The National Bank of Cambodia (NBC) has halted issuing new licenses to microfinance institutions (MFIs), saying the industry has grown and needs further checks.

In a statement on Monday, the NBC said the decision aims to strengthen the capability of banking and financial institutions, ensure financial stability and contribute to the development of the national economy.

“The National Bank of Cambodia welcomes investors to invest in banking and financial institutions that are operating and urge merges between existing banking and financial institutions,” said the NBC statement.

Cambodia Microfinance Association (CMA) said on Wednesday it supports NBC’s decision to stop issuing licenses to new establishments. It added the sector has already reached almost every sector in the country.

“The announcement of the NBC will have a lot of positive effects for the sector. Now priority should be given to existing institutions to strengthen and expand additional services to attract people to have a habit of saving in official institutions, not saving in piggy banks as before,” said CMA’s spokesman Kaing Tongngy.

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Am Sam Ath, deputy director of Licadho’s investigation team, said although the NBC’s decision has some positive effects for the industry by strengthening service quality, there are some disadvantages.

“It will lose competitiveness in the market,” Am Sam Ath said. “Customers won’t have new clients besides the existing MFIs and banks, this is a disadvantage,” he said.

Am Sam Ath added possible merges may decrease the number of MFIs, meaning people will have fewer borrowing options.

He said the micro loan sector in Cambodia has been accused of coerced land sales and other rights abuses linked to predatory lending and over-indebtedness.