MFIs seek ministry support
NBC signs blockchain agreement
THE Ministry of Economy and Finance (MEF) is planning to form a joint committee chaired by government officials and microfinance institutions (MFIs) to promote small loan disbursements as the new 18 percent loan interest rate cap takes effect, according to an announcement released by the government on Friday.
The initiative was announced after representatives from the Cambodia Microfinance Association (CMA) met with Finance Minister Aun Porn Moniroth last week. They discussed possible measures that the MEF could take to prop up the sector after the sudden imposition of the April 1 interest rate cap on all new and restructured MFI loans – a drastic cut from the prevailing 20 to 30 percent rates offered on small loans.
Bun Mony, adviser to CMA and chairman of Vithey Microfinance Plc, said yesterday that while the Minister was willing to listen to the group’s requests, he declined to make any firm commitments and vowed to study the difficulties MFIs face. CMA was hoping to get a reprieve for its members from taxation on profits and gain access to lower cost funding sources.
“The minister assured us that he will form a joint committee to help resolve any issues that may damage the sector’s ability to provide small loans,” he said. “He also agreed that he will intervene on some tax matters.”
However, Mony said that no official agreement has been reached nor was there a spe- cific timeline for the establishment of the joint committee.
Since the National Bank of Cambodia (NBC) announced in March that interest rates on microfinance loans could not exceed a maximum of 18 percent per year – a decision some experts suggested had political overtones and could seriously impact returns from microlending – CMA has actively tried to find solutions.
A week after the NBC announcement, the CMA claimed to have brokered a deal with the central bank, agreeing to reduce annual licensing fees and provide loans in riel directly to MFIs. The body also said that the NBC would consider postponing a 12.5 percent reserve requirement on borrowing that was supposed to apply to microfinance deposit-taking institutions (MDIs) this year.
The NBC also promised to consider extending the deadline for MFIs to reach their revised minimum capital requirements. MFIs are currently required to raise their paid-up capital to at least $1.5 million by March 2018, while MDIs must reach $30 million.
Contacted yesterday, Hout Ieng Tong, chairman of CMA, said there has been no progress in getting the NBC to make good on its commitments since the initial meeting.
Ngeth Chou, senior consultant at Emerging Markets Consulting, predicted that both the MEF and NBC would take a wait and see approach before the government made any firm commitments to ease the burden of the interest rate cap.
“I think that it will take some time as the government needs to observe if MFIs are really having difficulties,” he said, adding that MFIs could find ways to provide small loans by slowly increasing service charges.
“Charging a one or two percent service fee is a method that MFIs could use to continue to provide small loans to clients if the government decides not to intervene,” he said. THE National Bank of Cambodia (NBC) has signed an agreement with a Japanese firm to develop a blockchain-based payment system that could potentially allow for the regulated usage of a cryptocurrency, which would eliminate the use of formal financial institutions to send and receive money.
According to an announcement on Friday from the Japanese financial technology firm Soramitsu Co, the company signed a partnership agreement with the NBC to study the possible implementation of a blockchain-based open-development software known as Hyperledger Iroha, a product backed by the Linux Foundation, a US-based company that distributs the ledger technology program.
A distributed ledger, also known as a blockchain, allows for the use of digital currencies such as bitcoin, but provides greater verification safeguards for transmitting digital assets and currencies. Based on opensource software, the technology claims to be more robust in preventing cyberattacks by creating a shared ledger that is recorded by all individuals or institutions that access the network.
The central bank could not be reached for comment yesterday about the scale of the agreement or its level of commitment towards its implementation. Nevertheless, the NBC’s commitment joins a growing rank of countries that include central banks from China, England, Australia, Singapore and Sweden that are actively investigating how the technology can be incorporated.
“Through our work with the National Bank of Cambodia, we will be able to take the first step towards creating a more efficient payment infrastructure, which we hope to expand globally in the future,” Kazumasa Miyazawa, CEO of Soramitsu, said in the announcement.
The technology would bypass the need for ATMs and formal financial institutions for customers by allowing them to send and receive funds directly, while central banks and physical financial institutions could use it for streamlined interbank lending activity, according to Martin Kendrik, the founder of the Cambodian Cryptocurrency, Bitcoin and Blockchain Community.
“While I am a bit surprised that Cambodia is potentially pursuing blockchains so quickly, it is good for the central bank to be progressive and not regressive and follow models like Japan and Singapore,” he said. “If Cambodia invests in this technology, it would put them in a strong position to insulate themselves from external currency shocks.”