Thailand
Cambodia: CMA’s mechanisms to promote the riel and de-dollarise
Cambodia Microfinance Association’s Vice Chairman Sok Voeun, who is also chief executive officer of the Kingdom’s leading microfinance institution, LOLC (Cambodia), speaks to Khmer Times journalist Sok Chan about the development of the microfinance sector, especially during the COVID-19 pandemic and the CMA’s mechanism to promote the use of the local currency as well as to de-dollarise the economy in the Kingdom.
KT: Tell us about the current status of the microfinance sector, especially amid the pandemic?
Voeun: Despite the significant effects of the pandemic, we still see growth in the financial sector, especially in the microfinance sector. The sector is still growing strong and exhibiting resilience. The customer loan portfolio has increased by about 20 percent. Deposits at microfinance deposit taking institutions (MDIs) have also seen significant growth. Based on this, we have seen solid growth in the sector. At the same time, to help get past this difficult time, we have restructured $1.4 billion in loans for around 290,000 customers. This is the facilitation mechanism between MFIs (microfinance institutions) and customers affected by COVID-19 whose income has dropped. We discussed solutions to provide a win-win strategy between MFIs and their customers. We believe that this year we will see growth.
KT: The government and people of the Cambodia are currently fighting the community transmission from the Feb 20 event. Have you seen any impact from this on the sector?
Voeun: As of the date we are talking, there has been a slight impact. But I cannot predict what will happen in the future. But, as of now, at the time of this interview, the impact has been slight.
KT: How has the CMA been working to bolster the use of the riel in the country?
Voeun: The CMA has actively collaborated with the National Bank of Cambodia (NBC) to promote the riel. NBC has strategies and plans to roll-out in the sector to encourage Cambodians to use riels. It has produced many videos promoting the use of riels in the community. In 2016, the NBC issued the regulatory framework to encourage each MFI to secure at least 10 percent of its loan portfolio in riels. In the past two years, the volume of riels in MFIs has increased remarkably. Before 2019, riel-based loans in MFI portfolios were less than 10 percent. Today it is nearly 20 percent. This is an indication of the contribution of MFIs in promoting riels and its implementation of the central bank’s policy to promote the riel. The NBC’s channels and products, such as the FAST payment system and the Liquidity Providers Collateral Operation (LPCO) facilities are key in promoting the riel. We also promote it in rural areas where riels are more widely used.
KT: How are the CMA and MFIs preparing for the advent of a single currency and fully de-dollarised economy?
Voeun: In this matter, we must have a long-term strategy, but we do have policy in place to do it step-by-step. We cannot just de-dollarise the economy immediately because we have used the dollar for many years. The USD has been rooted into the country’s economy and peoples’ mindset, but I believe that any specific long-term strategy will transform our economy towards being overwhelmingly de-dollarised, but not completely. However, it could, with the participation of all relevant stakeholders, be implemented to be more successful. Long-term de-dollarisation will strengthen macroeconomic stability, the exchange rate, debt management and the taxation system. These are all parts of strengthening the riel and its trust among the public. Only then can we achieve de-dollarisation successfully. Financial literacy and prudential regulation of the financial sector are also crucial. The CMA has prepared the implementation of short, medium and long-term plans for our adoption in committing to a strategy transforming Cambodia’s economy to being riel-based.
KT: What educational programmes do the CMA and its members undertake to educate borrowers and depositors towards conducting transactions in riels?
Voeun: We now actively encourage borrowers to use the riel. Before, our source of funding was mostly in dollars and the lending of riels was expensive. Today, when borrowing money from outside the country, the interest rates are similar and we can access the riel in commercial banks. We encourage people to save in riels and we have a special rate for those who build their savings in riels. We encourage that for the customers whose source of income is paid in riels. We push borrowing in riels with interest rates similar to USD rates and, in special cases, the interest rate for riel borrowing is set lower than that of dollar-based borrowing. For each CMA member institution, we have the KPIs (key performance indicators) to increase their riel portfolios year-on-year. At MFIs, we try to reduce borrowing in dollars by borrowing in riels and releasing loans in riels to align with the short-, medium- and long-term strategies.
KT: Is it too soon to de-dollarise the economy? Would it stabilise or de-stabilise the economy?
Voeun: I share the thinking of the government and the NBC on this. It is not too soon to do what we are doing now. We are not calling for an immediate full de-dollarisation across the country. The strategy released is a long-term vision that is starting now. By starting now, in the longer term we can expect to see the results we want. US dollars have been here for a long time. If we want to de-dollarise, we need time and a specific plan of implementation that strengthens the micro-economy, the exchange rate, our financial policy and regulations to create an environment favourable for de-dollarisation. We must do all of this so that the Cambodian people can put their trust in the things needed to make this goal successful.
KT: What will the CMA membership do with their dollar reserves? How much in dollar reserves do CMA members currently hold? As the NBC collects small US banknotes ($1, $2, $5), is it a good mechanism to absorb dollars to release riels?
Voeun: Every day, we normally use and accept small US banknotes, but we see Cambodians using more riels. It is becoming their habit. We see that when Cambodians spend $10 or less, they pay in KHR. We are not banning them from spending or accepting small US banknotes. We do still accept them. The people are making this transition to the use of the riel by themselves. As for the regulations and laws issued by the central bank, MFIs and MDIs implement those strictly and comply properly and fully.
KT: What is your last recommendation?
Voeun: The government and NBC have a strategic plan. They understood that boosting the implementation of de-dollarisation must be done carefully. All MFIs and MDIs will align with the government’s strategy to ensure that we contribute to strengthening the government’s policy to the benefit of the country.
De-dollarisation is the strategy to implement, but we must act carefully and monitor all situations and make sure it is strong and recognised by the public and international community: We think, implement and monitor. We encourage all Cambodians to start using riels. It is the national currency and a matter of national pride to show on the global stage that we push and strengthen the use of riels. If we use riels, we can manage our economy better than if we use dollars. We cannot manage dollars because the NBC issues only riels. If we use dollars, it will benefit the USA. We cannot provide benefits to this country. It is up to the government, MFIs and people to start implementing de-dollarisation. Although we cannot achieve it this year or in the next five years, in the long-term vision, we have to collaborate to implement the plan [to de-dollarise] to make it successful.
Source: https://www.khmertimeskh.com/50832921/cmas-mechanisms-to-promote-the-riel-and-de-dollarise/