Catalog

The contribution of microfinance to poverty reduction is widely acknowledged. Without permanent access to institutional microfinance, most poor households continue to rely on meager self-finance or informal sources of microfinance, which limits their ability to participate actively in and benefit from development opportunities. Microfinance can provide an effective way to assist and empower poor women, who make up a large share of the poor and suffer disproportionately from poverty.

By improving access and efficient provision of savings, credit, and insurance facilities, microfinance mechanisms can provide the poor the means to acquire sufficient staple goods, build up assets, develop entrepreneurial activities, enhance income-earning capacity and, in sum, improve their quality of life.

Raising Rural Incomes

Since the mid-1990s, Hattha Kaksekar (Farmer’s Hand), has provided rural credit and savings in Cambodia. Launched as a nongovernment organization (NGO), it recently transformed itself into a limited liability company to conform to Cambodia’s new legislation on microfinance. Hattha Kaksekar seeks to promote the income-generating potential of agricultural, business, and manufacturing enterprises in the rural areas of Cambodia, offering an alternative to the high interest rates on loans generally available in these areas. The microfinance provider specifically targets women and poor families in its activities.

“When the poor people in rural areas want to borrow money, they usually have no other option than the local moneylenders, whose interest rates prevent them from improving their situation,” says Hout Ieng Tong, Hattha Kaksekar’s Executive Director. “Then they will either be unable to repay or will borrow again to pay back their previous loan. This vicious circle continues until they lose their land, house, jewelry, animals, and even household goods. We want to help them get out of this situation.”

Development Partners Come Together

Mr. Hout was among the 500 participants at the “Conference of the Forum on Cambodia, Laos and Vietnam,” held 19–21 June 2001 in Vientiane, Lao People’s Democratic Republic (Lao PDR). The conference, organized by the 16-year-old nonprofit group, Fund for Reconciliation and Development (FRD), brought together different actors in the development process. During three full days of plenary sessions, panel discussions, and sectoral group meetings, participants deliberated ways of strengthening partnerships to reduce poverty and nurture sustainable development.

FRD serves the development community in the three countries by acting as an information and resource center for launching new programs, facilitating information sharing about development, and helping organizations link up with partners.

The Vientiane conference was the 10th in a series of multinational, multisectoral, structured forums organized by the New York-based FRD. Participants included representatives of relief and development organizations, funding agencies, foundations, universities, businesses, corporate philanthropies, and government entities. The Asian Development Bank (ADB) helped support the conference with a grant to defray the travel costs of NGO participants.

Significantly, the conference led to the largest gathering of NGOs ever assembled in the Lao PDR. Altogether, about 200 NGO staff members and volunteers attended the conference, including representatives of Southeast Asian organizations working to address social welfare, human rights, rural development, educational, and environmental concerns at the local level. Cambodian civil society groups were particularly well represented, partly because of the country’s legal and administrative framework, which encourages citizen-led nonprofit activities.

Hattha Kaksekar’s executive director took advantage of the conference setting to share the challenges, experiences, and goals of his organization with other participants working to nurture the spread of micro- finance in Asia’s developing countries. One of the conference’s sectoral groups was devoted to microcredit activities in Cambodia, Lao PDR, and Viet Nam.

Addressing Customer Needs

Hattha Kaksekar tailors its operations to be as user-friendly as possible, consistent with the need to operate on a financially sustainable basis. Service centers are located at the commune level, loan application forms are short and easy to complete, and the loan process and disbursement process takes less than three weeks for first-time borrowers—less than one week for repeat customers.

Borrowers choose loan terms that suit their cash flow and business cycle. Loan periods range from one month to two years for small business loans, and from one to twelve months for agricultural loans.

Hattha Kaksekar has established a well-developed system for monitoring loan use and modern collection procedures. It employs well-trained branch and commune staff. Interest rates are based on how much cash is needed to cover operation costs, loan-loss provision, financing costs, costs of capital, and a surplus for future expansion.

