Cambodia joins microloan clean-up

Aug 14, 2009

Asia Times Online
By Stephen Kurczy

PHNOM PENH - Impoverished Cambodia has emerged as a global microfinance leader, becoming the first Asian nation to hold lenders accountable to their original mission of poverty reduction. If a new global initiative aimed at promoting greater transparency over microfinance institutions (MFIs) recently launched here gains traction, the multi-billion dollar industry could be set for a shake-out.

It has long been assumed that microfinance ventures, launched in the 1970s as non-profit enterprises to bring cheap credit to the poor, prioritize alleviating poverty over maximizing profits. In recent years, celebrities such Robert Duvall, Natalie Portman and Yeardley Smith, (the voice of Lisa in animated television series The Simpsons), became official spokespeople for different MFIs such as Pro Mujer (Pro Women), Finca International, and the Grameen Foundation.

The United Nations Capital Development Fund has in recent years channeled millions of dollars in donor funds into MFIs. The International Finance Corporation (IFC), the private lending arm of the World Bank, says it has given more than US$600 million to more than 100 MFIs worldwide and maintains a commitment to double that investment to $1.2 billion by 2010, making IFC the largest investor in an industry servicing more than 80 million people around the world.

But so-called barefoot banking has come under growing criticism as MFIs reap huge profits. Reports have shown that many misrepresent their underlying loan fees, with some charging annual interest rates in excess of 100%. For instance, Mexico's Banco Compartamos, originally a non-profit institution, generated $458 million in an April 2008 initial public offering. Private investors piled into the offering because the bank charges its 1.4 million poor borrowers up to 128% annual interest.

Chuck Waterfield, a microfinance expert and Columbia University professor, has found that many MFIs, including Compartamos, advertise as pro-poor enterprises with 4% monthly interest rates but when additional hidden fees were added those rates often topped 10% per month.

Waterfield recently devised a platform for borrowers and international donors - who underwrite and provide cheap capital for many microcredit banks to on-lend - to view more clearly individual MFIs' true underlying interest rates. "Compartamos was a watershed for the industry. It takes a crisis to make you do what you should have done 10 years ago," Waterfield told Asia Times Online.

In mid-2008, he launched MicroFinance Transparency, a database of interest rates charged by individual microlenders that aims through publicity to refocus microfinance on poverty alleviation. The goal, he says, is to collect loan information from all microcredit lenders worldwide and publish their real annual percentage rates at his website, mftransparency.org.

"The organizations with the highest interest rates have the glossiest annual reports, with pictures of mothers with babies, and they talk about how they're helping those mothers while making boatloads of profits," Waterfield said on August 7 at a launch event in Phnom Penh. "So we put the prices up there and say, 'Nice annual report but you're charging twice the interest rate as anyone else to those mothers with babies'."

Waterfield hopes that all MFIs will openly join the initiative and prove they have nothing to hide. He first introduced the project in March in Peru, then in Bosnia in April, and this month in Cambodia before heading to another launch in Bangladesh. He acknowledges that he can't force microcredit lenders, many of whom bury hidden costs in the small print of their loan forms, to sign up to the initiative.

"We've got to build credibility and Cambodia helps us build credibility because it's a willing participant. The next country we go to will be a little less willing. And next year we'll go into the countries that are really reluctant to have us show up."

People over profits
While Cambodia is renowned for its endemic corruption and is often rated among the world's least transparent countries, Waterfield said he chose the country as the first Asian nation for his initiative because its registered MFIs rank among the world's top in terms of social performance, consumer protection and ethical practices.

Of the 12 Asian MFIs that have signed on to a social performance indicators program launched by the Washington DC-based Microfinance Information Exchange (MIX), a provider of MFI business information and data services, half hailed from Cambodia.

Five Cambodian banks are also included in MIX's ranking of the world's top 100 MFIs; only India, with six, claims more. In June, Angkor Microfinance Kampuchea was one of three MFIs worldwide to receive the first gold award for social performance reporting from the Michael & Susan Dell Foundation, the Ford Foundation, and Consultative Group to Assist the Poor.

