More and more stories surface about increasing over indebtedness risk in Cambodia. What is the complexity and magnitude of the problem? Which measures have been taken by the sector so far to ensure responsible lending practices, and what are the initiatives in progress? Are these responses enough to protect micro-borrowers in Cambodia? What more could be done? Together with a panel composed of research experts, practitioners, sector representative and regulator, we will try to draw collective lessons on the systems put in place to protect clients for Cambodia.
Panel:
Noemie Renier, Incofin IM
Phal Phal, Cambodia Microfinance Association
Nitin Madan, Cerise+SPTF
Daniel Rozas, e-MFP
Frank Bliss, Institute for Development and Peace (INEF) University of Duisburg-Essen
Everyone hope you have a good copy break and you have the energy to continue with us today uh let me first introduce you to our panel today so I will be your moderator um in this panel so I’m noi from inin but purpose not to talk about
In cofin uh would like first to talk about uh our esteem panelist today uh we have the pleasure to have with us um first Professor uh Dr Frank Bliss uh which is professor at University of Hamburg representing today uh the Cambodian project on micro Finance um from The Institute for development in
Peace uh Professor Bliss has more than 40 years uh experience expertise in assessing poverty in Cambodia and uh worldwide consultant also in other matters such as access to water um we also have the pleasure to have Mr F VY with us which is a Secretary General of
The CMA but also comes with a two decades of experiencing development Finance uh together with us also ntin Mandan uh which is uh Regional director as the at the sptf responsible amongst others and sorry if I miss some Cambodia Laos Vietnam Indonesia Philippines and Philippines um but also
Has more than 10 years 15 years of experience in customer protection in Cambodia and also based in Cambodia last not least we have also Daniel Rosa which is a member of the European micro Finance platform but also a funer of mimoza and also um brings to the table today U more than a
Decade of experience in a uh implementing lending guidelines also uh customer protection in Cambodia that’s uh our panel today of expert to discuss uh a very uh a topic that is very important to all of us is how can we ensure more responsible Financial inclusion in Cambodia we have
Heard we have read over the last one two years three years more and more um stories research pointing at increasing over in depthness risky refinancing um potential aggressive collection or origination practice and this has raised question from Civil Society rightfully journalist um but also the investor Community public
Authorities and today with our panel we’ll try to address some of these question the question that we’ll try to address is first trying to unpack the complexity and the magnitude of over in depthness in Cambodia um but also what the recognizing what the sector has implemented over the last 10 15 years
That we have been active and following up uh on Cambodia all these initiative that have been implemented self impos by the sector self-regulation um and trying to understand how they have helped to protect clients in Cambodia and then are these response enough and together with our panel trying to assess also what
Could we do more to protect clients in Cambodia so I have set the stage now would like to leave the floor to our uh panelists um first Dr Bliss Frank um can you elaborate how widespread and detrimental are this irresponsible Landing practice in Cambodia I think you’re also the
Author I forgot to mention of the very uh famous recent publication on the micr financing comp Cambodia uh from the uh Center for development and peace on Cambodia that was released last year and also commissioned by the German government uh that brings a lot of perspective so maybe would be very
Insightful to hear from you okay thank you so much uh it was a survey from February March of last year and uh it was the first let’s say open scientific and anonymously carried out survey about 1,388 house households with loans and without loans so it was the first survey
In Cambodia to cover let’s say the popular relations the rural population and to look why someone had got a credit why not and what they did with a loan and what was a problem with the loan so it was not only the problem we also asked the usages and to start with a
Positive message about 80% of the people were very happy with the loan and coming to the B message 50% % of the people had problems to repay the loan and different problems and uh uh just to to inform you we have a more or less a representative
Survey we did not choose the people from the banks list but really accidentally 24 Villages six provinces 12 communes so uh no information before it was only the commun leader to be informed he did not know which Village we would choose so it was no preparation possible at all and
Uh within our Sample about 50% of the people had problems to repay the loans they were unhappy with the repayment but 80% were happy with the impact of the loan I think this is interesting now we are here I think due to the fact that NOS in Cambodia and also in Germany and
I think also worldwide took up the case of Cambodia and saying there was violation of Human Rights they said the child labor force migration for work uh and uh less uh food less quality food and uh especially loss of land due to the non-repayment or non- capability of
Repayment of loans so what a human right violation is we can discuss from our survey we could say yes it is possible that human rights are violated but not everybody who was not able to pay and had to pay had to sell the land was if let’s say impacted by lot of Human
Rights or the violation of Human Rights um what is a clear fact there is a very aggressive loan acis acquisition system in Cambodia or at least it was until last year and uh I give you a good example we were refused by Three Village Chiefs to carry out this survey in
Cambodia out of 24 Villages they were expecting us to coming from the mfi sector they said no we do not want any more these people going from house to house and so please go out of our village we don’t want see you here then we told them no we are not coming from
We’re coming from Germany we want to learn about the problems of the sector and then they say oh okay so please do the survey so this is already the size and during our VIs I made about half of these myself I always met some loan officers in The Villages and going from
House to house and doing loan acquisition but also to let’s say to try to uh get the money from the people back uh from from the survey we also know that the regulations in Cambodia have improved during the last six or seven years but there is a lot of still
Black sheeps in I would say the mfi sector in the formal sector I’m not speaking about the informal sector informal loan habits are terrible up to 1% per day so this is not our problem and we have a very small I would say percentage in our sample we have less
Than 10% of the people who are speaking about informal loans and the size of this informal loans was more or less irrelevant but our average size of loan was I think 4,000 and uh uh some uh dollars so that the formal sector I would say is more covering than 90% of
The full loan volume in our sample um the black sheep we call it Black Sheep I introduced this uh word um they were not assessing the repayment possibilities they did not make uh the the assessment of the cash flow but they were very often taking or providing the
