Prime minister Hun Sen on Monday called on all microfinance institutions (MFIs) to throw a financial lifeline to people affected by flooding and defer loan repayments and ease interest rates.

In a speech at a graduation ceremony in Phnom Penh, Hun Sen called on all MFIs to ease the burden by providing favors to affected borrowers through deferral, interest rate easing and credit restructuring.

“I would like to call on all MFIs to share the burden and provide favors to affected borrowers through deferral, interest rate reduction and credit restructuring. Please all financial institutions, understand the hardest who are being affected and have confiscated their house and land following the original contract. It is not right," Hun Sen said.

“I request the National Bank of Cambodia to hold a meeting with all owners of MFIs for the financial institutions to provide [the relief measures].”

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He also ordered agricultural officers, including local authorities, to visit affected areas to assess the flood impacts and resolve any problems immediately.

“I also tell all agricultural officers, including local authorities, not to ride a horse to see flowers. You should stay near the farmers,” the PM said.

Ngeth Chou, Senior Consultant at Emerging Markets Consulting (EMC), said it will be beneficial for farmers who have had their crops destroyed by floods, meaning they will struggle to repay loans.

“It can reduce the profits for MFIs, but most of those institutions have a decent profit and can withstand these situations, ” Chou said.

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San Chey, Executive Director Affiliated Network for Social Accountability (ANSA), said that interest rates are high, which can affect the income and profit of entrepreneurs. He added other elements that can have an impact include easing interest rates, financial literacy, and promoting business plans to reduce low risk in business management.

“If people borrow a lot of money from MFIs, they lack knowledge on money management and spend it for the wrong purposes, it causes a risk of debt. The thing we are worried about is debt that we should resolve because debt is a social crisis.”

The highest interest rate of MFIs is around 1.5 percent per month, equal to 18 percent a year. It also varies according to the size of the loan, said Chou.