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RIF Regulation Mapping: CambodiaApril 2016Written by Heather Clark, Independent consultantEdited by James LeCompte and Muhammad Awais, Good Return SPTF, in conjunction with its Responsible Inclusive Finance (RIF) Working Group, developed a framework that maps countries’ regulation to responsible inclusive finance issues. The framework is designed to help networks and financial service providers better engage with regulators on RIF issues, as well as to identify examples of how regulators can integrate such issues into regulation. SPTF used this framework to map several countries’ regulatory issues, and all mappings can be found on the SPM Resource Center at . For any questions, updates or additions to the mappings, please email katiehoffmann@. CountryCambodia1. General Landscape: MFI Sector Size and Maturity, FSPs providing MFRegulated financial institutions in Cambodia include commercial banks, specialized banks, microfinance institutions (non-deposit taking), deposit-taking microfinance institutions (MDIs or NBFIs) and leasing companies. A large number of smaller and unregulated microfinance institutions are registered as NGOs. Since 2015, the National Bank of Cambodia has encouraged NGO-MFIs to register their lending activities. Commercial banks and regulated microfinance institutions serve the majority of the microfinance market. There are only a limited number of credit unions.As of December 2015, 64 MFIs, with a total portfolio outstanding of US $2,951.72m; an average PAR 0.67%; 2,022,235 borrowers; average loan outstanding US $1,459.63; deposits US $1,317.82m; depositors 1,418,732; MFI staff 25,307. NPLs as a percentage of loans were 0.6% (December 2014). The number of MFI borrowers increased from a base of 1,610,844 borrowers and 918,500 depositors in 2013. Regulated MFIs and MFI deposit-taking institutions had 356 branches at the provincial level, 2,338 at the district level, 16,173 at the commune level and 100,342 at the village level. (NBC Dec 2014). Commercial Banks in Cambodia served 1,765,267 borrowers and 385,421 savers as of the end of 2013. Total deposits amount to US $47,881,534 and total credit US $38,838,726, with NPLs as a percentage of loans at 1.9%.Banks operated 541 branches and employed 19,763 staff. MFIs and Banks operated 766 ATMs and 4,838 POS as of the end of 2013.Digital finance stands to become Cambodia’s new financial inclusion success story. The market leader for digital finance in Cambodia, WING, has 1,800 agents and close to 1 million users (half of whom are unregistered), WING provides an easy way for all segments of the population to make payments out of its exclusive WING Cash X-Press agents, using POS devices. Transactions are primarily domestic money transfers (close to 70%), bill payments (20%) and the rest is top-up (10%). The average money transfer is US $175. WING transaction volume grew from US $65m in 2011 to US $1.5b in 2013, and surpassed US $1.5b within the first five months of 2014. ACLEDA Bank and AMK launched digital services in 2013 and 2012, respectively, to reach unbanked, rural customers and to offer convenient services. More recent MTOs include Metfone’s E-money, True Money (Thailand), Ly Hour Pay Pro and Asia Weiluy. In 2016, there are 10 MTOs operating in Cambodia. Smart Axiata, Cambodia’s second largest Mobile Network Operator, became the first MNO to launch its own bill pay and money transfer service (SmartLuy).Cambodia has a high degree of mobile phone penetration and internet usage. Data from September 2015 shows that more than 94% of Cambodians claim to own their own phone (39.5% being smart phones), and more than 99% being reachable through some sort of phone. Almost a third of Cambodians have access to the Internet, with Facebook and the Internet now the second most important channel for accessing information (behind TV and ahead of Radio).2. Regulators/Supervisors Responsible for MicrofinanceNational Bank of Cambodia (NBC): The NBC is in charge of regulation, licensing, supervision, enforcement and reporting requirements for all banks and both deposit-taking and non-deposit taking MFIs. Contact: Headquarters: Address: #22-24 Norodom Blvd, Phnom Penh, Cambodia. Tel: (855-23) 722 563, 722 221Fax: (855-23) 426 117Email: info@.khWebsite: MFIs report performance statistics to the Cambodia Microfinance Association (CMA). These statistics are consolidated and reports reviewed by the NBC. Contact: Tel / Fax:?(+855) 23 219 406,?Email: info@cma-, cma-?CMA Office Address:?#69, Street Berk Thmey, Sangkat Tom Nop Tek, Khan Chamkarmon?Phnom Penh, Kingdom of Cambodia. Website includes info-messaging capability. 