Loan and this includes also the managers in the mfi it’s not only the the small agents uh based on collaterals and land we found 111 I think ID poor people this are extremely poor people identified ex as extremely poor who could not pay their living their daily living they got
A loan and it was not an econ economic investment loan it was a personal loan for covering the daily expenses and this is not possible you cannot give someone who has a ID poor card being extremely poor a loan with average of $2,000 and more dollars so why they got this loans
They got the loans due to the fact that they had land and many of these people in our sample it was shocking for our colleagues from kfw when I said 1.2% of these people which had a loan lost the land due to not able to be not to be able to
Repair the loan one to. 2% we covered 5 years so in total it was about 6.2 or 6.3% of people who had to sell the land and not only are the poor people a lot of other people uh are got loans without a really strict cash flow
Analysis they got it due to the fact that they had uh the Land Titles so um back to the roots of the problems in every village in Cambodia you find small papers on the tree every entrance of a big town is architecturally I would say dominated by
Mfi buildings we have up to I think 40 in one provincial capital and I found one poster take easy money so I think this is one problem money in Cambodia Lo in Cambodia to get it is it’s too easy only you need it you want it you get it
If you have the collaterals now I’m not talking about the reforms I think we will get this information later but up to the study last year uh it was absolutely dominated by by the mfi sector up to the last Village um another point which is a bit shocking
For me or was shocking when I know in Germany loan I’m over indepted and I have to restructure a loan what happens I have to negotiate with my bank they want to M to get the money back and I want to get rid of the loan and of the
Legal aspects which will follow so we will compromise if I’m an entrepreneur in Germany I cannot pay back I pay back what I can and the bank will cancel the rest but in Cambodia loan restruction means take a higher loan so someone who was not able
To pay a loan a small loan got a higher loan how he can or she can repay this higher loan back if she is not able to pay the smaller loan back and losing the land uh concluding it is it is a dimension I think which is a critical discussion
With the NGO sector with the National Bank uh with the Cambodian micro Finance Association and uh I’m also not agreeing with the NGS to say that everybody who lost land or who had a family member to work abroad in Thailand uh is affected by human rights violation there are some
Cases a lot of people in Cambodia also are Specialists and getting a loan knowing they cannot pay the loan back and the next day they are no longer in the village so this is also the case so the not everybody uh really is affected by human rights violation but problem in
The last year was I would say shocking for our kfw partners they said every case where someone lost his land due to over indebtedness is too much this was little bit our findings very interesting to hear from your experience also being on the field and talking to micro Finance client
Directly um maybe Danielle uh also you can bring your perspective also having research more at the systemic level how do you assess the complexity of the uh over in depth issue in Cambodia sure absolutely um and really it parallels very much the experience that you had
Frank um and what I really want to talk about is very briefly uh I want to talk about three problems um to to kind of highlight um and the first uh is really that Cambodia is an outlier it really stands out um in terms of what you were
Talking about Frank loans are very easy to get how do how does it show up in the data well it has the largest number of borrowers per capita and it also has the largest loan sizes for micr finance so it really stands out so just to give you
A visual um this is the type of work we do in Mimosa I’m not going to go explain what this chart means it doesn’t matter I just want you to look at the visual and just see how far outside of the regular Norm of the pattern Cambodia is
On that chart it really is an outlier um and this measures only the penetration rate so basically borrowers per capita um the second chart is loone sizes uh this data is already a few years old um if anything the gap between Cambodia which is in the far which is a
Red color on on on on the far right um that that Gap has probably even widened because loan size have been growing so so you had and and by now the average loan size I think is well over $5,000 it’s not even it was when you were doing
The survey it was over 4,000 but um these things have been growing very fast um and uh you know you have the combination of both so the most number of borrowers and those borrowers have the largest loans of any market and I think you would struggle to find a
Market where the average micr finance loan is over $5,000 that’s that’s really unusual um and it maybe it’s worth to look at how that has happened one of the key trends that that shaped this is um a decline in loan repayments which generally speaking would be a good thing
Right but it matters how it’s happened so this data is again from a few years ago but it’s illustrative uh so you have loans at different sizes at different amounts and I’ll give you an example let’s say a loan of $3,000 might have had a monthly repayment of about $200 a
Month um and three years later that same $3,000 loan is going to have a monthly repayment of $100 or even less so it’s just this uh you know and it’s it’s like magic it’s great great but the thing is it hasn’t been driven by interest rate declines a little bit yes but not
Primarily uh the key driver has really been increasing loan terms so you amortise that $3,000 over an additional two or three years and voila you have a low repayment um it’s it’s the kind of pattern we’ve seen in many countries that have gone through the cycle of
Increasing debt growth um and and that really uh brings to mind the second issue I actually think that over indebtedness a problem and this is kind of consistent with the data that you’ve seen and also other surveys like the 60 DB where you see that a large majority
Of clients I don’t mean 50 55% this is a large majority of clients are actually doing fine like they they are happy they they think the loans are worthwhile some some of them might uh have some challenges making repayments but actually that’s true for everybody I mean you know if you’re making a
Mortgage payment for your house sometimes it’s hard so it’s not necessarily a testament to that person who is being over indebted um there is a a minority not a tiny minority maybe 10 maybe 15% it’s depends how you define it that are struggling among those are some that are really severely struggling and
Actually wind up either selling land or doing other things like taking a child out of school so that they can work those things are happening they’re real problems but I think a much bigger problem is not those borrowers but the borrowers who actually are doing fine but they’re overleveraged so the amount
Of debt they have is so high that were anything to happen in their family uh be it some extended illness or being some business failure all of a sudden they have no fallback um when the loan is small you can find ways but when the loan is so large there’s really no
Alternative it’s it’s hard for a family uh whose loan is maybe equivalent to two or three times their annual income which is not so unusual and now all of a sudden that annual income is the is you know you you maybe you missed three months of work or
