Cambodian microfinance will need foreign money

Subject

Microfinance in Cambodia.

Significance

Market growth is stalling in Cambodia's microfinance sector due to competition from unlicensed money lenders and an interest-rates cap implemented in April. The rates measure was politically motivated but will likely be retained after the July 2018 general election.

Impacts

• A looming credit squeeze will mostly affect low-income borrowers, but lending should rebound once profit margins recover.
• This recovery will come when borrowing costs fall, which is possible once more loans are sourced locally.
• The shift to local-currency financing of loans will reduce the industry's reliance on dollars and lower lending costs.
• Consolidation will create a more efficient second tier of financing, which is likely to have substantial foreign ownership.