AID EFFECTIVENESS INITIATIVE

COUNTRY-LEVEL

EFFECTIVENESS AND ACCOUNTABILITY REVIEW

CAMBODIA

January 2005

Mark FlamingEric Duflos

Alexia LatortueNina Nayar

Jimmy Roth

TABLE OF CONTENTS

LIST OF ACRONYMS ............................................................................................................................ iv

ACKNOWLEDGMENTS ........................................................................................................................... v

MAP OF CAMBODIA ............................................................................................................................ vi

EXECUTIVE SUMMARY ......................................................................................................................... 1

I. BACKGROUND .............................................................................................................................. 3

II. OVERVIEW OF MICROFINANCE IN CAMBODIA ............................................................................. 5Evolution of Cambodian Microfinance ...................................................................................................... 5

III. GAP ANALYSIS OF THE CAMBODIAN MICROFINANCE INDUSTRY ................................................. 8Micro-level Gap Analysis ........................................................................................................................... 8 Meso-level Gap Analysis............................................................................................................................10 Macro-level Gap Analysis ......................................................................................................................... 11

IV. DONOR EFFECTIVENESS: STRENGTHS AND WEAKNESSES ......................................................... 13Strengths .................................................................................................................................................... 13Weaknesses ................................................................................................................................................ 14

V. RECOMMENDATIONS .................................................................................................................... 16Donor Responses to Industry Gaps: Recommendations .......................................................................... 16Micro Level ............................................................................................................................................... 16Meso Level ................................................................................................................................................ 18Macro Level ............................................................................................................................................... 19Donor Effectiveness Recommendations .................................................................................................... 20

ANNEXES ........................................................................................................................................... 23Annex 1. Summary of Donor Recommendations ................................................................................... 23 Annex 2. Consolidated Profile of Microfinance Activities .................................................................... 24 Annex 3. Summary of Donor and Investor Support to the Cambodian Microfinance

Industry ....................................................................................................................................26 Annex 4. List of Persons Consulted ........................................................................................................29Annex 5. MFI Recommendations to Donors .......................................................................................... 34 Annex 6. List of Documents Consulted .................................................................................................. 35

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ACRONYMS

ABC Association of Banks of CambodiaAsDB Asian Development Bank AFD Agence Française de Développement AMK Angkor Mikroheranhvatho KampucheaAusAID Australian Agency for International DevelopmentCCSF Cambodia Community Savings Fund CCRD Cambodian Committee for Rural DevelopmentCEB Cambodia Entrepreneur Building CGAP Consultative Group to Assist the Poor CLEAR Country-Level Effectiveness and Accountability ReviewCMA Cambodian Microfinance Association CRS Catholic Relief ServicesCWS Church World Service DFI Development Finance InstitutionEC European CommissionEMT Ennatien Moulethan Tchonnebat (now re-named AMRET)GRET Groupe de Recherche et d’Échanges Technologiques GTZ Gesellschaft für Technische ZusammenarbeitIFAD International Fund for Agricultural Development IFC/MPDF International Finance Corporation/Mekong Private Sector Development FacilityIFC International Finance CorporationILO International Labour Organization IMF International Monetary Fund IT Information TechnologyKfW Kreditanstalt für Wiederaufbau MFI Microfinance InstitutionMIS Management Information SystemNBC National Bank of Cambodia NGO Nongovernmental OrganizationRDB Rural Development BankRGC Royal Government of Cambodia Sida Swedish International Development AgencyTPC Thaneakea PhumUNDP United Nations Development ProgrammeUNICEF United Nations Children’s FundUSAID United States Agency for International DevelopmentUSAID/DCA USAID Development Credit AuthorityWB World Bank

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ACKNOWLEDGMENTS

The CLEAR team wishes to thank all the people who dedicated their time to participating in thereview. We especially appreciate their willingness to meet with us, often more than once. From thedonor community, Jacco Minnaar, Adam Sack, and Karla Quizon from the International FinanceCorporation/Mekong Private Sector Development Facility; and Didier Grebert from Agence Françaisede Développement gave us invaluable support in preparing and conducting our mission. Tal Nay Imand Phan Ho from the National Bank of Cambodia gave us excellent guidance from the perspectiveof the Cambodian government. Bun Mony from Cambodia Entrepreneur Building, a prominentCambodian microfinance institution, was instrumental in helping us mobilize microfinance practitionersin the country.

