Losing 104 rural credit agencies ‘may allow growth’ in finance sector
Losing 104 rural credit agencies ‘may allow growth’ in finance sector
The central bank’s recent revocation of the operating licences of 104 rural credit institutions (RCI) – nearly half – should not have significant ramifications on the Kingdom’s wider financial system, industry insiders and observers have assured.
The National Bank of Cambodia (NBC) announced the decision on April 12, without explaining the specific reasons that prompted the move.
Analysts keeping tabs on Cambodia’s financial conditions have hailed the move, contending that RCIs often fail to adhere to NBC standards.
The NBC reported that as of end-2022, total assets among the Kingdom’s 223 RCIs at the time totalled 234 billion riel, or $56.8 million.
At the same time, the collective loan portfolio stood at 211.1 billion riel, or $51.3 million, broken down by agriculture (32.5%), households (29.1%), trade and commerce (20%), services (7.2%), construction (5.9%), transport (0.2%) and other (5.1%), central bank statistics showed.
Although the 2022 NBC annual report gave the official number of RCIs operating in the Kingdom at 224, later documents from the central bank have put that figure at 223.
Cambodia Microfinance Association (CMA) chairman Sok Voeun affirmed to The Post on April 17 that his association supports the NBC’s move, which he claimed would allow the Kingdom’s financial industry to “grow stronger”.
“I believe there’ll be more credit institutions delisted,” he said, maintaining that adverse effects on the Cambodian financial sector will be minimal.
The CMA wants entities that act “morally” and adhere to the law to be in a strong position, Voeun said, adding that those that act “improperly” should be terminated.
Hong Vanak, director of International Economics at the Royal Academy of Cambodia, described the decision to shut down such a large number of RCIs as an affirmation of the central bank’s commitment to ensuring compliance with its regulatory requirements.
However, RCIs may still have the right to reapply for reopening at a later date, as dictated by the terms and conditions set by the NBC, he noted.
“I find that such closures empower consumers in rural or remote areas to be more firm and serious when it comes to borrowing,” Vanak said, asserting that without the NBC’s clear policies and procedures for the formal microfinance system, many more borrowers could find themselves in a financial rut.
“Overall, I find it very useful for all stakeholders to provide credit services in remote and rural areas,” he said, adding that the termination of non-compliant organisations may also provide legitimate microfinance institutions with a better chance to market their goods locally.