"Cambodian MFIs have been at the forefront of industry reporting for many years," MIX's chief operating officer Blaine Stephens wrote in an e-mail in response to Asia Times Online questions. "My guess is that they will demonstrate as much commitment to reporting social performance as they have to reporting financial performance in an open and transparent manner."

Cambodian MFIs charge interest based on 30- or 31-day months. This may sound intuitive, but in Mexico and other developing countries most MFIs charge interest rates based on a four-week month, which effectively allows them to charge the borrower for an extra month every calendar year, Waterfield said.

The annual interest rates charged by MFIs in Cambodia are among the lowest worldwide at between 24% and 36%. While higher than normal rates on commercial consumer loans, microloans are inherently more expensive because the lender receives less return while incurring overheads and transaction costs similar to those for larger loans.

"Here in Cambodia, we are committed to making sure that the financial services provided to the poor come as tools for their empowerment rather than shackles for their exploitation," Cambodian National Bank director general Tal Nay Im said on August 7. The National Bank has recently issued a legally binding sub-decree for MFIs to advertise their real effective interest rates.

Cambodia is the only country to outlaw flat interest rate loans, a credit structure where monthly interest is paid on the total loan amount even as the borrower pays down the principal - which means the borrower is effectively paying interest on money already paid back. In comparison, every MFI in Mexico charges a flat rate and only one microcredit bank in impoverished Bangladesh, the Grameen Bank, charges borrowers a declining rate where they pay less and less interest as the outstanding amount owed is paid down.

The Grameen Bank was founded in the 1970s by Muhammad Yunus, who was awarded the Nobel Peace Prize in 2006 and the US Presidential Medal for Freedom this week for his efforts to provide low interest loans to the poor. While many microcredit institutions claim to take inspiration from his example, Yunus has publicly lamented the industry trend towards profit maximization over uplift of the poor.

He, for one, has strongly endorsed Waterfield's new Microfinance Transparency initiative. "Microfinance emerged as a struggle against loan sharks, so we don't want to see new loan sharks created in the name of microcredit," Yunus told BusinessWeek at the time of the project's launch.

While Cambodia's 18 MFIs have agreed to submit their loan data to MicroFinance Transparency, the Bangladeshi government is drafting a law that will require all their MFIs to submit data to the initiative. In Bangladesh, banks do not at present advertise their true interest rates, Waterfield said, and there is the risk of a consumer backlash if published interest rates suddenly appear to double overnight.

Leaky lending
Not all MFIs are equally excited about Waterfield's transparency initiative, particularly those whose reputation would take a hit through greater disclosure. One of mftransparency.org's features will show, in graphical form, the relationship between loan size and interest rates charged. That presentation will show more clearly where MFIs' priorities lie.

Many MFIs had been so profitable that hedge funds, venture capital firms, and other big private equity investors have sought ways to enter the business. In Cambodia, private equity fund Leopard Capital announced in March that "we are currently evaluating several options to invest in the sector, including participating in any pre-IPO [initial public offering, or sale of shares to the public] capital raising by a leading MFI, acquiring an existing MFI or merging an existing MFI with a smaller commercial bank."

Despite Cambodia's lead on MFI transparency, the sector has been facing financial troubles wrought by the global economic crisis. The industry-wide at-risk portfolio for the nation's 1 million microloan borrowers rose from 0.5% in mid-2008 to 3.39% in mid-2009. That's exposed flaws in previous client screening.

Mai Yop, a 55-year-old salt farmer in southern Cambodia's Kampot province, admits to having lied to get a $1,000 loan three years ago from microfinance bank Acleda. While microloans are extended solely for business purposes, such as the provision of new cattle or farming tools, Mai Yop says she used the money to pay for her husband's stomach surgery.

"I had to lie, or I wouldn't get any money," said Mai Yop, who now lives on a budget of $5 a day. In order to pay back her first loan, she took loans from two other microlenders, and finally from a high-interest charging informal moneylender who eventually seized her farmland due to non-payment.