Whatever uh it’s it’s very very hard to get back and I think that’s a much more difficult problem it’s the sort of the risk that’s hidden right and it only demon uh uh shows up later as an actual over indebted client um so that’s the second issue um and and that actually
Reminds me uh a little bit to to to give you one one thing from sort of my past life um I used to work in the mortgage sector in the US until 2008 now those of you who are old enough might remember something’s happened in 2008 that have
To do with mortgage Finance in the United States um I I personally maybe not responsible but that’s another matter uh the thing is if you were to go back and and done a survey like uh Dr Bliss did in the US and talk to let’s say subprime borrowers in 2005 you would
Have found that most of them were doing just fine they’re perfectly comfortable making the payments very much the way many Cambodian clients are and then all of a sudden by the time you go to 2007 you have a complete collapse right because you have a economic crisis these
People are overleveraged they do not have the income to cover loans where something to happen there are other structural things that have to do with those loans that we can talk about another time um and so that kind of brings to mind the third point and I
Think this is another one that’s really important we talk a lot about the black sheep as you talked about Frank um about organizations doing something wrong being aggressive in lending aggressive in collections and that does happen this these are real problems but I think a much bigger problem is the ones who are
Doing everything right and I I my personal opinion is even if you had every mfi you know the smallest institution in cambodi adopt the the best practices in CLI protection today you would still have a problem and the problem isn’t that they’re doing something wrong the
Problem is there’s so much debt that the presence of that debt creates a very unstable system and there is no fallback position when something goes wrong and I think that’s actually at the core of the problem and so what we’re seeing is we’re seeing kind of that tip of the
Iceberg the one that actually comes up above the water those are the problems but below the water is this much deeper problem that that’s takes quite a lot to address and it’s not not going to be easy that’s my hopefully five minutes hopeful I’m not sure we’ll try
To see how we can address that pessimism and see some lights together with our panel uh but I think it’s a yeah quite interesting both of you uh refer to the black sheep um maybe it’s a question for you vendy um are all players uh playing the same
Rules in the market so maybe I’m looking also a guardian of the time in two minutes according to you are all the players playing the same rules are the bad she uh I think the sector in Cambodia we we have the formal sector that govern by the central bank that very very
Regulates and very responsible uh there are also inal sector that uh also now is in the the uh regulate by the N Bank Authority and some are still uh need to to make a clearer example like the the the informal money lender uh loan shark uh those are the key challenge for the
Foral sector so uh I think uh this is the area that uh we have been working so hard with the uh government Authority uh uh through the central bank and the nonbank authority uh relevant uh government Ministry including local Authority so uh I think uh this is the
Area a part of the priority that we are working to address and I think uh we have been uh so grateful with uh a colleague and friend who care and love Cambodia and the research I found is uh is a good information it’s really help
Us uh because it notmal uh we usually go to health check to find what other the problem and we also found that the information are valuable for us to to look to whether true or not but it’s a blessing to have more information and allow to reflect and and and this is a
Part of life uh when you have problem you make Improvement uh it normal it’s how life go and we have to acknowledge uh during the the past three year five year life hard for everyone not just in Cambodia uh across the world it affect by covid uh from the early 20 we thought
Co will get better than the war the the other political issue and it escalate from the Europe to Middle East and also in Asia we also face number of thing and uh see uh the high cost for the high interest cost that uh from the the us from the Europe then it
Affect the financial sector in Asia so it put more cost for client but for us uh we fight hard for affordable Landing uh for our people because uh microf Finance in Cambodia is not just a nor more microf Finance it share uh a strategic partnership to the development
Of Cambodia uh a big part to the whole Old Government strategy to it’s like the the blood the heart that pump the the blood to the body to make sure that uh economy uh become stronger so in the country we are uh we have a Ministry of economy and finance the strategy to
Develop economy that want to have more money in the market to have a economy function but we also have a central bank that very conservative very prudent approach look to the risk based perspective that uh so we are in between two balance but for professional association protecting client is the
Heart of what we do the country have do a lot from the the smart campaign from Now consumer protection pathway so all all those journey to protect client because we only believe uh protecting client is the only uh resilient and sustainable of the microf finance sector so it’s important to understand also the
Economic context and not to put all the issue link to specific Market related also the economic context is also driving potentially some distress for the component client as well um if I can uh ask you um also um well we hear uh it’s very easy to get a
Microloan and we know that uh some clients as you say may not always be a um have good willing in repaying so they are bad repayment Behavior as well um so maybe question will be um are the consumer not sufficiently equipped to take the loan or the product not
Properly adapted to them it’s both right uh it’s never one issue it’s it’s effectively both right uh I mean there are countless examples now of organizations it’s basically cut copy paste job that’s happening on product development right I mean there are some organizations that have not done client satisfaction service for four years
Right there is I I asked for example in an assessment you know how do you do product development basically it’s competitor data there’s no client voice on the table right and these are organizations that by the way have failed their certifications right but and not just recently they failed their
Certification let’s say in 2017 but money continues to flow into them right uh money from people in this in this hall right um on the client side um uh yes there is a need to equip better equipped clients not just with financial literacy but also on issues around empowerment because we learning that
Clients are not always comfortable in raising their voices right and and and and and they’re very clear that yes I know the hotline number I don’t want to use it right I want to speak to somebody right so we are coming back to not play all the players playing by the
Same rule well yes um but it’s not part of our track area but I I’m temped to ask you this question uh are the certification reliable as well sufficient for investor to to because you point at the fact that these institution continue to fuel a lot of um
