Central bank: Illegal loans bad for borrowers and for industry
Central bank: Illegal loans bad for borrowers and for industry
The National Bank of Cambodia (NBC) warns that illegal loans adversely affect people’s livelihoods and are a factor that can lead to social insecurity and therefore must be prevented. The warning came after the central bank noticed a recent increase in unauthorised lending to people who are under financial pressure from inflation.
To tackle this issue, NBC held a workshop in Phnom Penh on “measures for suppression of illegal lending activities”, in collaboration with the National Police and the Ministry of Justice, with 120 participants from relevant ministries and institutions in attendance.
Rath Sovannorak, assistant governor and director-general of banking supervision at the NBC, said some criminals continued to openly advertise illegal lending to people in various forms such as online through social media or leaflets posted in public places.
“People in rural areas are not yet fully aware about their loan obligations or the use of financial services and have not yet been able to fully access financial information or seek explanations when they are in doubt or have problems related to the use of financial services.
“Local authorities are finding it difficult to clearly differentiate between illegal and illegal financial institutions. Some are intentionally providing banking services and engaging in activities such as lending or collections services without a legal permit and they are usually exploitative,” he said.
He said the provision of credit services without a licence from the NBC is contrary to Article 9 of the Law on Banking and Financial Institutions and that illegal lending also affects people’s livelihoods and could lead to excessive debt through high interest rates.
He added that a lack of ethics or consumer protection mechanisms among illegal lenders could also lead to violence, the loss of collateral and the potential for theft and it had a negative impact on legal banking and financial institutions that provide legitimate banking services.
“The NBC has been cooperating with the Ministry of Justice, the provincial and municipal courts, the Ministry of Foreign Affairs and International Cooperation, the Ministry of Economy and Finance, the Ministry of Interior, the National Police and the General Department of Taxation to jointly support tax collection for the government and to combat money laundering, financing of terrorism and trafficking,” he said.
On August 25, the NBC issued a press release titled “Illegal Advertising and Lending” to provide more information to the public about official and legal institutions that provide credit and other related services and how they differ from the illegal lenders. The NBC also called for the highest level of vigilance against illegal activities by informal credit providers.
Sovannorak further stated that the workshop would integrate awareness among stakeholders with advice on legal measures for those businesses.
He said the workshop gave the opportunity for stakeholders to jointly introduce educational measures or guide citizens to better understanding official banking services and help take legal action against unlicensed banking providers.
“The next move for the NBC, the national police and justice ministry is to issue a joint press release on the workshop’s output and from the mutual cooperation standpoint taking timely action for the prevention and elimination of those illegal activities,” he said.