Some borrowers say they'd be in a better situation today if they'd never taken on a microloan. "We are poorer than ever," said Oum Siv, a 50-year-old grocery vendor in Kampot. Earlier this year, she said she owed $10,000 to a private moneylender after taking out a series of microcredit loans for her husband's construction business, which failed to get off the ground amid the economic slowdown.

Cambodia's MFIs say they have since adopted more rigorous screening processes for potential borrowers. But the toll from years of lax screening has only now become apparent. The situation is similar in several Cambodian provinces, with tens of thousands of Cambodians unable to repay their microloans and now at risk of losing their homes and farmland.

Despite these challenges, Waterfield said that Cambodia remains a relative microcredit success story. Elsewhere, when it comes to openness and transparency, "some of these [lenders] say, 'We've been lying for 20 years for some legitimate reasons, so it's not so easy to start telling the truth.' Here, it was like, 'sure, what do you need, we'll give it to you.' There was no resistance, no nervousness. We'll never see that again ... anywhere we go."

Stephen Kurczy is a journalist roaming across Asia. He may be reached at kurczy@gmail.com.

(Copyright 2009 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

SCENARIOS-Will Thailand's political crisis deepen?

(For an analysis on Thailand's political crisis, click [nBKK227649])

By Martin Petty

BANGKOK, Aug 13 - Plans to submit a petition requesting a royal pardon for Thailand's fugitive former Prime Minister Thaksin Shinawatra have renewed fears of an intensification of the country's four-year political crisis.

The United Front for Democracy against Dictatorship , whose red-shirted ranks are filled largely by the rural poor, says more than 5 million Thais have signed the petition, which has angered royalists and the middle classes who despise Thaksin.

Analysts say chances of reconciliation in politically polarised Thailand are remote, while every instance of street protests or civil unrest further dents the confidence of investors, deters tourists and hampers economic recovery.

The following are scenarios for the coming months.

- - - -

ATTEMPT TO SUBMIT PETITION TRIGGERS UNREST

The petition to revered King Bhumibol Adulyadej has sparked anger among anti-Thaksin elements. Both the government and the royalist Peoples Alliance for Democracy could try to block its submission, prompting fears of clashes or even military intervention.

Most commentators, however, believe this is unlikely to provide a flashpoint. They say the motive behind the petition is to highlight Thaksin's mass support and to keep his movement alive. They see only a slim chance a pardon will be granted to the fugitive billionaire, who maintains his graft conviction was politically motivated.

"It does not matter whether a royal pardon will be granted or not. What seems to matter most are the numbers to show how popular Thaksin is," wrote Bangkok Post columnist Veera Prateepchaikul.

Markets would likely remain unruffled.

- - - -

ABHISIT CONSOLIDATES RURAL SUPPORT, RETAINS POWER

Prime Minister Abhisit Vejjajiva is implementing a wave of economic stimulus measures aimed at winning over the rural poor, Thaksin's traditional support base, to help him retain power and keep the pro-Thaksin Puea Thai party at bay when new elections take place.

Though he is making progress in reviving the economy, his efforts are unlikely to raise his support significantly among the poor, many of whom remain loyal to Thaksin because of his populist policies while in office.

"Abhisit has grasped how crucial it is to reach out to Thaksin's power base and try to emulate the populist policies," said political scientist Prudhisan Jumbala.

"But that won't be easy and unless the poor see the results of Abhisit's economic pledges, they won't be swayed."

Thailand's financial markets will continue to underperform their Asian peers if the political impasse is not broken.

- - - -

ELECTIONS CALLED, PRO-THAKSIN PARTY WINS MOST VOTES

Abhist has refused to call elections until the economy has recovered and constitutional reform is undertaken. Critics say he is buying time to try to shore up support for his Democrat party.

In two recent opinion polls by Assumption University, Abhisit was rated a less competent premier than Thaksin, whose popularity could help the Puea Thai party he backs win the most votes in the next election, if not enough for an outright majority.

