NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, March 14, 2017

The National Bank of Cambodia (NBC) has capped interest on microfinance loans to a maximum of 18 percent per year, an unprecedented move that came on the direct orders of Prime Minister Hun Sen, Defence Minister Tea Banh said yesterday – a decision some experts suggested had political overtones and could have unintended negative consequences for the poor.

The step, which will nearly halve what some microfinance institutions (MFIs) currently charge, comes in the wake of a recent campaign by the government to publicly distance themselves from lenders by forcing nationwide overhauls of bank and MFI logos, and to declare it “illegal” for any party to promise to cancel MFI debts.

Reached yesterday after a speech delivered on Sunday to more than 800 ruling party commune candidates in Siem Reap, Banh said that while the issue fell outside his defence portfolio, he was speaking on behalf of the premier, who floated the populist rate cap in November.

“I just [repeated] the words of the premier, [who ordered] the bank to restrict the MFI to set the [maximum] interest rate at 18 percent. The bank will do it,” he said.