairman of the Cambodian Microfinance Association, said yesterday. Complications and excessive requirements that once forced MFIs to turn to Europe for funding had been relieved, he said.

“More than anything, we can do the paperwork [for domestic loans] easily,” Chea Phalarin said.

Funding for the Amret Microfin-ance Institution, which Chea Phal-arin manages, was still wholly sourced from Europe, he added.

Prasac Microfinance is 70 per cent financed by loans from Europe, but general manager Sim Senacheert said he had taken a loan from a dom-estic commercial bank, Maruhan Japan, to diversify the institution’s sources of capital.

“This will help to curb the flow of our money abroad and keep our value added by generating more domestic jobs via increasing our branches,” Sim Senacheert said.

However, a lack of up-front guarantees from MFIs prevented the institutions applying for domestic loans, Canadia Bank’s Dieter Billmeier said yesterday.

“MFIs in general are not able to offer collateral,” he said, adding that Canadia Bank had for some years had a small wholesale loan agreement with an existing MFI on its books.

About $5 million, or 1.18 per cent, of Cambodian MFI loans at the end of 2010 were non-performing, according to NBC data, down from 2.8 per cent the year before.

Nguon Sokha agreed that inadequate collateral stood in the way of increased business between MFIs and domestic banks.

“This will not lead to smooth bank operations, because [banks] are mostly thinking about collateral,” she said.

The NBC was, however, preparing a study on how it can vouch for MFI collateral in the future, Nguon Sokha said. This move would lead to more free-flowing borrowing practices, although she said a time frame on when the new policy would be in place had yet to be determined.

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