Analysts say this scenario could lead to more unrest, due to the refusal by the different fronts of the anti-Thaksin camp to accept a nominee government of a fugitive criminal they see as a challenge to the monarchy.

Under this scenario, financial markets would likely fall.

- - - -

STALEMATE CONTINUES, MILITARY SEIZE POWER

Though unlikely at this stage, a military coup can never be completely ruled out in a country that has seen 18 actual or attempted coups in 77 years of on-off democracy.

Rumours of a putsch continue to swirl but analysts say Abhisit still has the backing of Thailand's politicised and power-hungry military, and he continues to toe its line.

"The inside view is Abhisit still enjoys their support and they don't have anyone they can replace him with," said Control Risks analyst Jacob Ramsay.

This could well be the least market-friendly scenario, given how maladroit the military-backed government was following the coup that ousted Thaksin in 2006.

- - - -

CONSTITUTIONAL REFORM RESTORES STABILITY?

Abhist says he is determined to achieve national reconciliation, but with no side seemingly willing to compromise, it is unlikely to happen any time soon. A constitutional reform committee has submitted its recommendations but anti-Thaksin elements are unlikely to agree to efforts by his supporters to win an amnesty for scores of disqualified politicians from his two disbanded parties.

"It will have to obtain the support of the military, monarchy and Bangkok elites," Eurasia Group wrote in a note to clients.

"This will be difficult as the anti-Thaksin forces will be concerned that concessions will eventually lead to a pro-Thaksin government, especially given the Democrats' track record of ineptness in consolidating power."

Consensus on constitutional reform, could go a long way toward healing the political rifts -- which financial markets would heartily welcome -- but not if it results in a Thaksin proxy government.

Seaweed Company’s Public Offering Illegal: Officials

By Ros Sothea, VOA Khmer
Original report from Phnom Penh
12 August 2009

A Malaysian seaweed company in Kampot province has begun selling public shares to local citizens as a way to raise investment capital, a move the government claims is illegal.

Since early 2009, FMC Services, Bhd., has invested nearly $3 million in growing seaweed on the coast, which sells as foodstuff in Japan, China, Korea, the US and Europe and can be used in cosmetics.

The company had been using about 60 hectares of sea area, but plans to increase that to 10,000 hectares, offering in September unlimited shares at $300 per share, said Mei Ratha, FMC’s Cambodia representative.

Shares could yield an increase in value of 30 percent the first year, 50 percent the second and 75 percent the third, with value doubling in the fourth year, he said, adding that around 400 people are waiting to buy in.

“Don’t wait and see,” Mei Ratha said. “Time is limited. Come and buy shares. It is beneficial. More beneficial than keeping your money with other people.”

However, on learning of the scheme, Minh Ban Kosal, director-general of the Securities Commission of Cambodia, said the public offering was not yet legal in Cambodia.

“If my company wants to sell shares, I can sell them to people I know, but not publicly announce it and ask the public to buy them,” he said.

Cambodia plans to establish a stock exchange at the end of the year, listing between four and 10 companies, but FMC is not among them, he said, adding the commission would immediately look into the offering.

Mei Ratha said he had not asked for permission to sell the shares, denying the company had done anything wrong in seeking to raise capital. The company was not only selling shares in Cambodia, but other countries as well.

Risk of bankruptcy will be insured for shareholders, he said.

Sam Ganty, a stocks expert who sits on the Securities Commission, said the shares were illegal and risky.

“If we buy shares when we know nothing about the company, and the company doesn’t have permission to sell such kind of shares, I think the shares are very risky,” he said.

Intermediate Khmer and Advanced Filipino Language Courses Coming to UCLA This Fall

The Southeast Asian language courses will be teleconferenced to UCLA from U.C. Berkeley as part of a foreign language initiative and distance-learning partnership.