Funding into micr Finance sector and for investor as well so ad set ification a good yeah yeah so firstly I think I just want to correct I think certifications certifications have been oversold certifications will tell you of the status at a certain point of time right things can change tomorrow right
Investors can change you know the situation can change tomorrow right it doesn’t absolve anybody from conducting their own proper due diligences right so it’s so so please don’t see certification as a proxy for you know everything is perfectly normal and it will stay that way right we have
To be very careful about that from our perspective we have never said that certifications are compulsory from our perspective an assessment is more important than a certification so these certification are not waterproof let’s say um they require monitoring it’s important signed eventually also to identify the players
That are willing to play the the rules yeah but then maybe I think uh we talk a lot about the problem but there have been many initiative um self impos by the sector I think Cambodia is often pointed as one uh of the best example also in term of
Developing self regulation for already 10 years to uh to address uh client protection um and indeed as you mentioned rigorous research that has been conducted and also 60 debel report they show that the majority of the clients are happy they see an positive impact of their microloan there are
Still 50% that are uh experiencing difficulties and other side of the Iber that we see how um what have been the initiative that the sector has been taken taking to protect the client the one that are under the ASB that we don’t see that may become over leverage and
Also to make sure that this 1% of case where they may be aggressive collection practice they go back to 0% what have been done over the last decade vendy okay so uh before I I go to that initiative I just want to take very quick to to to share some uh uh
Perspective from the sector uh this is again not a debate to any finding but really to explain what is about the sector so uh Cambodian is unique uh because the landing is uh L B on howold so the size that you mention about 4,500 is is a household per
Household if you divide by 4.6 you will see the number and uh and then uh for the micro loans uh for the micro loan uh around 62% I mean many client take microl loan uh and only small proportion of money so so we divide the loan tier this
Is the professional data from credit buau okay and uh so uh it doesn’t mean uh we are uh saturate or or or over so uh we happy to explain more but I don’t want to take more time and the other perspective is Cambodia is the micro uh Enterprise country uh through
The data of IC IFC uh over uh 50 thousand establishment of microenterprise that absorb to that lending you see the green line is is is that the loan go to micro Enterprise that is the engine of the local economy Cambodian cannot develop that much uh without micro Finance uh I think
Professor BL have highlight the positive contribution and also the the study of microf finance that we conduct by um in 2023 uh also confirm uh very similar to Dr BL so uh like I said life hands we all face the same issue although I am work for a financial
Sector I also have my own problem so that life uh but uh we we don’t ignore the challenge of client we take client to our heart uh because they are our people and they are our country and and uh and uh our people is our home so when
We have challenge uh we take effort to resolve it uh we don’t keep it uh we don’t ignore it so uh across those challeng uh like what I said um the the growth in the past year have provide great opportunity it mean client can uh have more option uh the cost of Landing
Have go down so from Advantage however uh there are challenge uh that we all so have been working so hard to address over the past year I think over the last uh over the last five year the the the association uh when I say Association we
We are part of the ecosystem of the financial sector so we work closely with Central Bank and uh uh Association of bank and also the relevant line Ministry so I think uh we have we have paid a lot of effort and and though effort uh we
Took the right based approach uh so we look to uh demand side and supply side so from the supply side we have done a lot from the set regulation that uh and also Advocate the the central bank to regulate uh more or to strengthen the
Gap and also uh we also uh do a lot of capacity building and you might heard a lot about the code of conduct The Landing guideline and the consumer protection initiative but capacity building have done to the front line I think the the the the finding the
Feedback from Dr B have have been helpful to us to to input into the initiative that we take over the last year and and we discussed this a lot also during uh last uh last year early this year m yeah in Cambodia so we we do
The table what Dr BL recommend what have been the the ongoing effort and what we need to do more so uh it is a positive development uh the whole sector lead by Central Bank and professional association uh is decisive to uh strengthening the inclusive Finance in
Cambodia we all share the same vison of you concern that the only achievement to the resilient and sustainable sector of micr Finance is to protect CL because client is a big part of the sector it’s like a boat and a water we need each other uh the Water the water can make
The boat stand strong but also the water can make the boat collapse so so we understand clearly and I think uh the the the the information we have from very from Dr ble from MIM MOA uh it it’s a good uh compliment it is a good
Information for us uh but I also want to assure you that uh as a sector we are confident in what we drive our sector forward because we have the inside of the country we born in a country we develop that sector that sector developed by the Cambodian and with
Support from all the partner and we share a big gratitude to your support to your concern and and it also a part of the strategy to uh strengthen the the the market system approach that’s what we have been work closely with svts uh we know that the lesson learned from
Smart compaign uh is very valuable and it also uh help us to align with the consumer protection pathway and uh so from both demand side supply side so uh for for for demand side for the client part we share the the need to do more for client especially on financial
Literacy consumer empowerment and protection and uh we want to to make it more strategic because we only believe that uh whatever homegrown within the the structure or the market system that drive by our own sale is a stain and we empower the local the local people uh through the
Initiative of SE finan SE Finance is not just a simple financial literacy project it’s about consumer protection we Benchmark a lot of back best practice from Philippines we we S as F and afd that support us uh this uh consumer empowerment project that we learn and
Also the TA from SP have have help us and we also Eng with un CDF around uh this kind of consumer empowerment as well and we work also with ja the Japanese development agency that also the TA to Central Bank so I and also this is the commitment forward is a consumer protection
Center uh helping the the market and the key actor to to embed this culture is necessary we don’t talk about the quick fit we talk talk about something that homegrown and stay sustained in the market that that people put the heart to to this commitment and I hear um I hear
Two things that are quite marking to me first is well you have been working on putting the right Safeguard and hearing um from um not contesting all these uh resar that you have receiving but I think it’s really simp to be driving your willingness to do more to protect
