NBC sets microfinance interest rate cap at 18%

The National Bank of Cambodia (NBC) set the interest rate cap at 18% for microfinance institutions (MFI), deposit-taking MFIs, and licensed rural credit institutions to help the poor, curb over-indebtedness, and reduce poverty, according to an announcement released yesterday. However, some industry experts said the move will have the opposite effect, adversely affecting both financial institutions and the poor by restricting access to loans. Stephen Higgins, the managing partner of research firm Mekong Strategic Partners, said interest rate caps are poor public policy and hurt the poor most, as they either restrict their access to finance or push them into the hands of loan sharks, who charge much higher rates, adding that the industry would not be sustainable at 18%. Sim Senacheert, president and CEO of leasing MFI Prasac, said the industry has seen interest rates decrease to somewhere above 20% from about 50%, and that his institution can handle the ceiling rate. However, he added that the move will affect financial institutions due to the industry’s high operating costs. (Source: Khmer Times)