8/12/2009
By Seth Villanueva for the UCLA Center for Southeast Asian Studies
UCLA International Institute (Los Angeles, California, USA)

SEEKING TO expand UCLA’s diverse language offerings as well as enable current language learners to progress in their proficiency, the Centers for Southeast Asian Studies at UC Berkeley and UCLA have arranged for two Southeast Asian languages, Khmer and Filipino, to be studied at the intermediate and advanced levels, respectively, via simultaneous teleconferencing technology. Both classes will begin on Thursday, September 24, and will run from M-Th at 3-4 pm for Filipino and 4-5:30 pm for Khmer. They will meet on a compressed schedule only when both UCLA and UCB are in session.

Both languages will be taught live at UC Berkeley and teleconferenced to UCLA, thus making new material available. Khmer (the language of Cambodia) has never been taught before at UCLA, and Advanced Filipino, while taught in the past, is not otherwise available as a regular course in 2009-10. This is not the first time that SEA language courses have been successfully teleconferenced between UC campuses. Introductory Filipino language courses have previously been teleconferenced very successfully from UCLA to UC Irvine. In 2009-10, several other languages are also included in the Distance Learning program including several African, Slavic, and Scandinavian languages.

We asked UC Berkeley instructors Frank Smith (Khmer) and Joi Barrios (Filipino) to provide more information about their classes:

CSEAS: Who are the classes designed for? Who are the ideal students?
FS: The Khmer class is intended for students who, either through classroom study or family/home experience, have attained a "survival level" of spoken Khmer (able to talk about family, exchange pleasantries, name basic rooms and objects in the home, discuss names of basic food items and Khmer dishes, bargain in a Khmer market, give/receive directions and discuss transportation, talk about work and accomplishing basic tasks, describe various basic emotions/states of health and illness). No previous knowledge of the Khmer writing system is assumed or required.
JB: The Filipino class is designed for students who have taken Intermediate Filipino, or those at the intermediate level. Ideal students are those who would like to study Philippine language and culture and either write a research paper in Filipino or work on a creative writing project.

CSEAS: How does a student enroll/register?

FS: The course number is Khmer 100A. UCLA students should contact Barbara Gaerlan bgaerlan@international.ucla.edu for UCLA registration details, and also indicate their interest to me via e-mail at fjsmith@berkeley.edu. General registration information for all Distance Learning language courses is available online at http://www.registrar.ucla.edu/soc/intercampus.htm.
JB: The official course title for Advanced Filipino is South and Southeast Asian Studies 149 (Studies in South and Southeast Asian Languages). Interested students should also contact Dr. Gaerlan.

The curricula for both courses is as follows:

Intermediate Khmer

In this class students will learn how to read and write Khmer and how to discuss various areas of knowledge common to all adult native speakers in Cambodia: religion, traditional culture, the rice farming cycle, and the language of news/advertising. In the second (spring) semester, they will learn about life as a modern Cambodian in Phnom Penh, the basics of discussing history and politics in Khmer, and acquire a basic understanding and appreciation of several traditional Khmer poetic meters. Throughout the two semesters, students will learn the basics of the Khmer writing system, and gain experience reading folk tales, news stories, articles on Khmer religion and history, and read (in the second semester) a Khmer novel in its entirety. Students will also learn the necessary vocabulary (spoken and written) to expand their command of Khmer from the survival/home realm into areas of common adult discourse in Cambodia today. All this will be done via a combination of written texts, videos recorded in Cambodia, and task-based classroom activities in which spoken and written Khmer will be used to design and carry out various projects, including student-designed "TV commercials," stories about everyday life, and original poetry.

Advanced Filipino

Using literary texts (short stories, poems, and creative non-fiction) and critical essays on Philippine culture and society, students learn advanced vocabulary and more complex grammatical structures. The students shall then choose from either a creative track or a research track. For the former, the student should be able to write either a short story, five poems, or a creative non-fiction work. For the latter, the student should submit a critical essay in Filipino based on the texts and their own research. These works shall be discussed using a workshop format, enabling the students to revise the work until it can be deemed ready for publication.

Center for Southeast Asian Studies