Report on the demand for agricultural microfinance products in CambodiaReport on the demand for agricultural microfinance products in Cambodia

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Introduction

This paper is consolidation of various researches made as part of the development of agricultural microfinance loan products in Cambodia. The AMF development is one of the components of the project entitled Improving Financial Inclusion and Social Impact towards Food Security in Southeast Asia. The assumption is that, as the MFIs reached out to the rural areas of Cambodia, it may be lending to agricultural producers using the standard microfinance features that are originally designed for micro-enterprise or livehood activities. The features of a traditional microfinance product may not fit with the seasonal nature of agricultural production. What usually happen is that farmers, or their wives when the MFIs lends only to women, will avail of loans for whatever purpose and then use them for agricultural production.

One of the main reasons for success of microfinance as a financial delivery machanism is the features of its loan product. Income-generating livehood activities with fast turn-over of cash are aligned with the small and frequent repayment feature of microfinance. It also enables the loan staff to regularly monitor and supervise the borrower, ensuring that he or she cab repay back on time. Because of the effectiveness of this methodology, most MFIs have adopted it in its entirety. An ordinary MFI will thus offer group loan with the traditional loan features and group accountability. After some time, when it has mobilized bigger number of borrowers graduating from small loans, individual loans are granted with corresponding real estate collateral.

As the market matures, it will become evident that borrowers will need not just the one-type-fits-all loan product. A more purpose-oriented loan product will emerge based on the needs of the developing economic condition of the borrowes. Loans for production or income-generating activities may take precedence, but social needs, school fees, house repairs and other expenses that may not necessarily earn income. In addition, making differentiation on the loans for income-generating activities is considered as an effective risk management practice….