The Current State of the Microfinance Industry and the Legal Issues and Challenges of Microfinance Institutions in Cambodia

This working paper explores and details the continual progression of the financial and banking sectors of Cambodia. It identifies and discusses the three distinct phases of evolution of microfinance in Cambodia – start-up, institutionalization, and commercialization. Today, Cambodia accounts for having one of the most developed microfinance industries in the world.

The paper also discusses some of the legal issues affecting the microfinance industry and the implication of some of the laws passed. It notes that due to the country’s cash economy, funds for lending are sourced from grant aids, foreign and local borrowings, and savings. It also notes that the microfinance sector’s future development should be considered on three levels – the macro level, the meso level and the micro level. Some of the other recommendations are:

• Developments in microfinance should not be time-bound or time-constrained, but should be prioritized and sequenced, and based upon expected impacts and absorptive capacities;
• Prioritize improvements in the provision of management information systems (MIS) for MFIs; and
• MFIs must equally strengthen institutional capacity to improve current operations and reach financial sustainability.