Small Loans Fresh Casualty of Credit Crisis
As credit markets tighten around the globe, foreign lenders who have supported Cambodia's microfinancing are tightening purse strings a
One of the clearest sectors in Cambodiato be hit by the global credit crunch will be microfinance, limiting loans forsmall businesses among Cambodia’spoorest at a time when the system is just taking off, financial experts say. The financial crisis that spread from a US mortgagemeltdown and has shaken global markets will take money away from theinternational lenders that make microfinance possible, leaders of severalCambodian microfinance institutions said in recent interviews. For Cambodia’s rising number of microfinanceborrowers—mostly the rural poor who take small loans to start or expand localbusinesses—that means less money to go around and higher interest rates to payback. Micro-lender Amret will cut 10 percent of its loans to thepoor in the coming year, the institution’s general manager, Chea Phalarin,said. “We will reduce our mission in response to less foreignresources,” he said. “We will cut down the number of lenders.” Amret had expected to make small loans to around 250,000families in 2009, he said, but that number has been cut to an estimated230,000. An extended financial crisis could mean even less people will beeligible for loans, he said. Sem Senacheat, general manager of Prasac, a microfinancelender, said it will be a hard task now to find foreign lenders. Prasac hasalready seen a $10 million loan canceled thanks to the financial crisis. “Loans that we had negotiated before were suspended by thelenders, and recently we have tried to contact many institutions we used toborrow from,” he said. “But most of them can’t offer us the money.” Foreign lenders that can afford to make loans are doing soat higher interest, experts said, raising rates from an average 9 percent to asmuch as 11 percent. The higher interest will be passed on to borrowers. An estimated 1 million Cambodians are benefiting frommicrofinance programs, up 73 percent from the beginning of 2008. The countryhas 17 microfinance institutions with a total capital of $270 million,typically loaned to rural villagers for small-sized businesses. Chea Chanto, governor of the National Bank of Cambodia, hascalled microfinance the key to reducing poverty in rural areas. But a slowdown means “people who need money to create newbusinesses or extend their businesses will be hurt,” said Kang Chandararoth, directorof the Economic Development Institute. Now, he said, microfinance lenders will have to amass localdeposits, something local lenders say will be limited and far from able toreach the amounts of money foreign lenders can provide. Micro-lenders also say they can’t seek loans from localcommercial banks, because these are still not confident with microfinancesystems. The National Bank can’t help either; its reserves are toosmall. “The National Bank can’t release much capital,” said Pal NayIm, director of the National Bank of Cambodia. “Microfinance must findother new partners, especially the [World Bank’s International FinanceCorporation], that don’t face a financial crisis.” This will be hard as well, micro-lenders said. Lenders likethe IFC or Asian Development Bank usually offer loans with higher interestrates, which would hurt borrowers. For now, lenders are waiting to see how long the creditcrunch will last. “If the global financial crisis is not resolved as soon aspossible, I am concerned that there will be a crisis in 2009," said BunMony, chairman of the Sathapana microfinance institution. “It means that ourmission will be reduced to its lowest point.”