Technical assistance to five Cambodian MFIs to improve Client Protection Practices

A 10-month project that aims at supporting 5 Cambodian MFIs to align their internal practices with the Smart Campaign Client Protection Principles (CPP) and accompany them through the Smart Campaign Certification process.



The project takes place in the framework of Cambodian Microfinance Association (CMA)’s partnership with the Agence Française de Développement (AFD), and Smart Campaign to achieve the overall objectives of fostering client protection practices and ensuring the stability and promotion of responsible finance in the Cambodian microfinance industry. 10 MFIs are involved in this program, andMicrofinanza is in charge of delivering technical assistance to five institutions (AMK, Amret, Chamroeun, HKL and Seilanithih), with the following specific objectives:


 §  Improve the internal CP practices and align them with the Smart Campaign CPP;

 §  Increase awareness among the MFIs on the Smart Campaign Certification process;

 §  Encourage the most performant MFIs in applying to the Smart Campaign Certification and support them in achieving the Smart Campaign seal.


As of December 2015, in Cambodia only one institution, LOLC (previous TPC) has been Certified.


The importance of Client Protection


In the past ten years, the increasing flow of public and private resources invested in the microfinance sector led the industry to better investigate the real impact of microfinance on the clients, as well as the relationship between social and financial performance. This trend has motivated many players in the sector (MFIs, donors, investors, national and international networks), under the Working Group of the Social Performance (SPTF), to pay attention to the issue of Social Performance Management (SPM), focused on pursuing the double bottom line approach, that combines the logic of financial sustainability and profitability with the achievement of social goals.



The crisis of over-indebtedness registered in different countries, such as Nicaragua, Pakistan, Morocco, Bosnia-Erzogovina and India, however, have demonstrated the criticism in the implementation of microfinance, stressing the need of building effective policies to educate and protect the customer. For this reason, in 2008, Acción has launched the Smart Campaign to encourage the protection of the client and developed seven principles and the set-up of a certification. In this context, nowadays a general consensus is emerging to continue promoting the social performance to improve customer impact and enhance financial performance. Promoting social performance and client protection of microfinance institutions remains a priority to finally ensure that customers remain the driving force of the industry.


The Microfinance Sector in Cambodia


The Cambodian microfinance sector is in a rapid expansion. As of October 2015, there were 59 MFIs, including ACLEDA Bank (Small Loan), and 6 registered NGOs, reaching 1,931,381 clients in all the 24 provinces in the country. The total outstanding portfolio is $2,721.03 million with an average loan of $1,408.85. Moreover, there are 1,351,410 active savers for $1,241.38 million of deposits. These MFIs are operating mainly in the area close to Phnom Penh, lending money mostly to women (81% in June 2014). Excluding Acleda Bank, Prasac is the most widespread, with 191 offices all over the country, while AMK is the biggest MFI in term of number of clients (as of September 2015).


The microfinance environment is characterized by a supportive regulation endorsed by the National Bank of Cambodia (NBC), to regulate and monitor the sector. The market is mainly regulated by the Law on Banking and Financial Institutions (enacted in 1999) and by several Prakas (decrees) that enrich the legal framework, as follows:



    get the license to become a MFI (2000)

    ban the flat interest rate, imposing the declining balance method (2001)

    commercialization of microfinance and its integration into the formal financial system (2002)

    collection of money from the public (2007)

    credit reporting (2011).


A strong competition between the MFIs generates three main issues that concern the sector. Most of MFIs suffer from a mission drift and lack of product diversification. MFIs are concentrated in the main economical active provinces, i.e. Kampong Cham, Phnom Penh and Kandal. Moreover, according to the “Study on the Drivers of Over-Indebtedness of Microfinance Borrowers in Cambodia: An In-depth Investigation of Saturated Areas”, 21% of total borrowers in the country had multiple loans. Furthermore, MFIs have difficulties in formalizing the client repayment capacity assessment, worsened by non-clear land certificate procedures and by a weak credit reporting system. These often translate into over indebtedness.