The Cambodian and but I also hear call for further partnership uh you talk about uncdf you talk about researcher Professor uh please um we have in cooperating with Danielle as PTF s so I he really a call of partnership and really willingness to do more uh and
Maybe it’s an opportunity to bring you uh to ask you n your perspective as well uh about additional uh initiative that you have been taking with sptf series in order to uh ensure further Safeguard uh for clients sure so I think um uh so I want to discuss about some very specific
Initiatives that that we’ve launched right um along with the National Bank of Cambodia and and and the two associations um so I’m I’m hoping that this you’re talking about the the 80% the iceberg that’s under the water so uh you know perhaps this is that 80% that
We need to address right because it’s it’s it’s much deeper um we you know the National Bank said that they were concerned about the fact that levels of profitability of some of the banks and incentives of the CEOs were unacceptably high particularly during covid and what was going on so they were
Very they were very uncomfortable with that so we sat down and we said Okay I want to sort of Deep dive into the context also it’s important that people understand this where where all of these initiatives are coming from also yeah so uh uh uh so we we sat down together and
We said okay what can we do and we said let’s do let’s let’s get every all the CEOs but not just the CEOs the shareholders also into a room and let’s workshop with them the problems that currently uh the country is facing and the sector is facing right um and it’s
Very interesting because one of the slides we started off with a debate right we covered 316 CEOs and shareholders across eight different workshops under the ages of the national bank right in their training center organized by the two associations right and we led the design and development and the delivery of the
Content right um um and we had a debate aggressive sales and collections um um real estate issues that are there in the market currently um and the ratnaker incidents these are reflective of um um systemic failures especially at a level of governance right and that governance is ineffective in terms corporate
Governance is in effective in terms of client protection do you agree yes no or are these isolated incidences 90% of the CEOs on shareholders are saying it is a corporate governance issue we are ineffective in all of this so for us whatever the data says it’s pretty much
Settled there is no debate anymore of you know there is a problem there isn’t a problem and so on right so the next step is what do we need to do why is it that despite CEO saying that we we understand this and at our levels we not
Doing okay it’s a function of capability it’s not a function of intent it’s a function of capability with many of the CEOs and shareholders saying I can connect the financial data I know you know I’m measuring the financial data well I can connect it but they’re not
Connecting very that same data to client protection issues right it’s mostly around ESG yeah everybody’s doing a client satisfaction survey apart from a few that I mentioned earlier but virtually everybody is doing it but the Deep dive into that it’s like a tick box the Deep dive into the data in terms of
What does it mean for my product design my processes that client voice right rigorous client voice piece is really missing from these discussions right so we so so so these workshops have hopefully really really opened up you know these discussions now and we we we’ll see the impact in the next couple
Of months because we just finished the last month last one now and then when they designed the code of conduct right the sector code of conduct the National Bank was very very clear publicly said that 70% U um um 30% is you guys signing the code of conduct 70% is the
Implementation and we want to see implementation so we had a discussion and you know I I asked Vandy how will you show implementation right because a code of conduct is good but it still has a number of broad standards where is the how will you measure it right because if
You can measure it you can monitor it so then that’s how the harmonization project came about where we harmonized the code of conduct with the uh CP standards that we have so now it’s aligned it’s aligned to a point where if an organization is is is compliant on
The code of conduct it’s equal to bronze certification level they would still need to undergo the whole process the tool for measurement has been designed associations have seen it the NBC has seen it our push on this is that it must be now maybe not regulated but the NBC
Needs to make very clear that this tool everybody needs to apply and not through self-regulation the certif bodies need to come in do the assessments of at least the top 25 or 30 system critical Banks MD mfis remember it’s not only mfis it’s the banks also right the banks
MD mfis leing companies and the rural credit operators we get the data analyze it have a state of sector report this is evidence for the national bank then to go ahead and actually start to regulate the sector because the there is there is an understanding and acceptance of the fact that yes regulation
Is not as strong as it should be right but nobody’s really discussing in concrete terms what should be in in that regulation right maybe not nobody there are some initiatives that are happening but they seem to be all talking about a complaint handling center right that’s and it’s being designed not with client
Voices because our experience of the field clients are saying I know the hotline number right I but I don’t want to use it I want a face- tof face interaction right but all I’m hearing from everybody is let’s have a new complaint man you know handling Center
Let’s add the word independent in front of it and then that ticks many of the boxes true right these are not client voices on the table right this is what we need to show to everybody else that yeah yeah we’re doing something about it right so we’ll miss the bus again on all
Of this right so there’s the workshops that we’ve done there’s the harmonization tool that we’ have done and then the safe Finance initiative which Wy already spoken about the consumer empowerment element is very very critical in that our Philippines project is showing some very positive results in terms of clients actually
Pairing down their requests or actually refusing multiple loans now let’s see what happens you know in Cambodia it’s just recently been been been launched I mean there are there are 10 other initiatives that I can talk about right that that that are currently being worked on I don’t know if you have the
Time but uh but I think would like to also hear the different perspective sure could be interesting also to share afterward where uh people could find about all these initiatives I think what’s very interesting is it’s not enough to have this standard and the sector has been working around all the
Standard aming them but it’s also enforcing them yes uh through training but what you’re doing now is really to try to enforce them at all levels yes to address the governance level the show the different stakeholders but also at the client so to make sure that the client are better equipped yes to
Understand how they subscribe to microloans but at the same time that the loan officer are better equipped not to oversell well the CEOs and shareholders are better equipped not the loan officers know it the loan officers will only do what’s coming from the top so exactly at all level of the organization