Special thanks also go to Peter Kooi, of the United Nations Capital Development Fund, and HeatherClark and Johann-Friedrich Ramm, consultants, who provided excellent insights throughout thereview. Hannah Siedek and Brigit Helms of the Consultative Group to Assist the Poor helped usprepare the mission and edit this document. The World Bank resident mission kindly hosted us onmore than one occasion. Finally, we would like to extend our heartfelt thanks to Vutheary Kong, whomanaged the complex logistics of the exercise. The welcome and kindness of our hosts went wellbeyond professionalism, for which we are deeply thankful.

January 2005

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vi

MAP OF CAMBODIA

106°104°

10°

12°

14°

Kâmpóng Trâbêk

MimotSnuol

Srê Rônéam

Chhlong

Tônlé Bet

Prêk Kák

SandanSâmbor

Phum Tani

Tuk MéasVéal Rénh

Kompong Sem

Sre Umbel

Phumi Lamdam

Kêb

Moung

Pailin

Poipet

SamrongCheom Ksan

Rovieng

Boung Long

Virachei

Siem Pang

Chbar

Srê Khtum

Kâmpóng Spœ

Takêv

Ta Khmau

Kâmpôt

Svay Rieng

Prey Vêng

Kâmpóng Cham

Kâmpóng Thum

Kâmpóng Chhnang

Siemréab

Batdâmbâng

Pouthisat

Krong Kaôh Kong

Sisophon

Phnum Tbêng Méanchey

Stœng TrêngLomphat

SenmonoromKrâchéh

Phnom Penh

Tonle Sap

Gulf of Thailand

South China SeaDao Tho Chu (Vietnam)

Quan Dao Nam Du

Hon Rai

Dao Phu Quoc(Vietnam)

Koh Tang

Koh Wai

Koh Rong

Ko Kut

Ko Chang

ThailandLaos

Vietnam

CAMBODIA CLEAR—EXECUTIVE SUMMARY

A Country-Level Effectiveness and Accountability Review (CLEAR) took place in Cambodia inOctober 2004 to analyze donor effectiveness in supporting microfinance. It concluded that, over thepast decade, donors have achieved remarkable success in building commercially oriented micro-finance in Cambodia. As of June 2004, the leading microfinance providers were ACLEDA Bank, ninelicensed microfinance institutions (MFIs), and 28 registered nongovernmental organizations (NGOs).Together, these institutions held an outstanding loan portfolio of US$ 77 million and providedservices to almost 400,000 borrowers in virtually every province of the country.

Not only is microfinance flourishing, with a large number of promising retail institutions, but it isarguably the most sophisticated component of the national financial system. Microfinance inCambodia, however, is almost completely focused on the provision of credit.

Donor successes in Cambodia to date can be attributed to a shared vision of a commercial micro-finance industry characterized by sustained deployment of skilled technical expertise; performance-based contracts; highly effective support to the Cambodian government in building a regulatory andsupervisory framework conducive to pro-poor financial institutions; and the ability to alter fundingstrategies as the industry grew and matured.

Today, the challenge for the donor community working in Cambodia is to support the successfulintegration of microfinance into the national financial system. Although crucial gaps exist at all threelevels of the financial system (micro, meso, and macro), the meso level requires the most urgentattention, both to consolidate retail institutions and to promote transparency. Not every donor can orshould work at all three levels of the financial system. They are encouraged to support activities basedon their own comparative advantage.

At the micro level (retail financial providers), donors are encouraged to leave capital funding toprivate investors and concentrate on providing top-quality technical assistance to existing promisinginstitutions. Joint donor support of new product development (especially savings services) andinnovations by strong existing institutions is recommended, although such funding should beimplemented with a clear exit strategy. Support of credit components and weak financial serviceproviders should be avoided.

At the meso level (e.g., skilled technical service providers, auditors, credit bureaus, etc.), donors areencouraged to support a commercially based wholesale capital market for microfinance, develop localtechnical expertise, support the institutional growth of the Cambodian Microfinance Association, andfacilitate the exchange of debtor information among MFIs (with the ultimate goal of creating a creditbureau).

At the macro level (e.g., government policy and regulation), donors are encouraged to concentrate onproviding sustained technical assistance to the Bank Supervision Department of the National Bank ofCambodia—maintaining close coordination to avoid sending conflicting messages to the government.Donors could also support the development of a national payment system infrastructure, train judgesin secured-transactions law, propose modifications to the tax system to remove disincentives for smallsavings accounts, and work with the government to develop a legal status for profit-making NGOs.

