The Coalition of Cambodia Farmers Community said on Thursday that the recent shutdown of 104 rural credit institutions that provided loans to farmers will not affect their livelihoods, saying that past interest rates were high.

“Previously, some rural credit institutions have created difficulties for farmers, especially by increasing the interest rate to higher amounts than other banks or microfinances,” Theng Savoeun, president of Coalition of Cambodia Farmers Community, told Kiripost.

Savoeun requested that the Agricultural and Rural Development Bank (ARDB) play a significant role in boosting the protection for farmers by establishing a money saving group or a small-scale group of farmer banks to help solve the issue by providing credit loans to farmers.

On April 12, the National Bank of Cambodia (NBC) announced the removal of 104 rural credit institutions from the NBC list without specifying the reasons.

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The 43 shuttered institutions are in Phnom Penh, Kandal, Takeo, Svay Rieng, Kampong Cham and Battambang provinces.

Am Sam Ath, operations director of Licadho, believes that the closure of rural credit institutions will provide both negative and positive impacts.

“For the positive side, if those rural credit institutions got the license but they haven’t been operating or stopped doing business, or in case they operate illegally by law of the National Bank and affect the borrowers,” he told Kiripost on Thursday.

He added that in case these credit institutions still pursue operations in legal ways, it allows big microfinances to expand their operations after the collapse of other small credit institutions.

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Soeung Sen Karuna, a spokesman at rights group Adhoc, also believes there are pros and cons for closing the rural credit institutions. However, it is a consideration for farmers in the provinces who are usually dependent on these small credit institutions that provide loans with low interest rates to do agriculture to support their livelihoods.

“It is also an issue if they [National Bank of Cambodia] deleted the credit institutions that always adhered to the right principles and rules, it can affect the people who always rely on loans, such as low interest rates, and can make it easier for them to start a business or farm,” he said.

Tongngy Kaing, Head of Communications at Cambodia Microfinance Association, said the reason that the 104 credit institutions were closed is due to strengthening the regulations of obtaining a proper rural credit license from NBC before continuing operations. These institutions did not fulfill the requirement.

“Because in Cambodia we try to strengthen the financial system, that's why the National Bank requires them to register in order to get the license from NBC,” he said.

Once every three years, the license of rural credit institutions has to be renewed. Over the past seven years there were about 500 credit institutions. This has decreased to 350 institutions after NBC strengthened regulations, according to Kaing. Credit institutions in Cambodia normally start with $20,017 as capital to operate.

He added, “The reason is that the NBC revoked their license (104 institutions). So, those 104 institutions are not able to operate anymore.”

“While there is a lot of competition in the market, including the increase of interest rate and strengthening the compliance system, therefore, for those small institutions that don’t develop themselves they cannot operate in this market since they cannot get enough profit to sustain themselves and abandon the licenses. NBC will delete their licenses when they don’t run their business anymore,” he said.

The Association believes that the closure of rural credit institutions does not have much negative impact as there are many institutions that provide loan services in the country.

“It is the time that Cambodia has to strengthen the market in order to ensure all institutions that can provide the service efficiently and at a high-quality to customers,” he added.

meas.molika@kiripost.com