Because it needs to be reflected in the right incentive as well in the branch um but then there are limits in the self-regulation I think it’s sptf that also mentioned in recent Publications that low can also change a culture and that’s important as well and maybe I can
Turn back to to you uh Professor uh Lee um do you have any additional practical uh recommendation from your research um maybe to the NVC that could not join us today but if there will be enforcement of new regulation what will be this concrete recommendation in in
Two minutes I think regulation is not a problem problem is again as we already here is a practice and uh there starting was a good there is a very good introduction into into Finance paper with pictures from one of your uh mfis I have seen it it is excellent it is a
10minute training course and it’s starting with a keyword saving save money and then apply for loow the bad thing is I haven’t seen this paper in the offices of the mfi and I haven’t seen it nowhere in the household Okay so the point is bring the existing training
Papers yeah educative papers to the people but not only the paper but also the message by a person who is qualified to explain what are the benefits of a loan but also what are the risks of a loan so you need to invest in financial literacy in continuously It’s never
Enough to have one program to to strengthen yeah but especially if you have alone applicant then please use this educational material show him or her the pictures and start with a Sav interesting this is one point the second one we had already last year and may this point the communication a telephone
Number is nothing as you said a telephone number is nothing it is already good if a person is behind the phone number this is already the first step so many people told me yeah we have this compliance uh in but nobody is responding then another step responding
Doesn’t mean that we need a telephone operator we need a person who knows the landing uh history of this person who know the problems not in abstract way but in the practical way and can talk now with this poor woman or this poor man what his problem is and how this
Problem can be solved and I think that’s something Daniel let you have also a shared in quite few of your publication as well is having some independent mechanism for complaint handling can you elaborate further on how uh how would you recommend again the NBC uh or uh the
CMA to implement such absolutely so I I think it really goes much further than handling complaints because complaint presumes that somebody did something wrong and you can complain about it it’s very hard to complain and say hey I can’t make my payment that’s not a complaint that’s a situation um
And it is one thing to go to so for one thing this is not a kind of thing a situation that a person is going to talk on the phone with anybody you can’t get into the details of your cash flow of your loans uh so absolutely this needs
To be some mechanism that enables uh uh people who are trusted and independent and knowledgeable and have access to credit history so there’s a whole set of layers that have to be in place so yeah these are people can check the credit report for this person
Um and uh and then they have to be accessible so that means you’re talking about um probably several hundred or well over a hundred uh branches across the country um if you scale it up and think about okay let’s say that half a percent of Cambodian borers will really
Be struggling and distressed to need genuine counseling uh you talking about half a percent would be about 30 thou no about 15,000 people per year yeah right that’s a lot of people so so what kind of system are you going to build that can handle and these are in-depth
Discussions these are not things that I can deal with with an hour it means coming back next week it means now I have to go talk to lenders now I have to go back talk to the borrower again this is a proess so this person would be able
To handle certain number of cases at a time and it’s not that many um so thinking about what kind of system can create that and the third part I think this system has to have is uh these person need to be empowered to actually make decisions maybe those decisions can
Be appealed and there’s a process for that but they have to be able to say okay I’ve looked at the case I’ve talked to the lenders I’ve gotten all the feedback here’s what I think the solution should be uh reduce a loan by this amount maybe repay that loan maybe
Sell off this piece of land any number of things that can happen but they need to have that Authority and then make that Authority uh enforcable to the lenders basically saying okay this is a decision essentially what we’re talking about is a bankruptcy process many countries that are
You know developed economies have I think every European country has a bankruptcy process Northern you see it in Canada and the US and Japan there are countries that have it very few develop developing economies actually have this because it’s rarely used it’s it’s only accessed by relatively wealthy people or
Corporations but I think in Cambodia you have so much credit that it needs this process it’s essentially an outlet that allows a system to say okay how do I absorb that hopefully small but still real number of people and have them go through a process and say okay I can’t
I’ve taken too much loans maybe it was my own fault you know maybe as a person I made bad decisions and trust me a lot of borrowers do is’s you know it’s not because they’re rich or poor people sometimes make bad decisions so it’s not all on the mfis mfis can’t protect
People from everything um and their incentives are not there either yeah but a person needs to have that escape he essentially that’s and I think all the work of the sector is also to recognize that uh borrowing is risky in itself and so the what differentiate micro Finance from maybe mainstream Finance actually
How we can really uh Implement uh efficient Safeguard to protect the client again to minimize this 1% of um aggressive or irresponsible lending down to zero% I would like to turn back to you uh and ask you again shortly to make sure we have bit space question um can
These two recommendation I take on financial literacy and uh also um building maybe uh complaint mechanism that go beyond more elaborate into more bankruptcy uh uh process uh is that something that could be inspir uh inspiring for developing maybe the next round of a customer protection principle
Is that something that you think could be addressed or improved at the level of certification of the existing framework I I’m not I think that requires a little bit more thought frankly I mean I need to still process that from a certification perspective but I definitely think it can be part of
The safe Finance initiative right um um um it’s it’s it’s it’s there the mechanism is you know it’s it’s it’s there in the field now right we need to develop we need to develop this mechanism design it right because even before you do all of this the first
Question is people have to be comfortable in coming up and saying that yes I have a problem right and the who’s going to be able to do that and that’s where the C SOS the Civil Society organizations actually have a very critical role because they have the
Depth of Outreach right so again this is not just on bfis there are there are stakeholders in the entire chain and all the stakeholders have a certain role to play so can this can can can we then work with csos to actually help identify people who are at at you know at at
Different at at at a certain level of stress with respect to debt and you know inform them about the mechanism that is there get them to use the mechanism that is there right so that’s the very first step that we need to figure out in all
