Action plan gathers steam to address rising micro debts
Action plan gathers steam to address rising micro debts
Stakeholders in the microfinance sector in the country will adopt a code of conduct and formulate lending guidelines for self-regulation, besides strengthening complaint mechanisms for borrowers to address the issue of rising indebtedness in the sector.
A consensus in this regard was reached during the consultation process, initiated by the National Bank of Cambodia (NBC) and the United Nations (UN) in Cambodia along with other stakeholders in the sector.
According to a joint statement by NBC and the UN on Wednesday, the consultation process aimed to facilitate constructive stakeholder engagement, develop a shared understanding of the issues, and identify specific actions and commitments that might support all stakeholders in navigating challenges and seizing opportunities to strengthen the banking and financial sector in the country.
The statement said that following a pivotal high-level multi-stakeholder dialogue convened on July 12 to consider the findings of the extensive consultation process and chart the way forward, the stakeholders adopted a series of actions to be undertaken across the short-, medium-, and long-term in five priority areas.
Accordingly, the stakeholders will work towards forming a code of conduct and lending guidelines for regulation and supervision of the microfinance sector, enhance cooperation and coordination among different regulatory bodies and ensure an effective self-regulation mechanism.
To support borrowers, complaint mechanisms will be strengthened and a working group to establish an independent debt counselling and mediation mechanism will be created, besides enhancing the financial literacy of borrowers.
For technical enhancement, consolidated data will be collected or shared, besides developing a regulation on loan restructuring/ refinancing and standardizing the definition of microloans.
Measures would also need to be taken to control informal lending and enforce the roles of local authorities.
An insurance scheme for agricultural risks due to climate change will be piloted under modern agricultural cooperatives and a working group to support the creation of modern agricultural cooperatives for indigenous people communities will be established.
According to the statement, in November 2023, NBC and UN Cambodia commenced co-convening the multi-stakeholder consultation process on microfinance in Cambodia due to increasing concerns regarding the rapid growth of the microfinance sector in Cambodia and potential linkages to other issues such as indebtedness.
A series of individual stakeholder group dialogues and multi-stakeholder technical meetings were subsequently conducted, and stakeholders representing 100 different groups and institutions were consulted, including representatives from government, regulatory bodies, banking and financial institutions and associations, investors, civil society and non-government organizations, think tanks, and development partners, along with UN agencies, and international financial institutions.
The representatives who attended the high-level multi-stakeholder dialogue affirmed the commitment to foster a fairer and more transparent banking and financial sector that serves the needs of the Cambodian people by promoting responsible and inclusive banking and financial practices.
The statement said that this process has not concluded but remains ongoing. The next scheduled multi-stakeholder meeting will take place in January 2025 to evaluate and monitor the progress of these actions by all relevant stakeholders.
“Together, we remain dedicated to ensuring that the banking and financial ecosystem empowers individuals, especially the most vulnerable groups, supports the sustainable development agenda, and contributes to the overall economic stability of Cambodia,” it said.
According to the Cambodia Microfinance Association (CMA), microfinance institutions in the country provided credit to the tune of $5.12 billion to 1.57 million clients in 2023, an average of $3,260 per account.
Meanwhile, a study by CMA and M-CRIL, involving 3,262 households found that nearly 87 percent of borrowers have one to two loans. It was also found that 2.1 percent of those surveyed had taken as high as four or more loans.
