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NGO STATEMENT TO THE 2001 CONSULTATIVE GROUP 
MEETING ON CAMBODIA

MICRO-FINANCE
 

CONTENTS

 


Introduction
Key Issues
Recommendations

Introduction

Access by the poor to micro-credit and savings programs is crucial for alleviating Cambodia's extreme poverty and for accelerating economic growth. The vast majority of Cambodian people have no, or very limited access to credit and savings services. To respond to this great need and in the absence of any government intervention, the NGO micro-credit sector has attempted to meet this need. Programs of varying methodologies have expanded rapidly since 1992. 

In 2000, approximately 120 NGO credit programs were operating in 19 provinces. Despite these efforts, still only about 24% of the capital requirement for micro-finance for the country is being reached. 

Regulatory Environment
The National Bank of Cambodia (NBC) with advice from the Asian Development Bank has been issuing new laws to monitor and gain more control of the micro-finance sector. All organizations giving credit must register with the government and all organizations over a certain size must become licensed. One organization has become licensed as a specialized bank and other organizations are in the process of trying to get their licenses.

Key Issues

  • Limited access to financial services
    The vast majority of Cambodian people still have limited access to financial services outside of the informal sector. With limited access to financial services other than family and friends, people have relied on moneylenders and traders for investment capital to finance essential inputs for agricultural production or micro-enterprises. This leads to lower production as well as having a minimal effect on stimulating the economy and should be seen as a major hindrance to Cambodia's development. 
  • Allowing for and maintaining a favorable micro-finance environment
    To effectively reach the great numbers of Cambodian poor who currently do not have access to financial services, there needs to be an environment conducive to allowing Micro-finance organizations to thrive. Experience shows that a free market approach allowing for different methodologies with a minimum of government intervention is the most effective means to doing this.

Recommendations:

NGO recommendations with regards to the development of the Micro-finance sector are as follows:

Royal Government of Cambodia

  • Ensuring that every Cambodian, particularly the poor, has access to credit should be a primary concern.
  • Maintain a stable political and economic environment. Adopt economic policies that encourage private investment, lower inflation and maintain a stable exchange rate for a country as a whole in order to promote rural economic growth.
  • Formulate a policy for a legal and regulatory framework that allows for diversity in institutional structures and credit delivery schemes for both the formal and non-formal financial institutions concentrating on regulation and supervision which creates a conducive environment for micro-credit to thrive. 
  • There should be constant dialogue between the government and implementers, both in the formation of laws but also in formulating methods of improving the sector. Current policies for licensing are seen as constricting by large implementers and threatening by mid-sized organizations. An example of a policy that is constricting is the influential shareholder policy, which makes shareholders responsible for liabilities. It is also wondered why licenses are granted for only 3 years.
  • Organizations undergoing legalization should be given sufficient time and adequate support to become formalized. 
  • Do not try to set interest rates or the method of calculation. Allow for the free market to promote positive real interest rates on deposits and loans.
  • Avoid implementation or the funding of subsidized or directed credit schemes or interest rate controls as they undermine the development of the micro-financial system.


Donors

  • Allow for diversity of implementation strategies. Introduce complementary development programs to address the constraints to micro-enterprise development and rural economic growth. 
  • Provide substantial support for training and technical assistance to develop Cambodia's human resource and institutional capacity at all levels. 
  • Enhance donor coordination to ensure that donor funded programs complement the development of the micro-finance system.
  • Avoid supporting programs that are neither transparent nor accountable to external controls. Avoid supporting subsidized, directed credit schemes.
For further information on the issues raised in this paper, please contact:
The Credit Sector Working Group, Tel: 023 210 325, Email: gateway@bigpond.com.kh
Introduction
Progress
Key NGO priorities
Conclusion
Strategic Planning for Poverty Reduction
Sectoral Papers
Agriculture
Child's Rights
Commune Administration and Decentralization
Commune Elections
Disability and Rehabilitation
Education
Fisheries
Forestry
Gender
Governance and Transparency
Health
HIV/AIDS
Human Rights
Landmines and & UXOs
Land Reform
Mental Health
Micro-finance
Urban Poor
Weapons Reduction and Management
General NGO Information
References

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