Is Dollarization a Problem in the Cambodian Microfinance Sector?

抄録

The high extent of dollarization and flourishing of microfinance institutions (MFIs) are both unique features of the Cambodian economy. Microfinance is very beneficial to the development of the national economy as it provides a wide range of financial services at a fair price to the people in general, particularly rural people or those who have difficulty accessing the services of commercial banks. In the meantime, the Cambodian microfinance sector and the commercial banking sector have for decades been subject to a high rate of dollarization. There are pros and cons to the dollarization of the microfinance sector. However, there is a paucity of analysis on the intersection between dollarization and the microfinance sector. Thus, it is required to investigate this issue in order to advise how to deal with currency mismatch risks in MFI’s operation and to advise what policy measures should be taken for MFIs.

In this regard, although the nature of the analysis in this paper is explanatory and descriptive, we investigate how dollarization affects MFIs using a unique dataset manually constructed from audited financial statements of individual MFIs, which are obtained from MIX Market. As a result, we find that while the recent growth of the Cambodian microfinance sector depends on international funding streams, dollarization possibly mitigates the currency mismatch risks by allowing MFIs to extend loans in a foreign currency. However, there is a heterogeneity of currency choice in lending, and outreach-oriented MFIs are likely to face currency mismatch since they lend to a larger extent in the local currency.

We also summarize the stance of the government regarding dollarization in the Cambodian microfinance sector. Recent government policies, especially restrictions on foreign currency loan provisions and the interest rate cap, will significantly affect Cambodian MFIs’ operation, since most MFIs deal with currency risks and lower profitability. Most MDIs have more than 10% of their deposits in KHR, so it does not seem to be difficult for MDIs to meet the requirement of keeping 10% of their loan portfolio in KHR, although MDIs might still face challenges resulting from the high funding costs of KHR.