3. National Strategy for Financial Inclusion (NSFI)Currently, Cambodia does not have a National Financial Inclusion Strategy (NFIS) per se. Strategy plans and implementation tactics are taken up in the Financial Sector Development Strategy 2011-20 (FSDS). The current strategy focuses on financial outreach, financial literacy and public awareness, expanded access to financial products and services, and establishing a Financial Stability Unit within the NBC (2011). The NBC is working with the United Nations Capital Development Fund to develop a NFIS. With a population of 15 million, Cambodia’s financial inclusion rates appear low compared with the average in the East Asian and Pacific (EAP) region, despite the extensive outreach of MFIs. The average account penetration for adults (22%), for women (20%), and for adults in the poorest 40% of households (18%), seems low, as the average in the EAP region is, 69%, 67% and 61% for the same categories. In terms of credit, 28% borrowed from financial institutions in 2014, up from 19.5% in 2011. This was better than regional averages of 11% and 9%, respectively. A large number of Cambodians continue to borrow from family and friends (36.2%), as well as from informal moneylenders (18.2%).“Against this background, the microfinance segment in Cambodia continues to grow and evolve and is regulated by the National Bank of Cambodia (NBC, the central bank). The segment includes two types of institutions: microfinance institutions (MFIs) that are registered with the NBC, and non-regulated institutions (those not covered by the NBC), such as non-governmental organizations (NGOs). The government views the segment as critical to socio-economic development and poverty reduction and has adopted a segment- development strategy for 2011-20. The strategy’s Action Plan for microfinance outlines short, medium and long-term targets (albeit without giving firm figures for these targets).”In keeping with the action-plan targets of increasing financial access and ensuring consumer protection, considerable developments have occurred in the segment over 2014-15. Cambodia has allowed a wide range of actors to operate as agents, leading to an increase in MFIs partnering with mobile network operators (MNOs), shopkeepers and traders to deliver their services. Interoperability is likely to increase in the near future, as MFIs work out the sharing of platforms, such as automated teller machines (ATMs). In June 2015, the NBC introduced a new payment system, enabling settlement with multiple MFIs. MFIs are in the process of adapting to this system. The government and NBC have also placed increased emphasis on micro-insurance. The Ministry of Finance recently issued two temporary micro-insurance licenses, to BIMA (via mobile platform) and PKMI (offering specialized micro-insurance products). The Ministry is also working to change existing insurance laws and will bring micro-insurance within its ambit. The law will likely be passed in early 2016.The capacity of the NBC to supervise the segment adequately continues to be an area of concern. The IMF 2015 Article IV consultation mission to Cambodia has stressed the need for “regulatory and supervisory upgrades” in light of the “growing systemic importance of MFIs.” Local observers indicate that the NBC has adequate capacity to supervise MFIs registered with it, but there is concern that it does not cover all types of institutions engaged in microfinance, such as NGOs registered and supervised by the Ministry of Interior.In Microscope 2015, Cambodia’s overall score is 55, ranking it 14th out of 55 countries scored. Microscope assesses the overall environment for financial inclusion by examining policies and regulations for a range of financial products and services; a wider set of institutions providing these services; the full array of delivery methods; and the institutional support that ensures the safe provision of services to low-income populations.As the objective of the FSDS 2011–2020 is to develop a sound financial sector that can contribute to poverty reduction by supporting economic growth and increasing poor people’s access to finance, the FSDS anticipates more work on consumer protection, financial literacy and expanding services to increase financial inclusion, particularly mobile money. Constraints, challenges, and gaps for development of the sector include (i) strengthening the regulatory and supervisory framework and capacity, (ii) expanding services, (iii) improving outreach, (iv) increasing consumer protection, (v) enhancing operational efficiency and the quality of service providers, and (vi) strengthening sector support.According to the IFC 2015 study (Promoting Financial Consumer Protection in Cambodia), “Cambodia must put in place more consistent practices and standards for market conduct by its FSPs in order to protect its consumers and strengthen the stability of the financial sector. Cambodia needs a more cohesive and coordinated regulatory approach to financial consumer protection in the financial sectors. Current provisions and the level of oversight need to be expanded in order to keep pace with the growth of the financial sector.” IFC’s report makes key recommendations with respect to: Legal, Regulatory And Institutional Framework (including: information sharing among regulators, regulators focus on improvements in disclosure of key financial products; creation of dedicated consumer protection unit within NBC); Fair Treatment Of Customers (including: development of industry code of conduct, NBC to develop systems for collecting market intelligence, requirement for FIs to conduct due diligence on appropriateness of product for individual consumer); Disclosure; Financial Education (including: distribution of plain language basic educational material, development of a financial literacy strategy, and periodic consumer awareness campaigns); Responsible