The institution has adopted several measures to ensure a high rate of loan repayment. Before lending funds, it conducts a thorough assessment of the environmental and economic risks, screens client families, and evaluates clients’ business plans. For larger loans, it relies on a borrower’s repayment track record and physical collateral.

Executive Director Hout notes that Hattha Kaksekar also “ensures that clients are clear from the outset about loan terms and conditions, including procedures, contract details, and penalties. We have developed mechanisms to facilitate on-time repayment, including quick follow-up when clients miss repayment deadlines, and verbal reminders by credit officers during their visits to borrowers.”

Range of Services, Rapid Growth

In addition to lending money, Hattha Kaksekar also encourages its borrowers to open a savings account with the institution so that they can eventually become independent from borrowing. A savings account may be established with as little as one dollar. Hattha Kaksekar also offers training on product development, marketing, record keeping, and fund management to those interested in running a business.

Between 1996 and 2000, Hattha Kaksekar increased its geographical reach from 5 to 50 communes and from 24 to 384 villages. The number of active clients increased from 932 to 5,794 over the same period, and the average loan size from US$101 to US$300. Seven out of ten borrowers are women. For every 100 loans provided, Hattha Kaksekar receives about 250 applications. One of the main curbs on the institution’s growth has been limited access to funding. This is an area where funding agencies and development banks, including ADB, have sought to help.

“This vicious circle [of moneylending] continues until they lose their land, house, jewelry, animals, and even household goods. We want to help them get out of this situation” Hout Ieng Tong Executive Director, Hattha Kaksekar

International Support

Hattha Kaksekar institutionalized its microfinance activities in 1996 when it received a technical assistance grant from the Organisation canadienne pour la solidarité et le développement/Oxfam-Québec. National funding agencies, Agence Francaise de Developpement (France) and Gesellschaft für Technische Zusammenarbeit (Germany), subsequently offered additional financial support and equipment that enabled Hattha Kaksekar to offer its services in more districts. In the last few years, however, the institution has relied on client savings deposits and funds borrowed from the Cambodian Rural Development Bank (RDB), a wholesale banking institution, to sustain its operations and expansion.

Earlier this year, ADB lent US$20 million to RDB to create a revolving fund to provide resources to microfinance providers like Hattha Kaksekar. About 260,000 Cambodian households will benefit from ADB’s assistance, especially the rural poor who are using the newly available resources for small-scale economic activities in agriculture, agroprocessing, trading, livestock, handicrafts, and services. While Hattha Kaksekar has not yet drawn upon the ADB-backed fund at RDB, it is possible that it will do so in the future.

Separately, ADB is preparing a policy-based loan to assist Cambodian authorities in adopting financial sector policies and strengthening institutions. This loan will complement the support being provided in the microfinance area and help implement a 10-year government strategy for developing the financial sector, including the banking system and capital markets.

Focus on Sustainability

Hattha Kaksekar continues to serve its growing client base as it works to build institutional, operational, and financial sustainability.

To increase its institutional capacity, Hattha Kaksekar is recruiting board members with relevant expertise and experience, drafting policy and operations manuals, building a strong management team, and developing mechanisms for staff appraisal.

Operational changes aim to increase both the number of clients and loan volume without affecting portfolio quality, and keep transaction costs steady without affecting the overall quality of services and responsiveness to clients. Hattha Kaksekar also hopes to increase the spread on earnings from its loan portfolio by ensuring timely repayment.

In the future, Hattha Kaksekar expects to rely more on soft loans and commercial financing as the source of its funds. “We are developing a realistic plan to assure self-sufficiency as we reduce our dependence on donors,” says Hout. “This is necessary so that we can continue to help the rural poor create new possibilities for themselves.”

____________________________

Know more about ADB's work in Cambodia

Read other ADB Review articles on Cambodia:

• Building Cambodia
  
• Healing Cambodia's Health System
  
• Have Skills, Can Work
  
• A Book Of My Own

Visit ADB's NGO Center

Visit ADB's Microfinance site

Email this to a friend