Microfinance updates?

Tom G Baal · Post by **Tom G Baal** » Mon Mar 26, 2018 3:02 pm

It's been nearly a year since the microfinance rate cap went into effect. Has anyone seen a rate drop at their institution of choice since last April?

Vision is the only place I've deposited outside of my bank, and I neglected to write down what other institutions were offering last year. Any problems or concerns of insolvency ahead?

bangkokhooker · Post by **bangkokhooker** » Mon Mar 26, 2018 3:04 pm

Is your question related to if and when there’s a crisis of some sorts within Cambodia? If the MiFi collapse then that’ll be the least of your problems.

Google the other institutions to see their latest rates.

armchairlawyer · Post by **armchairlawyer** » Mon Mar 26, 2018 3:26 pm

Interest rates on fixed deposits have declined slightly. Interest rates on demand deposits have decreased a lot. Hatha and Sathapana have been taken over by foreign banks. The word seems to be that the bigger institutions will be fine.

timmydownawell · Post by **timmydownawell** » Mon Mar 26, 2018 4:04 pm

As much as I'd like to earn 8% on a term deposit, I can't reconcile that with the exploitation of the people borrowing money from these companies at such extortionate rates.

pczz · Post by **pczz** » Tue Apr 07, 2020 2:33 am

timmydownawell wrote: ↑Mon Mar 26, 2018 4:04 pm As much as I'd like to earn 8% on a term deposit, I can't reconcile that with the exploitation of the people borrowing money from these companies at such extortionate rates.

Tish tosh. Its mostly very short term loans to cover rice planting and so on. the rate compare very favourably with payday lenders in UK and credit cards,both of which are expesnive by comparison. id you borrow $500 at 18% for 3 months it costs you $22.50 in interest. these people do not borrow huge amount and they usually pay of quickly. Find me somewhere in the "developed world" whereunsecured loans are cheaper. My bank charges more in arrangement fees than that, even if the interest is only 6.5 % it adds up

Duncan · Post by **Duncan** » Tue Apr 07, 2020 4:02 am

bangkokhooker wrote: ↑Mon Mar 26, 2018 3:04 pm Is your question related to if and when there’s a crisis of some sorts within Cambodia? If the MiFi collapse then that’ll be the least of your problems.

Google the other institutions to see their latest rates.

And two years later,,,, maybe, just maybe, you might be right.

truffledog · Post by **truffledog** » Tue Apr 07, 2020 4:16 am

pczz wrote: ↑Tue Apr 07, 2020 2:33 am
timmydownawell wrote: ↑Mon Mar 26, 2018 4:04 pm As much as I'd like to earn 8% on a term deposit, I can't reconcile that with the exploitation of the people borrowing money from these companies at such extortionate rates.
Tish tosh. Its mostly very short term loans to cover rice planting and so on. the rate compare very favourably with payday lenders in UK and credit cards,both of which are expesnive by comparison. id you borrow $500 at 18% for 3 months it costs you $22.50 in interest. these people do not borrow huge amount and they usually pay of quickly. Find me somewhere in the "developed world" whereunsecured loans are cheaper. My bank charges more in arrangement fees than that, even if the interest is only 6.5 % it adds up
[/quote

The fact that even after paying back a microloan with a relatively “high” interest rate poor people are still able to make some money should imply that the rate of return on the cash they invested in their businesses is remarkably high. But if only 1 adverse happening is falling onto the lenders (1year drouhgt for the rice farmer) the loan and the interest rate of 18% will lead into a vicious circle with consequences well known in many poor countries.

pczz · Post by **pczz** » Tue Apr 07, 2020 5:37 am

truffledog wrote: ↑Tue Apr 07, 2020 4:16 am
pczz wrote: ↑Tue Apr 07, 2020 2:33 am
timmydownawell wrote: ↑Mon Mar 26, 2018 4:04 pm As much as I'd like to earn 8% on a term deposit, I can't reconcile that with the exploitation of the people borrowing money from these companies at such extortionate rates.
Tish tosh. Its mostly very short term loans to cover rice planting and so on. the rate compare very favourably with payday lenders in UK and credit cards,both of which are expesnive by comparison. id you borrow $500 at 18% for 3 months it costs you $22.50 in interest. these people do not borrow huge amount and they usually pay of quickly. Find me somewhere in the "developed world" whereunsecured loans are cheaper. My bank charges more in arrangement fees than that, even if the interest is only 6.5 % it adds up
[/quote