Business Conduct (including: review adequacy of FIs governance structure by NBC); Protection Of Consumer Data And Privacy; Complaints Handling And Redress (including: FIs should have policies and mechanisms for complaint handling and redress, and recourse to an independent and fair redress process); andCompetition (NBC should conduct or sponsor a thorough study on the level and sources of indebtedness to clearly determine its potential to destabilize Cambodia’s institutions and/or the economy).4. Banking Laws: Establishing Laws and Recent LawsThe Law on Banking and Financial Institutions (1999) aims to create confidence in the banking system, promote the use of savings and encourage financial sustainability. The legislation defines the legal status of MFIs as a provider of loans and deposits to poor and low-income households and micro-enterprises.NBC Prakas B7.00-06 (2000) outlines the process of MFI registration and licensing in Cambodia. Registration is compulsory for any MFI that meets one or more of the following conditions:Loan portfolio outstanding equal to or greater than KHR 100 million;Savings mobilized from the general public amounting to KHR 1 million or more; 100 depositors or more.Licensing is required for larger MFIs. It is compulsory for any MFI that meets one or more of the following conditions:Loan portfolio outstanding equal to or greater than KHR 1,000 million;1,000 borrowers or more;Savings mobilized from the general public amounting to KHM100 million or more; or 1,000 depositors or more.In March 2016, the NBC increased the minimum registered capital for MFIs from US $62,500 to US$1.5m., noting that the MFIs should increase their minimum registered capital in two years. After licensing, MFIs must comply with the following prudential regulations:Capital guarantee deposit of 5% of capital;Reserve requirement of 5% of total voluntary deposits;Capital adequacy ratio of 20%;Maintenance of liquid assets of at least 25% of total voluntary savings;Aggregate loan commitment to an individual borrower or a group of borrowers that does not exceed 10% of net worth;Prakas B7.02-145 requires MFIs to classify their loan portfolio into the four separate classes with different provision requirements.With the growing number and size of activities generated by registered moneychangers, NBC issued a code of conduct (2014) to be followed by these entities. NBC has conducted a series of workshops to explain the purpose of the code and the roles and obligations of each moneychanger. Since then, 14 large moneychangers have been licensed and 25 others have notified NBC of their wish to become licensed.Pawn businesses play an important role in meeting poor peoples’ urgent need for cash. To legalize this subsector, the MEF issued Prakas No. 028 SHV. PRK, dated 12 January 2010, on Licensing of a Pawn Business and Buying and Selling of Pawned Pledges, and Transfer of Title. It has also enabled the government to issue licenses to 73 companies and pawn businesses so they could legitimately conduct business.One key remaining question for transformational digital finance to expand rapidly in Cambodia will be the role of the National Bank of Cambodia. It is unclear whether the only regulation available for branchless banking (the Prakas on Third Party Payment Processors) is sufficient to provide an open playing field for all potential digital finance players, but it will likely evolve in the next few years. It seems that making regulations for agents more conducive for a diversity of providers would significantly step up digital finance in the country. It will also be important for new regulations to take a balanced approach on AML/CFT given the lack of ID system in Cambodia.5. Mapping the Universal Standards for Social Performance Management (USSPM)This section maps the six dimensions of the Universal Standards for Social Performance Management with regulations, financial infrastructure (such as advocacy efforts) and services (e.g. capacity building, credit information) that are currently in place within Cambodia. The left side of the chart lists each of the Universal Standards in a given dimension. The right side of the chart lists the application of that standard in Cambodia. 5.1: Dimension 1 – Define and Monitor Social GoalsThe institution has a strategy to achieve its social goals.The institution collects, reports, and ensures the accuracy of client-level data that are specific to the institution’s social goals.Internal to the organization. Many MFIs have a dedicated SPM section on their websites, which provides information about the institution’s social goals, strategy and efforts in SPM5.2. Dimension 2 – Ensure Board, Management and Employee Commitment to Social GoalsMembers of the board of directors hold the institution accountable to its mission and social goals.Senior management oversees implementation of the institution’s strategy for achieving its social goals.Employees are recruited, evaluated, and recognized based on both social and financial performance criteria.While many indicators of Dimension 1 and 2 are internal to the organization, there are supportive initiatives within the industry through networks and peers. The MFI industry association, CMA, provides access to SPM standards, encourages reporting data on MFI