Good News for very poor people? Elephant in the room

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Good News for very poor people? Elephant in the room

Postby juansweetpotato » Tue Apr 11, 2017 9:16 am

MFIs predict lower earnings
http://www.phnompenhpost.com/business/m ... r-earnings
With the interest rate cap of 18 percent in full force for all new and restructured microfinance loans after the National Bank of Cambodia (NBC) issued a populist measure to curb high interest rates, microfinance institutions (MFIs) are starting to give predictions for lower profits this year as the new lending reality takes hold.

The interest rate cap that came allegedly on the orders of Prime Minister HE himself and was hastily announced last month, requires MFIs to not lend above 18 percent as of April 1. While many in the sector warned of imminent collapse within an industry that holds a combined loan portfolio of $3 billion with a total of 1.9 million clients as of the end of 2016, MFIs are now starting to fully reassess their profitability numbers.

Kea Boran, CEO of AMK, said that while the financial institution showed healthy profits last year, reaching $6.6 million, an increase from a little over $5 million in 2015, this year would prove difficult to hold on to similar growth rates as the company restructures to cope with the NBC directive.

“From my current estimation, our profits this year will be cut in half as we receive lower returns on our loans,” he said, adding that the company’s total outstanding loan portfolio at the end of March reached $150 million with a client base of 335,000.

While AMK has maintained a return of equity (ROE) at about 20 percent annually for the last two years, according to its financial reports, Boran said there was no doubt that 2017 would show marketable declines as uncertainty prevails.

Analysts have warned that MFIs like AMK and VisionFund that provide the majority of their loans at $1,000 or under, would be hit the hardest by the 18 percent cap.

An executive from VisionFund Cambodia, that wished to remain anonymous out of fear of negative company image, said that the microfinance deposit-taking institution (MDI) anticipated that net profits would decline up to 60 percent this year despite the company introducing broad cost-cutting measures. VisionFund Cambodia had a net profit of $3.4 million in 2016, with an ROE at 11.7 percent.

As smaller MFIs brace themselves for the seasonal pick-up in lending that typically begins in May and lasts until July when rural farmers take out smaller loans for the planting season, even the Kingdom’s larger financial institutions are seeking ways to remain upbeat.

Chea Phalarin, CEO of Amret Microfinance Institution, said that despite the MDI determined to remain profitable this year, its bottom line would suffer.

“I think that we will still have profits, but not the huge profits that we have had over the last three years,” he said, adding that he would not speculate on what 2017 has in store besides noting that there would be a “sizeable change in the numbers”.

“We have discussed with our shareholders and we think that [the interest rate cap] is not as serious of an issue for us as we already earn profits by lending at acceptable rates,” he said.

According to Amret’s 2016 financial report released yesterday, net profit reached $25.4 million, up 8 percent from $23.5 million in 2015. The report noted that the company had an outstanding loan portfolio of $557 million while holding $284 million in deposits.

Nevertheless, Phalarin added that despite strong performance the financial institution would cut operation costs and lower staff numbers while also adopting digital financial services, or fintech, in hopes of retaining high margins.

Stephen Higgins, managing partner of local investment firm Mekong Strategic Partners, said that while the interest rate cap would obviously have the largest impact on MFIs that handle small loan sizes, the Kingdom’s seven MDIs should remain profitable.

“For financial institutions that provide loans above $2,000, they will see little impact,” he said. “Loans below this amount, particularly those in riel, will see a significant impact, and MFIs are likely to pull back from lending to that part of the market.”
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Re: Good News for very poor people? Elephant in the room

Postby Anchor Moy » Tue Apr 11, 2017 9:51 am

Please resume in a short paragraph of 20 words or less in your own words.
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Re: Good News for very poor people? Elephant in the room

Postby Duncan » Tue Apr 11, 2017 1:04 pm

Anchor Moy wrote:
Tue Apr 11, 2017 9:51 am
Please resume in a short paragraph of 20 words or less in your own words.