Finally, donors need to improve their own internal and collective effectiveness. They are encouragedto codify and use accepted principles for microfinance funding in Cambodia, invest in staffdevelopment (including permanent Cambodian staff, maintain performance-based management ofmicrofinance programs, and develop common reporting standards for MFIs. They are also counseledto expand knowledge management, for example, by creating mechanisms that capture existinginstitutional knowledge of Cambodian microfinance, and share it with staff, other donors, theindustry at large, etc. Donors should also translate good-practice microfinance publications intoKhmer and encourage staff to participate in local and donor knowledge networks.

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I. BACKGROUND

Early in 2002, the Consultative Group to Assistthe Poor (CGAP), and a group of ministersand heads of leading development agencieslaunched a unique aid effectiveness initiativeusing microfinance as a test case. In theinitiative’s first stage, April 2002–November2003, it sponsored the Microfinance DonorPeer Reviews of 17 bilateral and multilateraldevelopment assistance agencies, which includ-ed three field visits. The Peer Reviews helpeddonor agencies look at themselves in a mirrorand focus on what they could most directlyinfluence: their own procedures, processes,practices, and systems. Top management andstaff of the participating agencies appreciatedthe frank and actionable recommendations ofthe review teams. The 17 agencies are currentlyimplementing these recommendations, withpromising results.

The peer-review exercise culminated in a high-level meeting in February 2004, “LeveragingOur Comparative Advantage to Improve AidEffectiveness,” at which the lessons learnedfrom the reviews were synthesized, and stepsfor further collective action were discussed.Following the meeting, the 17 agencies issueda joint memorandum in which they endorsedfive core elements of donor effectiveness inmicrofinance (the “aid effectiveness star”):(1) strategic clarity, (2) strong staff capacity,(3) accountability for results, (4) relevantknowledge management, and (5) appropriateinstruments. The agencies also committed to afour-step program, giving CGAP and theirrespective organizations a mandate to deepentheir aid effectiveness work.

In response, the CGAP operational teamcollaborated with several CGAP memberdonors to design a second stage of the aid effec-tiveness initiative: Country-Level Effectivenessand Accountability Reviews (CLEARs). Theseare not comprehensive sector studies, but ratherfocus on strategic issues relevant to donoreffectiveness. The CLEARs emphasize donorsystems, communication flows, and practicesagainst the backdrop of building financialsystems that work for the poor. They strive

to help donors identify gaps in the financialsystems in the countries where they work andto design interventions that build on theirrespective comparative advantages. CLEARsalso aspire to motivate donors to improveinternal procedures and systems so they canwork more effectively with others in the field.

CLEARs bring donor aid effectiveness one stepcloser to field operations and stakeholders, suchas national governments and practitioners, whocooperate closely with donors at the countrylevel. The reviews incorporate three additionalelements of donor effectiveness that are particu-larly relevant to country-level operations: (1) anagency’s influence and clout in a given country;(2) its commitment to collaboration; and (3)its responsiveness to local stakeholders. SixCLEARs are planned between October 2004and December 2006.

The first CLEAR took place in CambodiaOctober 3–24, 2004. A review team—comprised of Jimmy Roth of the InternationalLabour Organization (ILO); Mark Flaming andNina Nayar, consultants; and Eric Duflos andAlexia Latortue (CGAP) spent a total of 11person-weeks in the country. The team inter-viewed over 110 people representing a broadcross-section of stakeholders, from governmentofficials to microfinance institution (MFI)managers and staff to representatives of thefull spectrum of donor agencies and donormicrofinance projects. In addition to holdingindividual interviews, the team distributedquestionnaires, organized focus groups, readreports and literature on Cambodian micro-finance, and made telephone calls to keyinformants outside the country.1 During twomeetings that took place in Phnom PenhOctober 21–22, 2004, the team briefed all stake-holders on its initial findings.2

The review team and CGAP are available todiscuss the recommendations outlined in thisreport in more detail, as well as to support donoragencies in their implementation. Follow-upsupport is envisioned at the country level forboth joint initiatives and individual agency

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__________________________1 See annexes 4 and 6 for further details.2 See www.cgap.org/docs/clear_cambodia_presen.pdf

actions and at the headquarters level to reinforcechanges suggested by the peer reviews.