social goals, and has been active in promoting the USSPMs among their membership. CMA has an ‘SPM Club’ for its members, which meets approximately once a quarter. CMA has been active in promoting the USSPMs among their membership.Many MFIs, and at least one bank, e.g. ACLEDA Bank, require both social and financial performance by their employees. ACLEDA Bank requires training of all new employees on fair and respectful treatment of clients.5.3. Dimension 3 – Design Products, Services, Delivery Models and Channels that Meet Clients’ Needs and PreferencesThis principle has been critical to the success of microfinance in Cambodia. And new efforts are underway, given the development of mobile banking technology.The institution understands the needs and preferences of different types of clients.The institution’s products, services, delivery models and channels are designed to benefit clients, in line with the institution’s social goals.In the beginning, access to credit was the preference. Now, as there are options for consumers, quality of service, valued clients, and fair treatment are higher on clients’ priority lists.The majority of leading MFIs adhere to client protection principles.Collaborative efforts of MFIs and NBC have increased products on offer and quality, specifically savings. CMA supports a learning platform for members to build consumer awareness and financial capability.The NBC is now focusing on promoting and establishing a regulatory framework for e-money, to make transactions less expensive, more widely available, safer and more transparent.5.4. Dimension 4 – Treat Clients ResponsiblyGenerally, there is still a lack of MFI consumer protection sanctioned by the appropriate authority, of guidelines for resolving disputes, and of basic norms for debt collection. In general, MFI borrowers lack financial capability. A credit bureau to service the entire financial sector, including microfinance, began operations in 2012 and is used by both MFIs and Banks. The strategy on financial sector development lists consumer protection, particularly debt collection norms and guidance, dispute resolution and financial capability as priorities.CMA and Good Return Australia are implementing the CAFE (Consumer Awareness and Financial Empowerment) initiative with several members to strengthen consumer protection and improve financial capability, with a focus on institution and consumer behavior change.The NBC, in partnership with Good Return Australia, has launched the "Let's Talk Money" campaign. The purpose of the campaign is to activate financial behavior change and to strengthen economic empowerment in low-income households and vulnerable communities. section analyzes each Universal Standard in Dimension 4, one-by-one.5.4.1. Prevention of Over-indebtednessNBC has series of regulations covering PAR reporting, NPLs, provisioning standards and strict regulations on restructuring of microfinance loans.A credit bureau to service the entire financial sector, including microfinance, began operations in 2012. Cambodia Credit Bureau (CBC): NBC set up reliable and on-time credit information sharing system among banks to allow them access to information on repayment, using both positive and negative data.NBC created the CBC; the private sector operates it. The CBC is 51% owned by the Cambodia Holding Co. and 49% by the equipment provider. The Cambodia Holding Co. is jointly owned by banking institutions and the Cambodia Microfinance Association. The NBC issued a Prakas in 2011 to regulate the operation of the credit bureau. Prakas No-B-7-011-145 (2011), update of previous 2006.Participating banks and MFIs sign a Code of Conduct with the NBC. The Code of Conduct describes the collection, dissemination, management, and utilization of credit information. Credit information must be accurate and up-to-date, outdated information must be removed from the system. Security measures to protect credit information from any third party’s unauthorized access, loss, alteration, damage or destruction of credit information. Articles include consumer rights to privacy, notification before reporting borrower’s credit information, record keeping, borrower review of information and a redress mechanism to make an assessment and corrections within seven days.In 2013 the “Study on the Drivers of Over-Indebtedness of Microfinance Borrowers in Cambodia: An In-depth Investigation of Saturated Areas” was released. It found clients with multiple loans, especially three or more loans, were far more likely both to be insolvent and to have struggled to repay; low financial literacy was strongly associated with having struggled to repay debt.5.4.2 TransparencyPrakas on The Calculation of Interest Rates on Microfinance Loans (August 14, 2001), requires interest charged on a loan to be calculated and disclosed based on a declining balance. Prakas (B7-011-243 Prokor) of the NBC is to promote credit facilities of the banks and financial institutions in a fair, reasonable and responsible manner. The majority of MFIs provide a transparency sheet to their clients in line with this Prakas.5.4.3. Fair and Respectful Treatment of ClientsMany MFIs have fair and respectful treatment of clients as a fundamental principle. MFIs know that competition is high, and that the Cambodian consumer values fair and respectful treatment, regardless of income. There is no banking regulation that covers this principle. The up-coming consumer protection code may incorporate it.A voluntary banking code of practice, released by the ABC and CMA, includes guidance on how to treat clients in different circumstances. 