Adapting and advancing amid economic shifts in Kingdom’s microfinance sector
AMID the global and regional economic uncertainty stemming from the ongoing Russia-Ukraine war and the headwinds of geopolitical issues between superpowers, Cambodia’s financial sector remains resilient to external factors.
According to data from the Cambodia Microfinance Association (CMA), by the end of the third quarter of 2023, the sector had a total loan balance exceeding $5 billion, with more than 1.5 million loan customers.
At the same time, deposit-taking microfinance institutions (MFIs) held over $2 billion in deposits with nearly 2 million depositors.
Sok Voeun, chairman of the CMA and CEO of LOLC (Cambodia) Plc, sat down with The Post’s May Kunmakara to discuss the financial sector’s performance so far this year and the outlook for 2024.
It has been a challenging few years for businesses. What are your views on the financial industry?
The financial services sector provides services to both individual and corporate customers. This segment of the economy comprises various financial firms, including banks, MFIs, leasing companies, credit operators and insurance companies.
According to the National Bank of Cambodia’s (NBC) semi-annual report for 2023, the loan portfolio increased by around 4.9% by June this year compared to the end of 2022, while customers’ deposits saw an increase of around 3.1%.
Loans have been extended to key sectors such as trade, housing, construction and real estate, agriculture, hotels and restaurants and manufacturing, among others. NonPerforming Loans (NPLs) at banks and MFIs were at controllable rates.
Overall, the situation remains tight for businesses and individuals as Cambodia, along with the world, faces economic recession and is just recovering from Covid-19. However, with a clear strategy and robust support from all regulators, especially the NBC and the government, the industry’s performance has remained secure, safeguarding our customers.
How has LOLC’s business performance been so far this year, particularly in terms of loans and deposits?
As of September 2023, LOLC’s loan portfolio exceeded $1.24 billion, with a deposit balance of $865 million. With assets surpassing $1.54 billion and a team of more than 3,500 experienced staff, LOLC (Cambodia) Plc. stands as one of the
most prominent MFIs in Cambodia.
LOLC is committed to creating a lasting positive impact on the communities it serves through the sustainable delivery of inclusive and client-centric financial services, while simultaneously generating value for its stakeholders.
Given the economic slowdown and the challenges borrowers face with loan repayment, what strategies does your institution employ to assist borrowers during these difficult times? Additionally, how did these strategies impact your performance this year?
To assist customers facing financial difficulties due to the economic slowdown, LOLC strives to understand the situation and cash flow of its customers.
The institution has provided restructuring loans tailored to the real situation of its clients, offering options for repayment relief and grace periods to help them recover their businesses. Consequently, LOLC needs to allocate additional provisions for these restructuring loans.
Did LOLC join the finance ministry’s SME Bank collaboration and if so, how much in loans have you disbursed under the initiative?
LOLC has participated and joined as a member of the scheme established by the ministry. Under the framework, LOLC has disbursed loans totaling $2 million to SME clients nationwide.
How has mobile banking transformed the customer experience in banking and the financial market in Cambodia?
The rise of mobile banking is a significant change in Cambodia’s financial sector, emerging as a frontrunner in the digital movement due to the high demand for mobile banking services.
The Covid-19 pandemic in recent years catalysed this trend, emphasising the need for secure, fast and cost-effective banking services that minimise the need to visit physical bank offices.
The transformation has had a substantial impact on the Cambodian financial market by promoting financial inclusion, improving efficiency, and fostering innovation. Many local banks and financial institutions have actively engaged in digital transformation efforts to meet the growing demands of the market.
Has LOLC conducted any surveys to understand the perception of customers using its products and services? If so, could you provide a summary of the findings?
In 2023, LOLC, in collaboration with Oikocredit, an international organisation working with MFIs to support SMEs and other funding needs through lending finance and other means, conducted a survey with nearly 800 participants.
The survey aimed to understand clients’ perceptions, determine their satisfaction level with LOLC’s products and services, identify any gaps in quality, and gather feedback for improvement. Additionally, the survey sought to recommend suggestions to better align with clients’ needs and enhance their overall perception of LOLC’s offerings.
The survey conducted revealed several key highlights. Approximately 54% of respondents have savings, and among these, 80% reported an increase in savings over the past 12 months.
About 42% of respondents rely on agriculture as their primary source of income.
Additionally, 66% identified themselves as businesspeople, either independently or alongside paid employment. Among the nearly 800 participants, 90% felt that LOLC had a positive impact on their lives.
Of those who experienced an income increase between May 2022 and May 2023 (549 respondents), 94% attributed some of this income increase to LOLC’s influence.
92% of respondents who are LOLC clients access the internet via their cell phones, highlighting the potential advantages for financial digitalisation. This trend is seen as beneficial for reducing transaction costs and time, enhancing security and providing convenience in supporting daily financial transactions.
What is your perspective on the outlook for 2024?
The outlook for Cambodia’s microfinance sector in 2024 is very optimistic, with the country’s growth projected to remain strong at 6%.
The sector is expected to benefit from government support and the opportunities provided by technology adoption, which will likely lead to expansion and increased financial inclusion.
However, to ensure sustainable growth and a positive impact, the sector will need to adapt, innovate and prioritise responsible lending practices.