Of this again right so so I don’t again I I don’t um we shouldn’t be limited by the fact that you know should it be part of certification or it it should be done you know and it the safe Finance project is there it’s functioning things need to
Work within that mechanism let’s not develop parallel mechanisms right we can do certification to see if it’s working well you know to some you know actually assessment sorry you don’t even need a certification you need just an assessment will tell you what the gaps are so I think we could take a few
Uh a few question from uh the room uh and then could go back to you and I’m looking also at the time to not have issue with your organization there some M questions Gabriel maybe Isabel if you want to to speak loud can we have a mic no let me
Here there’s a question here also from Gabriel so yeah yeah so thank you very much for the panel really really great I just had I was just reflecting on how in at the industry level I think Cambodia is a very interesting case because it’s a country where of all countries in the
World there has been so much work done at the industry level to prevent farm from happening right with assessment certification the work of CMA the Lend so so many initiatives I think you pointed to that in a few of the interventions that of course certification or assessment is not going
To do everything it’s not going to prevents all harm from happening what it does is that it minimizes the risk of it happening and it evaluates whether the institutions are identify and then address when it happens but then I I think you know with Cambodia despite all
Of the safe guards sure more can be done at the institution level but it highlights that the limitations of prevention and I think that as a sector we’ve done a lot of prevention but maybe not enough on what happens when har when clients experience har and I wonder if
There’s more that could be done at the industry level to share just good practices on how do you deal with cases when happens even if proportion is very small as% half% and we know that matters because one life that is affected matters and we know that those CS are
Never going to be able to prevent every har from happening for for everyone and so maybe it’s following up a little bit on what Danel was saying on De counseling or Bank like is there something at the industry level maybe to try to summarize into a question for for the panelist maybe you
Can ask VY if there are any initiative that you think is really addressing that element is one the harm happen um how can we help this uh customer VY May yeah so uh I think there are two thing uh one is um this uh initiative that we working
On around consumer protection Center uh those are also includes the counseling Parts uh so uh and also a part of set Finance s Finance is more of preventive preventing from uh a problem however when they have a problem a module F uh around personal finance and debt management there are also uh initiative
To resolve that also so but we also uh need to to make sure that the counseling approach is a professional and I I share the point that Daniel raised uh like yesterday we also discussed that uh I think we welcome the opinion to work together but it have to go through the
Part of ecosystem it have to be uh a part of the Strategic of the sector and and we are very welcome uh that opinion and work together get uh do more because we currently also engage with the the UN resident coordinator and also all the key stakeholder in the country to
Collect more feedback how can we do more to protect client so we are in the process so uh as a sector we commit to this and uh we welcome all the opinion and we aov welcome all the actor in this room to to join us we need to yeah yeah
Yeah I think yeah Dr B you also want to add something you’re burning I think we need really a UTS person with a office for the restructuring process also of more than 1% of loans which were unethically provided I poor people with Consumer loans not able to repay this is
Unethical and this should be treated and there should be a solution at least to cancel the interest rates and to find out how what happens with the remaining loan amount and this this is required I think and this is the only chance also to bring Civil Society again into the
Discussion n you disagree you have one yeah I mean sentense to answer I disagree I think number one um anybody who is vulnerable not just ID poor right there is we have to be very clear about this right there are stigmas and cultural issues attached around labeling
People right so um anybody who is in debt stress and vulnerable has to have a mechanism okay that mechanism should they should be able to use that mechanism number one okay um um um um um the um uh sorry what was the other point on on on
Uh uh you’re talking about the meis independent on somebody inappropriately no sorry I I no no not the udman necessarily but there were two there was said that it should be waved off right the loan the write it off exactly the loan I think um um we micr Finance is not a one-time
Loan thing right let’s please go back 10 years when the portfolios of the poor came out right it’s very clear that from Brazil from Mexico Bangladesh people who are part of the social protection um um mechanism who are receiving cash transfers that is one strategy that they
Adopt that they adopt in all of this loans are another strategy also that they adopt in all of this right because let’s be clear that they will anyway go to a money lender right a cash transfer is Never Enough right for families to be
Able to you know kind of so so there is a bit of a contradiction there but we have to understand that there are different there’s a grant mechanism there is a loan mechanism and all of these have a certain uh place in the financial life of a household sold yeah
So I think we need to be a little bit more careful about it right I agree that unethical loans absolutely I’m talking only about this unethical loans absolutely but I would not say that that that that everybody who’s in a social social Protection Program don’t Lo but
But one thing I would I know we’re out of time but one thing I would say the problem with unethical notes I agree intuitively but the problem is making that decision arriving at what is an ethical and what is ethical is so hard um how do you get a person because we’re
Talking about informal incomes nothing’s documented so a person say well the loan officer says hey he told me he makes that much money and now he says he didn’t make it it is a very difficult thing and I’m not saying it doesn’t happen of course it happens I think it’s
Much easier to say hey let’s deal with your situation now and hopefully the lenders that are the most aggressive are going to be the ones who actually suffer the most because too many of the clients are actually defaulting and exiting and declaring backr upy and and it will be financially
Untenable but it’s also a question of all stakeholders taking their own responsibility right if there is too much stress on the client the mfi need to take the responsibility but at all level of the governance again in the sector maybe I would like to take uh one
More question gabri a question if I can yes sorry can we just have a microphone questions can we have a microphone for the question please yeah so that the online audience can hear you know we agree very much and disagree that the Gabriel hang on we we can’t hear so let
The mic just come to you sorry can hear online yeah can you hear me yeah yes you probably sit with 10 15,000 people currently sitting with a real problem we can debate until we blew in the face about ethical or non-ethical about sufficient standard or not sufficient
