Opinion: Microfinance—Further Reflections on Recent Moves

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German Ambassador Christian Berger reflects on the latest developments surrounding Cambodians’ ability to repay microfinance debt amid the worst COVID-19 outbreak yet.

When Mr. Huettenrauch and I formulated our first thoughts on microfinance for Cambodia, it was certainly our intention to contribute to a serious debate. As Mr. Huettenrauch has in the meantime returned to Germany, the following essentially represents my opinion.

There are three reasons why I think that this is a very serious subject:


-For a country like Cambodia, a well-functioning microfinance system has an important role for a strong economic performance.

-There are clear indications that at present, Cambodia’s microfinance sector is not fulfilling this role. If this is true, there is a need to define and implement long-term structural reforms in the microfinance sector.

-However, the severe economic crisis also demands short-term actions.

In other words, it is not helpful to continue quarreling about “who created the beast and let it run wild.” Instead, it is in the public interest to find practical elements for solutions—short-term and long-term. If for example it is true that unforeseen medical emergencies are often the reason for borrowing, then the whole society should move toward a universal medical insurance to cover such emergencies. This is something for the long term, and, if I may add, part of Germany’s development assistance to Cambodia is focusing exactly on this field.

However, the recent call by 103 civil society organizations (CSOs) for Government action to suspend loan repayments also indicates the need for immediate action.

I cannot judge whether the “one size fits all” proposal of the 103 CSOs would be the ideal solution for the problem. Nor can I judge whether the six debt relief measures proposed by the Association of Banks in Cambodia and the Cambodia Microfinance Association will be sufficient to defuse the crisis.

But it was certainly helpful that the CSOs brought up the subject, and it was equally helpful that the two banking associations reacted quickly.

Will the proposed measures will be sufficient to defuse the crisis? I’m not sure.

First of all, I’m not sure that the crisis will be over in three months. So, more may need to be done, both to help the borrowers and eventually to provide support to the lenders to keep the banking system working.

Second, the structural shortcomings of the system have become painfully visible in this crisis. These shortcomings now have to be addressed, so microfinance can continue to play a positive, truly “constructive” role for the Cambodian economy. This is where Government actors come in.

The fact that H.E. Prime Minister Hun Sen addressed the problem in his speech on April 10 and requested the two banking associations to implement additional measures indicates that the subject is now on the Government’s agenda. I am convinced that in the national interest, both the Ministry of Economics and Finance and the National Bank of Cambodia will do further work on structural shortcomings. The German Development Finance Bank KfW has commissioned a field study which focuses on effects of microfinance lending. This field study should be finalized shortly​​ and will hopefully be a useful tool for this work.

Christian Berger currently serves as Ambassador of the Federal Republic of Germany to Cambodia

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