This report presents a brief overview of theevolution of the Cambodian microfinanceindustry (Section II), an analysis of gaps in themicrofinance industry (Section III), an analysis

of the strengths and weaknesses of donoreffectiveness (Section IV), and concreterecommendations on how donors can bestrespond to existing gaps in the pro-poorfinancial system of Cambodia and improve itsoverall effectiveness (Section V).

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II. OVERVIEW OF MICROFINANCE

IN CAMBODIA

Cambodia still suffers from the legacy of 20years of civil unrest (1970–90). During thatperiod, a significant number of educatedCambodians fled the country, and governmentstructures were not fully operational, if theyexisted at all. The social and economic infra-structure of the country was virtually destroyedby the Khmer Rouge. Today, Cambodia is oneof the poorest countries in the region: 36percent of its 13.4 million citizens live belowthe national poverty line, and 20 percent ofhouseholds are headed by a female.3

Following the Paris Peace Accords of 1991,donor funds for reconstruction began floodinginto the country. In the challenging post-conflictcontext of Cambodia, microfinance was onearea where donors achieved remarkable successin close partnership with private-sector actors,civil society, and the government. In fact, theaccomplishments of microfinance in the countryserve as an emerging model for institutionalgovernance, transparency, and public-sectorregulation of a privately operated industry.Cambodian MFIs have now attracted foreigninvestors, which are playing an important rolein shaping international perceptions of theinvestment climate in the country.

The financial and banking sector were destroyedby the Khmer Rouge regime, which abolishedmoney for a number of years. In the 1990s,Cambodia’s banking sector went from a systemlimited to a single public bank to a two-tieredbanking system that separated the functions ofthe central bank from commercial banks. TheRoyal Government of Cambodia (RGC) intro-duced banking regulations in 1999 and a bankrestructuring program in 2000. As a result,many banks were liquidated. (Thirty-twoinstitutions were consolidated into 19). Today,17 banks remain in operation, including onestate-owned commercial bank, three foreign

bank branches, 10 local banks, and three spe-cialized banks (one of which is state owned).4

With one notable exception—ACLEDABank—these banks are highly liquid andconservative and serve a narrow, elite clientele.

Evolution of Cambodian Microfinance

Initiatives that began as unsustainable, donor-financed credit projects in the 1990s werecollectively transformed by donors, interna-tional implementing partners, and local stake-holders into a sector led by profitable, regulatedfinancial institutions. In just one decade, micro-finance evolved from a series of small, isolatedinitiatives into what is arguably the most sophis-ticated part of the national financial sector. In2004, the main suppliers of pro-poor financialservices (ACLEDA Bank, licensed MFIs, andregistered NGOs) served close to 400,000borrowers—eight times more than in 1995.5

This evolution was marked by three phases thatreflected changes in the approach and behaviorof financial service providers, the government,and the donor community.

1990–1995: Start-up phase. The start-up phasebegan in the early 1990s, when multilateral andbilateral donors and international NGOs beganfinancing projects to deliver credit to poormicro-entrepreneurs.6 At that time, there was avacuum of functioning institutions, as well asgovernment oversight, in the financial sector.International NGOs—such as the Groupe deRecherche et d’Échanges Technologiques(GRET), Catholic Relief Services (CRS), andWorld Vision, together with some earlydonors, such as the United Nations Children’sFund (UNICEF), the International LabourOrganization (ILO), the United Nations

COUNTRY-LEVEL EFFECTIVENESS AND ACCOUNTABILITY REVIEW

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__________________________3 For national poverty data, see UNDP, Human DevelopmentReport 2004 (New York: UNDP, 2004). For data on female-headed households, see Mark Pickens, “Savings-Led andSelf-Help Microfinance in Cambodia: Lessons Learned andBest Practices” (Phnom Penh: PACT, 2004).

__________________________4 See RGC and Asian Development Bank, “The FinancialSector Blueprint for 2001–2010” (Phnom Penh: RGC andAsDB, 2001), and IMF, “Selected Issues” (Washington,D.C.: IMF, March 2003).5 Cambodian Committee for Rural Development (CCRD)and Rural Development Bank (RDB) of Cambodia,1995–2002 (Phnom Penh: Cambodia). The figures cited bythese sources do not include an estimated 50,000 additionalclients served by nonregistered NGOs in Cambodia.6 The term “nongovernmental organization,” or NGO, iscommonly used in Cambodia to refer to private, not forprofit associations.