Standard until such time you create a mechanism for that that 10,000 people for those individuals to get them out of the crisis that they are in I think you’re achieving nothing actually you are you may be preventing a a problem for the future yeah but that’s what
We’ve done in the micr finance world now and I’m not get in this world for as long as any of you is we’ve done it repeatedly we always talk about these good things we get to the next Crisis in the next Crisis we make the rules for
The for the next Crisis but there are individuals now that are not coming out month on month you know and to flip it over if you create a mechan mechanism that is effective in dealing with a problem with that 1,000 or 10,000 then actually all Society will back off but
The investors will have to come to aart it’s not the for the government to fund us it is the investors that invested the growth in this loan portfolio that made the rules that se on the board of directors now they sit back they hold their money back and they achieve
Nothing in terms of creating a solution because somebody will have to write off that loan that the person can’t repay otherwise you’ve achieved nothing you’ve just I mean do one more word then I’ll shut a loan that is 70% of your income over five or 10 years how do you
Restructure that it is hell of a difficult I mean any enough yeah I think we touch that point about refinancing indeed that is a higher amount and a higher tenor that’s also bring some so they we all acknowledge in this panel that there is an opportunity to improve
The products according to the client’s need and to better equip the the client uh but the importance of bringing all the stakeholder at the table and make them responsible and you point at the investors and the shareholders is so important to to discuss about what is sustainable growth and profitability of these institution
So that at the end of the day it’s not the micro borrower that is paying the price of a UNS sustainable growth or profitability one last question camia eventually and then we can conclude with the panel and I’m sorry for being lay to the thank you so my name CIA J from
Investing Visions I have met with some of the people in this room and many thanks for everybody who made it all the way from Cambodia to sit here with us uh well we have spoken a lot about the massive amount of death in Cambodia and I think it’s really important to look at
The possible solutions and that is why I have a question to our participants in the panel as experts in the field so in order to the leverage and to reduce the amount of debt and over inness where do you uh find practical solutions for example do you think that
Limiting the um the amount of loan that is allowed to a single person or to a single household could be a solution because now we know that in cambod odia that servicing ratio can go as high as 70 or 75% that’s really outstanding usually we have the servicing ra of
Around 50% or even less uh do you also think that a solution might be um to restrict even further refinancing uh we see institutions who have around 1/3 to 40% of the portfolio that are refinanced loans with do have the red zone and the yellow zone limitations so for everybody working on
The Cambodian Market I think this are terms that we we already know but do you think that restricting them even further could be a possible solution and then the third question we have only the time for two questions yeah I mean this is still one question but maybe maybe I
Just want to hear more I think we have less than two minutes and we need to conclude so if it’s okay to take just the first two question just a small comment to make sure that you you are really responsible and prudent in your loan approval do you believe that
Controls should be better so that controlling or Auditors goes to the field and check how the loan approval was done how the cash flow analysis was done so uh can I ask vendy to to answer in less than one minute really I will have to cut you
Otherwi uh uh no doubt we we do everything to support client uh whether through a lot of solution alternative solution and what I would like to call also is uh the uh the investor Community please join us uh in that part of the solution as a Secretary General of the
Professional association I can see uh the challenge to to um negotiate with investor also to to have client and and also in last year we we met in Paris we talk about how we can do more for the sector uh during the meeting with the S
Spts uh we call for investor to to contribute the support to the initiative of the sector uh so please join with s SP and uh also uh with the partner that we working on uh to to help the client and also to strengthen the sector so from the professional association we
Will continue to talk with you about how we can best support the client so I think there are these three question which are I think very uh relevant that we can continue to discuss also after together uh because I think it’s a debate it’s a discussion that will go on
And we hope that during this one hour we have been able to unpack a little bit the mystify maybe yes I need to conclude yeah yeah yes yeah quick add I think example uh we have a prime minister and NVC encourage loan restructure to support client with the grace relief
Some relief but uh the Covenant that we have with the investor so that one we we we will talk with you and we need your your understand and and be a contribute to support client so yes and I think the sector will continue to work ASF also has been facilitating Danielle uh
Research from Professor BL has also been very helpful to better contextualize so if I can take 30 second to uh to to conclude first thank you for uh your interest in the topic I think we uh share one thing common I hope in this room is that we want to
Continue to support Cambodia uh and that the sector needs uh more responsible micro finance and maybe not just less to leave a gap maybe for more space for the black sheep uh and so it’s important to contextualize economic context culture Cal context we cannot compare to the US
Eventually the Cambodian markets and and the problem is not about defining how many household how many loans per householder per person average loan size I think uh the nobody denied the over indebtness issue the governance issue but comment that the CMA the researcher journalist we are dealing with today uh
Sptf all the sector is working to address this issue self-regulation has its limit and uh we need to work uh together build this partnership uh we all have this role to play shareholders by fostering sustainable growth sustainable profitability uh there is more to be done and I look at you ntin
And the sptf as well uh in rethinking the way we look at resolution mechanism maybe uh need to be more elaborate to focus also on the vulnerable people maybe this side of the aspect that we don’t see uh and indeed let’s also recognize that we have built a system Sy
That in most of the case works well but we are all sitting in the room because we have this common uh intention to bring that 1% of the case that do not work well to bring to 0% so we cannot prevent all the risk but we can work
Further on also preventing what happened afterwards and remind ourself also that the purpose of microfinance is also to improve resilience and so we should make sure that micro Finance in Cambodia continue to build resilience and not uh making client more vulnerable if I can conclude uh from this one hour and I can
Only invite you to our panelist to discuss more if you have more interest thank you for thank you thank you and also tomorrow breakfast us like literally now