Dont borrow money. If you cannot save $100 every month, you have no hope of making repayments of $100 , plus interest,, every month.
Cambodia,,,, Don't fall in love with her.
Like the spoilt child she is, she will not be happy till she destroys herself from within and breaks your heart.
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Re: Good News for very poor people? Elephant in the room

Postby juansweetpotato » Wed Apr 12, 2017 8:41 am

ssive
Duncan wrote:
Tue Apr 11, 2017 1:04 pm
Anchor Moy wrote:
Tue Apr 11, 2017 9:51 am
Please resuame in a short paragraph of 20 words or less in your own words.


Dont borrow money. If you cannot save $100 every month, you have no hope of making repayments of $100 , plus interest,, every month.
great big massive elephant
https://www.theguardian.com/global-deve ... odias-poor
Drowning in debt: the growing threat to Cambodia's poor?
In a growing microfinance market, some Cambodians are juggling as many as six separate loans. How can MFIs balance ethical concerns with commercial interest?
Cambodia

Anton Simanowitz and Katherine Knotts
Friday 6 March 2015 12.28 GMT Last modified on Saturday 7 March 2015 21.04 GMT

For years the world has patted itself on the back about the rapid growth of Cambodia’s microfinance market. Over the past decade, Cambodia’s market has been one of the fastest-growing globally, recording a 127% portfolio increase between 2013 and 2014. Forty-five microfinance institutions (MFIs) now serve some 1.8 million borrowers, out of a total population of over 15 million. In a country where the level of formal financial inclusion is negligible, this has looked like a notable success story.

However, as researchers have delved deeper, they have come across figures that cause concern. A study by the Institute of Development in 2013 identified Cambodian clients who have as many as six separate loans, while 51% of clients reported having made a sacrifice (such as eating less or poorer quality food) on at least one occasion in order to make a loan repayment. Competition for clients is intense, and borrowing from multiple sources is commonplace.

After the microfinance crises in India, Bosnia and Nicaragua, practitioners, regulators and investors are on the alert for an overheated microfinance market. But are reckless lenders pushing debt on to poor people who lack the knowledge they need to grasp the real risks?


If that is the case, it makes sense to heed calls for regulatory caps on the number of loans that each client might take out. After all, if multiple borrowing is leading to over-indebtedness – and borrowers are struggling with repayments – lenders are likely to employ harsh collection tactics to cover their liabilities (leaving their clients to default on someone else’s loan).

Tighter regulation can help to avoid the moral quandary of lending money that a client cannot afford to repay, if it takes into account the number of loans taken out by a client, and whether those loans are the right size given a client’s debt capacity.

But most Cambodian MFIs would argue that they already conduct rigorous loan appraisals. While this may not necessarily always be true, certainly many multiple borrowers are able to demonstrate their capacity to repay. In view of this, is multiple borrowing a problem in itself? Or is it symptomatic of a deeper (but different) market malaise? To answer this, first we need to understand what is happening at both the client and lender level.

Let’s consider, for example, that it is market failure that drives multiple lending. Why else would clients borrow from two different providers? Two explanations emerge: the first is over-indebtedness. Borrowers who are experiencing difficulties servicing one loan, might borrow elsewhere to stay afloat.

Equally, however, it could be be a rational response as they patch together financial solutions to meet their varied and unpredictable needs for lump sums. Where individual MFIs are over-cautious and limit risk by lending less than clients require, or where the market isn’t offering the right type of lump sums (which could be delivered through savings or insurance), in Cambodia, overstretched borrowers may default to taking more credit as new demands for cash arise, for example, following a health emergency.

The experience of one organisation, AMK, chronicled in our recent book, The Business of Doing Good, offers important insights. Since 2003, AMK has grown to become Cambodia’s market leader (in terms of client outreach), serving more than 360,000 clients in 80% of villages.


Terrorism, fines and money laundering: why banks say no to poor customers
Read more
Of course, clients also bear responsibility for their decisions to take on debt. In the past, AMK sought to protect clients from bad decisions, and banned lending to Cambodians with outstanding loans from another source. Before Cambodia’s credit bureau was set up, AMK staff had relied on the honesty of borrowers (and their guarantors) to determine whether they had any other loans. When it opened, AMK found that around 20% of its clients were multiple borrowers.

The new data allowed the “one client, one loan” policy to be enforced more effectively. But, with increasing competition and five or six institutions often lending in the same village, the number of loan applications rejected has risen – often from repeat clients.

