Since its establishment in 2012, Credit Bureau Cambodia (CBC) has helped drive the nation’s economic growth while providing a transparent and responsible lending landscape. This in turn has helped increase investment and access to finance nationwide.
“For the end consumer, a credit bureau helps them to build a credit profile. Those who have this history can access better loans with better terms and conditions, and ultimately have better access to finance,” said CBC’s chief executive officer, Oeur Sothearoath, sitting in front of a wall adorned with various awards CBC has collected.
“For lending institutions, information asymmetry is very challenging, so having a credit bureau makes the banking sector aware of their customers’ profiles and they can lend responsibly. This is good for the economy as a whole as it’s a mechanism to avoid multiple lending and over indebtedness, while stabilizing the economy and helping development.”
Stimulating Access to Finance
Proof of the role CBC has played in increasing access to finance is evident in the annual World Bank Group’s ‘Doing Business’ reports, which were discontinued in 2021. One of the ranking criteria is access to credit.
Prior to the launch of CBC’s operations, Cambodia ranked 90th in terms of access to credit. By 2017, when CBC worked on implementing various rules and regulations, this had shot up to seven - higher than Singapore and other countries in the region. In the latest report, Cambodia sat at 25.
“From CBC’s side, this drop to 25 was due to us still having two more points to complete, mainly around digitalisation. So, while we attempted to do this, our ranking went to 25,” Sothearoath said. “But, from 90, it’s a great journey to be ranked at 25.”
He added that in terms of consumer lending, as of May 2023, it stood at about $48 million in loans. A hefty chunk of 78 percent came from the commercial banking sector, with microfinance sitting at about 20 percent. However, in terms of the number of borrowers, the microfinance sector dominated.
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Impacts of Globally Rising Inflation
According to the International Monetary Fund’s latest World Economic Outlook, global inflation stood at 8.8 percent in 2022. While this is expected to fall to 6.6 percent in 2023, interest rates have increased globally, driven primarily by the Covid-19 pandemic and ongoing Ukraine-Russia war.
Sothearoath said that in Cambodia this has hit financial institutions heavily reliant on external finance especially hard. He added that while there has been a shift to mobilize more local deposits, many still rely on international funds.
“We’ve seen some slowdown in terms of loans approved by outsiders into Cambodia,” he noted. “Local banks and microfinance institutes are trying to increase deposit rates to attract more local savings.”
He flagged up another trend of increasing interest rates. “If you have an existing loan under a fixed interest rate, then you will see no increase,” he said. “But if you’re under a floating rate, then there’s a likelihood that it’s already increased, for example, from 0.5 to 1 percent. For new loans, we will see increased interest rates.”
Increased Use of the Riel
Sothearoath said that despite the riel being reintroduced after the first post-Khmer Rouge elections in 1993, many “mindsets still calculate in US dollar”. And while the Central Bank states a minimum of 10 percent of KHR deposits for financial institutions, the overall figure only hovers slightly above this.
Across the entire sector, KHR deposits are 12 percent - slightly above the mandatory figure set out by the Central Bank. For commercial banks, this stands at 10 percent; for minority depository institutions (MDI), this rises to 21 percent; and for microfinance institutions (MFI), it is 13 percent.
“MDIs and MFIs mostly operate in rural areas where they are able to lend in KHR easier. Whereas the commercial banks are mostly concentrated in Phnom Penh and major cities where the US dollar is commonly used,” Sothearoath said.
However, new loan requests in KHR enjoyed a nine percent increase in 2022, with 39 percent of all loan applications made that year in the local currency.
“There needs to be an understanding from the banking sector to promote the KHR more with end consumers. We do see this happening. For example, if you deposit in KHR, many banks now offer higher interest rates than with the US dollar.”
Second installment of the interview with Credit Bureau Cambodia’s chief executive officer, Oeur Sothearoath, about digitalization of the finance sector, tapping into alternative data, and sharing credit information with Singapore
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