* Any views expressed in this opinion piece are those of the author and not of Thomson Reuters Foundation.
The Cambodian credit industry has been in the spotlight amid the pandemic but much of the criticism is misguided
In Channy is chairman of the Association of Banks in Cambodia and Kea Borann is chairman of the Cambodia Microfinance Association.
This opinion piece is in response to a recent investigation by the Thomson Reuters Foundation - Land to lose: coronavirus compounds debt crisis in Cambodia
The Cambodian credit industry has been in the spotlight recently with several reports from NGOs and in the media highlighting issues of debt burdens on Cambodian borrowers, especially in light of the economic downturn brought on by the global coronavirus pandemic.
The banking and finance industry in Cambodia delivers critical and sustainable financial services to a fast-developing nation. By striving to understand and analyze the needs and risks of each client, the industry aims to ensure individuals, families, communities and businesses have access to capital through formal lending.
Since the start of the coronavirus crisis in early 2020, Cambodia’s banks and microfinance institutions have restructured over 270,000 loans, to a value of more than USD$3.6 billion.
This restructuring is not a one-off, nor is it a ‘one size fits all’ approach, and the industry continues working with its clients on tailor-made restructuring measures from repayment moratoria to complete debt write-off in some cases.
Since the start of the pandemic, data shows that the sector’s Non Performing Loan (NPL) ratio increased from 1.5% to 2.5% in the early part of the year, but has subsequently reverted its course to 2.3% across all lenders.
This NPL ratio is considered sustainable by global credit industry standards and compares favorably with neighboring countries like Thailand where NPL ratios have increased to over 3% since the start of the pandemic.
Another issue that we have noted from some of the reports on Cambodia’s credit market is the collateralization of debt using land titles, which are subject to foreclosure in the event of debt default, as is the case in credit markets around the world.
We are looking closely at this issue and have started gathering data from our members on the number of land titles that are currently held and the rate of foreclosures on these titles.
We will share widely updates from this data survey to underline our firm belief that, contrary to some of the reporting we have seen, neither the Cambodian microfinance industry nor the banks are systemically involved in an unethical and disproportionate land grab that preys on unwitting borrowers.
While we know that around 85% of all Cambodian lenders require land titles as collateral to receive a loan, foreclosure on such titles is extremely rare.
Out of more than 3,400,000 loan accounts in 2020, of which around 3 million are collateralized, only a few hundred have been foreclosed which does not represent the evidence of predatory lending or “financial land grabbing” that some reporters and NGOs have claimed.
It is in the industry’s, and indeed the nation’s, vital interest that we work together with our clients to ensure that land foreclosures are an absolute last resort and that we explore every possible alternative before submitting to the lengthy legal proceedings required by Cambodian law to foreclose on debt collateral.
That said, we reserve the right, as is common industry practice around the world, to require collateral against borrowing and the right to foreclose in the event of debt default.
We would also like to take this opportunity to correct a number of other misperceptions about our industry that have found their way into some of the reports on Cambodia’s credit markets.
Average loan sizes are routinely and inaccurately compared to per capita GDP to suggest that individual Cambodian’s are overwhelmed with debt that exceeds their income.
The average loan size we report as an industry includes not just individual loans, but a significant number of larger SME loans which inflate the average and make the comparison to per capita incomes misleading.
Furthermore, many loans that might be classed as ‘individual’ loans, are in reality for several members of a family or even a whole community such as a village.
We have also seen suggestions that MFIs in Cambodia have strayed from their original purpose of providing formal access to credit for a population emerging from a brutal civil war that left millions dead and millions more in need of urgent financial assistance.
As our nation has developed and emerged from those dark days, we make no excuses for developing as an industry that has not only expanded its lending to support the vital growth of SMEs and other businesses, but is also one that employs tens of thousands of Cambodians in high-value jobs, contributing significant sums through taxes to the nation’s treasury.
While we do not, for one minute, aim to give the impression that the financial service sector in Cambodia has developed perfectly, we would nonetheless like to emphasize its central role in Cambodia’s remarkable economic development that has raised millions out of poverty.
Ours is a sector in a state of constant evolution, adapting to the positive effects of digitization as well as the negative effects of the global public health crisis.
We welcome valid and important debate and discussion around the sector’s future, as it is in every Cambodian’s interest that the financial services they receive adapt to the economic headwinds the world is facing so our industry can continue to support their dreams and well-being.
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