Now that they are familiar with credit, many Cambodians are more demanding. They are also able to pick and choose from lenders. How could AMK risk losing its clients or failure to grow in the name of avoiding over-indebtedness?

In response to this challenge, AMK has negotiated the difficult balance between institutional and clients’ needs. Instead of relaxing its multiple lending policy, management opted for “internal multiple lending” – reasoning that if a client needs more credit, it is much more preferable that they get it from AMK, with its strong commitment to client protection. This policy allows clients with a good track record to take an additional loan from AMK. Careful debt analysis enables AMK to distinguish between borrowers with a genuine need for additional capital, and those who may be struggling with existing debt.


Does microfinance really help poor people?
Successful microfinance carefully balances its commercial and social motivations. Where concern arises around multiple lending and over-indebtedness, it is too simplistic to put it all down to profit-hungry MFIs recklessly lending to vulnerable clients who need regulatory protection.

Microfinance should depend on three key variables: first, we need to know whether lenders are offering well-designed, well-managed, responsible products to the right clients. Secondly, in a buyer’s market, we need to respect clients’ right to make informed choices and support their capacity to do so. Finally, we need to recognise market imperfections and the risk of over-indebtedness, which is exacerbated by the ready availability of credit from multiple organisations.

Regulation is important, but it should focus on ensuring that MFIs assess client capacity to repay and utilise credit bureau data on clients’ existing debt, rather than imposing arbitrary caps on the number of loans.
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Re: Good News for very poor people? Elephant in the room

Postby Luigi » Wed Apr 12, 2017 5:46 pm

Those MFI's are acting a lot like......bankers.
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Re: Good News for very poor people? Elephant in the room

Postby vladimir » Thu Apr 13, 2017 6:37 am

Worse...less regulation.
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Re: Good News for very poor people? Elephant in the room

Postby juansweetpotato » Thu Apr 13, 2017 11:17 pm

http://www.phnompenhpost.com/business/m ... called-out

Microfinance sector praised, but some lenders called out
Tue, 15 March 2016
Ananth Baliga and Sor Chandara

Prime Minister HE has lauded the microfinance sector’s efforts to increase rural access to finance, while blasting certain unnamed microfinance institutions (MFIs) and NGOs he accused of gouging consumers with high-interest loans and confiscating land assets when they failed to pay them back.

Speaking at the “National Summit on the Development of Microfinance Sector in Cambodia” yesterday, the prime minister acknowledged the sector’s contribution to providing capital for farmers and small firms, but said some institutions were still taking advantage of consumers’ low financial education.

“It seems that these MFIs have a plan to take advantage of the people,” he said, without naming names.
HE warned consumers to be wary of microfinance firms, citing examples of people losing their homes over debts or being promised unrealistically high interest rates for their deposits. He also held officials and provincial authorities to account for not stopping these activities.


“Which MFIs are doing this and why haven’t we taken action?” he asked. “Are all of you [government authorities] supporting this action too?”

The prime minister’s keynote speech kicked off a two-day summit on microfinance development, which was organised to commemorate the 10th anniversary of HE declaring 2006 as the “Year of Microfinance for Cambodia”.

Figures released at the summit by the Cambodia Microfinance Association charted a stunning decade of growth. The sector’s loan portfolio grew from $83 million in 2005 to roughly $2.9 billion in 2015, with a reach of more than 2 million households.

“The MFI sector has been growing very strong, with 51 per cent of adults having used their services,” said HE. “I encourage the sector to extend new services for the people beyond just giving loans.”
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Re: Good News for very poor people? Elephant in the room

Postby vladimir » Mon Apr 17, 2017 6:54 am

What does this mean?

“I encourage the sector to extend new services for the people beyond just giving loans.”

What kind of new services could they offer?
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Re: Good News for very poor people? Elephant in the room

Postby juansweetpotato » Mon Apr 17, 2017 9:18 am

vladimir wrote:
Mon Apr 17, 2017 6:54 am
What does this mean?

“I encourage the sector to extend new services for the people beyond just giving loans.”

What kind of new services could they offer?
Daughter delivery service to chicken farms/ urban centers for loan defaulters? You can see why sexpats on tof are so keen on them.
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