The fact that even after paying back a microloan with a relatively “high” interest rate poor people are still able to make some money should imply that the rate of return on the cash they invested in their businesses is remarkably high. But if only 1 adverse happening is falling onto the lenders (1year drouhgt for the rice farmer) the loan and the interest rate of 18% will lead into a vicious circle with consequences well known in many poor countries.
This is where the extended family come in and bail them out a lot of the time. there is no doubt some suffer from borrowing at these rates, but so do people in the west paying 50% now for overdrafts in the uk, or 20+% for credit card debt. It is not a unique situation around the world and I really don't think 18% is absurdly high or unusual. Payday lenders in uk wer charging hundreds of %.
There is an article in Khmer times today implying the governemtn is intending to reduce interest rates but I cannot cut and paste so you will have to look it up

truffledog · Post by **truffledog** » Tue Apr 07, 2020 2:04 pm

pczz wrote: ↑Tue Apr 07, 2020 5:37 am
truffledog wrote: ↑Tue Apr 07, 2020 4:16 am
pczz wrote: ↑Tue Apr 07, 2020 2:33 am
timmydownawell wrote: ↑Mon Mar 26, 2018 4:04 pm As much as I'd like to earn 8% on a term deposit, I can't reconcile that with the exploitation of the people borrowing money from these companies at such extortionate rates.
Tish tosh. Its mostly very short term loans to cover rice planting and so on. the rate compare very favourably with payday lenders in UK and credit cards,both of which are expesnive by comparison. id you borrow $500 at 18% for 3 months it costs you $22.50 in interest. these people do not borrow huge amount and they usually pay of quickly. Find me somewhere in the "developed world" whereunsecured loans are cheaper. My bank charges more in arrangement fees than that, even if the interest is only 6.5 % it adds up
[/quote

The fact that even after paying back a microloan with a relatively “high” interest rate poor people are still able to make some money should imply that the rate of return on the cash they invested in their businesses is remarkably high. But if only 1 adverse happening is falling onto the lenders (1year drouhgt for the rice farmer) the loan and the interest rate of 18% will lead into a vicious circle with consequences well known in many poor countries.
This is where the extended family come in and bail them out a lot of the time. there is no doubt some suffer from borrowing at these rates, but so do people in the west paying 50% now for overdrafts in the uk, or 20+% for credit card debt. It is not a unique situation around the world and I really don't think 18% is absurdly high or unusual. Payday lenders in uk wer charging hundreds of %.
There is an article in Khmer times today implying the governemtn is intending to reduce interest rates but I cannot cut and paste so you will have to look it up
I just read the article..some thoughts:

The microfinance was originally meant to help the poor with affordable financing and not to generate huge profits for the mircofinance institutions.
The bond with 8.5% interest rate gives a hint that the operating enviromnent is high risk and not a "safe" investment which would pay much less interest in 2020.
I also read that most lendings are secured by land and not unsecured as stated before meaning the interest rate should reflect the safety of the lending and therefore offered at much lower interest rates.
The biggest problem may be that many lendings are used to buy "non performing assets" like phones, fridges, aircon, TV or to repay old debt (including matured interest at high rates). Money lent for such things dont produce any added value (like planting rice) and therefore generates no income/profits to pay back loan and interest. A trap for the borrowers as they lose the land which often is the only source of income.
When the extended family steps in and bail out (probably by borrowing again) it means spreading the problem and generating new problems instead of a solution.
The article also states that the microfinance institution named is on the way to become a commercial bank with a clearly different "mission" that is generate profits for the stakeholders and NOT helping the poor.

pczz · Post by **pczz** » Wed Apr 08, 2020 6:49 am

truffledog wrote: ↑Tue Apr 07, 2020 2:04 pm
I just read the article..some thoughts:

The microfinance was originally meant to help the poor with affordable financing and not to generate huge profits for the mircofinance institutions.
The bond with 8.5% interest rate gives a hint that the operating enviromnent is high risk and not a "safe" investment which would pay much less interest in 2020.
I also read that most lendings are secured by land and not unsecured as stated before meaning the interest rate should reflect the safety of the lending and therefore offered at much lower interest rates.
The biggest problem may be that many lendings are used to buy "non performing assets" like phones, fridges, aircon, TV or to repay old debt (including matured interest at high rates). Money lent for such things dont produce any added value (like planting rice) and therefore generates no income/profits to pay back loan and interest. A trap for the borrowers as they lose the land which often is the only source of income.
When the extended family steps in and bail out (probably by borrowing again) it means spreading the problem and generating new problems instead of a solution.
The article also states that the microfinance institution named is on the way to become a commercial bank with a clearly different "mission" that is generate profits for the stakeholders and NOT helping the poor.

Prasac has been on the way to becoming a bank since the dinosaurs were hereso don't hold your breath.
I am sure some people do borrow to buy Iphones but generally that would be from a moneylender. Too much paperwork with microfinance. Certainly in some places thevilage chief has to sign off on the lon andhe knows who is finacially imprudent. land is not a terribly good asset most of the tie in Cambodia because it takes along time to sell. The valuaton would ususally be under 50%. The interest rates may seem high to you, but look at what you pay your creditcard forthe convenience of instant purchasing power, way more than 18% i bet. Andits all relative. Mortgages andbank loans are also more expensive in Cambodia so the difference between mcrofinanace and bank is less. As I said before most of the loans are small and shor suration . This meanstheadmin costs of setting up the loan are higher as a percentage. if you just borrow $100 theyhavedo the same work as if you borrow $5,000 and until failry recently the agents had o go round and collect the money, and that costs also. I think it is hard not to try and apply western standards if you are western, but they do work here as you wil find out when you start racking up a few years mixing with the locals

Microfinance updates?

Microfinance updates?

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