Foreign banks pouring into MFI sector
Foreign banks pouring into MFI sector
There has been a growing wave of international interest in the Kingdom’s micro-finance institutions (MFIs) as many of the lenders sell major stakes to large foreign banks.
When Samic Microfinance sold its entire operation to South Korea-based NongHyup Bank late last month, Samic’s CEO King Kap Kalyan said the decision was due to rising competition within the country’s financial industry.
He said the current market requires operators to have stronger sources of capital in order to thrive.
“The [previous] shareholders had limited ability to expand in the market, so we needed to walk out and allow new owners with strong financial abilities to come in and strengthen competitiveness in the current market,” Kalyan said.
A week after Samic’s announcement of the acquisition deal, AMK Microfinance revealed it had sold an 80 per cent stake to China’s Shanghai Commercial & Savings Bank (SCSB).
Cambodia’s microfinance sector has also seen a notable shuffling of its shareholders over the past two years.
Prassac Microfinance, Hattha Kaksekar Ltd (HKL) and VisionFund (currently operating under the name WB Finance) have all announced the sale of stakes to large banks in Asia.
Consolidations and acquisitions within Cambodia’s microfinance sector have been increasing over the past two years mainly due to market competition and tougher requirements from the Kingdom’s central bank – in the form of larger minimum capital requirements, an industry expert said.
President and group managing director of Acleda Bank In Channy said the increase in competition within the industry has pushed some existing shareholders to leave the market.
He said the industry needed investors with stronger capital to fulfil the central bank’s requirements.
“In the past, microfinance industry investors didn’t need to deal with big changes, so the previous shareholders did not plan to sell their stakes.
“But now they face stronger competition and tougher requirements, so the institutions need new shareholders with stronger capital,” he said.
Channy said the influx of new shareholders in the last two years is a good move, reflecting that the sector is attractive among major banks in the region.
In March 2016, the NationBank of Cambodia (NBC) announced it would raise the minimum capital requirements for financial institutions, ultimately increasing it tenfold for microfinance institutions.
NBC’s parkas said deposit-taking MFIs must have a minimum capital of $30 million – up from $2.5 million previously. MFIs that are not licensed to receive deposits must have capital of $1.5 million, nearly 25 times the previous level of $62,500.
Cambodia Microfinance Association (CMA) chairman Kea Borann said the recent influx of shareholders in the sector is normal.
The majority of lending institutions in the Kingdom were set up by NGO funds and operated as NGOs in the 1990s. There was a commercialisation of the sector as institutions shifted to become private enterprises in the late 2000s.
“This time, I think it is a new turning point as many foreign banks are entering and acquiring major MFIs,” he said, adding that despite local MFIs struggling with the interest rate cap, foreign investors are still confident in the potential of the sector.
“They might have strong capital and a source of funds with low interest, so there is hope that the shift will have a positive impact on the industry,” he said.
However, Sean Thornin, an economics lecturer at the University of Cambodia and an expert in Cambodia’s financial landscape, said recently that the change in ownership will alter the business model of MFIs.
“When many MFIs shift their focus from micro and small loans to medium ones, low-income families will be left with less choice for financing.
“Then they may be drawn to the informal sector like private money lenders and loan sharks, where interest charges are higher,” he said.
