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

Wednesday, April 12, 2017

With the interest rate cap of 18 percent in full force for all new and restructured microfinance loans after the National Bank of Cambodia (NBC) issued a populist measure to curb high interest rates, microfinance institutions (MFIs) are starting to give predictions for lower profits this year as the new lending reality takes hold.

The interest rate cap that came allegedly on the orders of Prime Minister Hun Sen himself and was hastily announced last month, requires MFIs to not lend above 18 percent as of April 1. While many in the sector warned of imminent collapse within an industry that holds a combined loan portfolio of $3 billion with a total of 1.9 million clients as of the end of 2016, MFIs are now starting to fully reassess their profitability numbers.

Kea Boran, CEO of AMK, said that while the financial institution showed healthy profits last year, reaching $6.6 million, an increase from a little over $5 million in 2015, this year would prove difficult to hold on to similar growth rates as the company restructures to cope with the NBC directive.

“From my current estimation, our profits this year will be cut in half as we receive lower returns on our loans,” he said, adding that the company’s total outstanding loan portfolio at the end of March reached $150 million with a client base of 335,000.