5.4.4. Privacy of Client DataPrakas on The Utilization and Protection of Credit Information (May 10, 2006), establishes a process for banks to share negative credit information as part of the government framework (Credit Information System). Articles include consumer rights to privacy, notification before reporting borrower’s credit information record keeping, borrower review of information and a redress mechanism to make an assessment and corrections within 7 days. (Prakas update 2011)5.4.5. Mechanisms for Complaint ResolutionA special unit is established with the Credit Bureau to handle complaints and corrections. Outside the credit bureau provisions, or individual MFI or bank operations, there is no formal mechanism of complaint resolution in the wider system. The IFC report recommends that NBC establish a dedicated consumer protection unit, with one of its first priorities to create a national complaints resolution system.5.5. Dimension 5 – Treat Employees ResponsiblyThe institution follows a written Human Resources policy that protects employees and creates a supportive working environment.This is generally left up to the institution. There is no regulation currently in place. However, most MFIs and banks serving the sector have written policies. The CMA offers training in human resources management. Staff Association rules, codes and collective bargaining initiatives and agreements with management are common. One of the best examples of a staff association with a 19% ownership of the bank is ACLEDA Bank’s “ASA.” The institution communicates to all employees the terms of their employment and provides training for essential job functions.Generally, this principle is practiced by all MFIs in Cambodia. Training is particularly on the agenda. In recent years, staff training has been augmented with new course offerings from CMA and the ACLEDA Training Center, which offers courses to ACLEDA staff, MFI and Bank staff, and the general public.The institution monitors employee satisfaction and turnover.Mostly internal to the organization. Networks do not generally monitor this, and banking authorities do not. MFIs and banks monitor employee turnover, and most of the leading MFIs undertake employ satisfaction. CMA offers a course on employee compensation and benefits management.5.6. Dimension 6 – Balance Financial and Social PerformanceThe institution sets and monitors growth rates that promote both financial sustainability and client well-being.Generally, MFIs monitor this statistic. Many do not know how to determine this differential, but it is the main objective that all MFIs (and banks with a considerable MF portfolio) seek. As there have recently been many new equity investors in MFIs in Cambodia, it will be interesting to see how new commercial foreign investors have an impact on MFI financial and social performance, as they replace the original DFI investors.Equity investors, lenders, board and management are aligned on the institution’s double-bottom line and implement an appropriate financial structure in its mix of sources, terms, and desired returns.Generally, this main objective is sought by the majority of MFIs, as well as banks with a considerable MF portfolio. As there have recently been many new equity investors, it will be interesting to see how new foreign investors have an impact on MFI financial and social performance.Independent Directors requirements. The requirement that at least 20%, but not less than 2 members, should be independent directors is aimed at strengthening objective judgment in the board. Since independent directors are not involved in the management of the financial institution’s operations, they are expected to lend impartial views on the assumptions, recommendations and reports submitted by management. They are also expected to render unbiased decisions on matters that pose potential conflict of interest, and to strengthen the check and balance system within the financial institution, ensuring integrity of financial reports, improving disclosure and transparency practices.6. Initiatives that influence and support change. Pending Plans/and Recent Engagement by:National Associations/ NetworksWith funding from Accenture Foundation Australia, DFAT and AFD, CMA and Good Return are implementing Financial Capability Initiative (CAFE) Consumer Awareness and Financial Empowerment Initiative. Currently being piloted with three MFIs: Kredit, Sathapana and Samic.National Bank of Cambodia and Good Return AustraliaConsumer empowerment campaign LetsTalkMoneyFunding AgenciesIFCCredit Bureau and promoting the consumer protection in Cambodia studyAFDFinancial Capability Initiative, supporting CMAInternational Associations and NetworksAFINBC joined AFI as its 99th member. It joined the consumer education and market conduct working groupLegislation/ Central Banks:Consumer Protection Laws: slated as in the FSDS.Mobile Money ................
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