The National Bank of Cambodia (NBC) has announced it will not enforce a December

31, 2002 deadline that required NGOs operating micro-finance services to register

either as small operators or as licensed institutions.

Instead of punishing offenders, the NBC will visit the 30-40 organizations that it

believes are operating outside the system, and encourage them to apply.

That is in contrast to the wording of a prakas issued on February 25, 2002 by NBC

Governor Chea Chanto that stipulated disciplinary measures including fines for those

who did not register.

The decision drew criticism from the country's largest micro-finance lender, Acleda,

which said enforcement was necessary to ensure the industry was accountable, competitive,

and served customers effectively.

All NGOs with an outstanding loan portfolio of $25,000 or more were required to register

by the end of last year as micro-finance operators (MFOs). Those with more than 1,000

borrowers or a loan portfolio greater than $250,000 were required to apply for a

license to become a micro-finance institution (MFI).

In Channy, the general manager of Acleda Bank, said most NGOs had failed to register

and claimed many did not properly collect loan repayments.

"The law is in place. Enforcement should be done to ensure that micro-finance

is transparent," Channy said. "In the end it will undermine the development

of micro-finance in Cambodia and bad discipline will also copy and make the whole

sector become bad too."

MFOs play a crucial role in providing credit and savings services as around 90 percent

of the population has no access to formal credit. There are around 70 credit operators,

yet only 29 are currently registered as MFOs and three as MFIs.

Many Cambodians rely on money-lenders, who often charge annual interest rates above

100 percent. The micro-finance operators usually charge annual rates running between

36-60 percent.

Phan Ho, the NBC's director of bank supervision, said the registration process had

been slow and was "not a good success". Since the prakas was issued under

the Law on Banking and Financial Institutions, "only four or five NGOs have

registered as MFOs".

Only one - Cambodian Micro-finance - has registered as a licensed MFI. Three others,

including Catholic Relief Services, have applied to the NBC for MFI licenses, while

others such as Concern and World Vision, are in the lengthy process of applying to

register their credit operations as MFIs.

The law stipulates that MFIs must have shareholders and pay tax, while MFOs are required

to submit quarterly reports to the NBC and comply with existing laws and regulations.

Phan Ho admitted that around 30-40 operators were still neither licensed or registered

and said some NGOs still were not aware the prakas even existed. He said a major

reason behind the prakas was to find out exactly how much money was being loaned

around the country.

"If they have clear difficulties we understand they need more time to ask for

a license," he said of the NBC's new stance. "Our criteria is that [MFIs]

should have shareholders, and for NGOs to look for shareholders is very difficult."

He said the NBC would visit NGOs that had not complied and encourage them to do so,

rather than imposing fines of up to $2,500 which were too high for many small operators.

Phan Ho explained that the government's capacity to provide credit in rural areas

was very limited, and said the poor would suffer if NGOs were closed for missing

the deadline. He said the point of the prakas was not to punish the poor.

"Our policy is to have some funds for poor people to generate income,"

he said. "If we close all these NGOs, it will be very difficult to have funds

for [the poor]. That is why we can't close them."