Development Programme (UNDP), AgenceFrançaise de Développement (AFD), and theUS Agency for International Development(USAID)—played a significant role in launchingthe first microfinance programs in Cambodia.

Most of these early initiatives were financedas credit components within integrated ruraldevelopment programs. They used a wide rangeof microcredit delivery methodologies, rangingfrom individual loans to solidarity groups tovillage banks and self-help groups. Early on, afew of these actors demonstrated an interest increating sustainable financial services for poorpeople.

1995–1999: Institutionalization. This phasewas characterized by the separation of creditcomponents from integrated program structuresand the institutionalization of NGO microfinanceactivities. Helping microfinance providers attainfinancial sustainability became the primaryobjective. The supporters of microfinance inCambodia started meeting regularly during thisperiod to share information, align objectives,and define a common vision for the sector.NGOs formed their own forum, while theCambodian Committee for Rural Development(CCRD), a government body funded by donors,provided a platform for broader discussions.Also at this time, the government created theRural Development Bank (RDB), a wholesalelender to emerging MFIs.

On the policy front, the International MonetaryFund (IMF) and the Asian Development Bank(AsDB) supported the RGC to formulate acomprehensive macroeconomic and structuralreform program, including financial systemmodernization and corresponding legislation.The Central Bank Law of 1996 established alegal foundation for a modern central bank. TheLaw on Banking and Financial Institutions of1999 created a legal framework for a broadrange of financial service companies, withappropriate mechanisms for licensing, regula-tion, and supervision. Given these changes, theemerging microfinance community encouragedthe CCRD to allow the National Bank ofCambodia (NBC) to assume responsibility forregulating and supervising microfinance.

1999–Present: Commercialization. The successof NGOs in providing credit to the poor andlargely rural population encouraged the NBC toissue regulations establishing a special licensefor MFIs and a registry for NGOs.7 The issuanceof new prakas (regulations) in 2000 and 2002marked a move toward the commercialization ofmicrofinance and its integration into the formalfinancial system of Cambodia.

The vision of integrating microfinance into theregulated financial system arose out of a consul-tative process among the RGC, the NBC, andleading MFIs. In October 2000, the industryleader, ACLEDA, transformed from an NGOinto a specialized microfinance bank with thesupport of its founding donors and new institu-tional investors. (Its change in status followedthe creation of a new MFI license in January2000.) The transformation of ACLEDA Bankcreated an important precedent for other finan-cial providers. During this phase, sociallyresponsible investors and development financeinstitutions (DFIs) replaced the donors that hadfinanced the start-up and institutionalization ofNGOs, which until this stage had served as theirprimary funding and advisory partners. Nine ofthe leading NGOs subsequently transformedinto licensed institutions with the assistance oftheir original donors and new investors (whichcontributed capital and governance).

As of June 2004, the pro-poor financial sector inCambodia was led by ACLEDA Bank, followedby nine licensed MFIs (10 since December2004), and 28 NGOs registered with the NBC.(For portfolio and outreach figures, see table 1.)The registered NGOs vary in terms of outreach,capacity, and commitment to sustainability, andonly a few currently possess the resources tobecome licensed MFIs. In addition, a plethora ofsmaller NGOs and other community-basedorganizations currently provide microfinanceservices, including an estimated 60 NGOs thatare not registered and a few incipient mutualand savings associations.

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__________________________7 Royal Government of Cambodia, Prakas No. B700-06,“On the Licensing of Micro-Finance Institutions”; andPrakas B702-49 Pror Kor, “On Registration and Licensingof Microfinance Institutions” (Phnom Penh: RGC, 2002).

Canadia Bank recently entered the market toprovide wholesale financing to MFIs and, withdonor support, is also lending to small enter-prises. With the exceptions of ACLEDA Bank,the RDB, and to some extent, Canadia Bank,formal banks do not yet serve the poor. Severalforeign private investors (e.g., SIDI, Triodos,and Horus), however, actively participate in thecountry’s pro-poor financial sector.

Beyond 2004: Financial systems integration.Microfinance stakeholders have made remark-able strides in advancing a commercialapproach to expand pro-poor financial servicesin Cambodia. Today, ongoing commitment anddecisiveness from all stakeholders is needed toensure that poor people continue to be the focusof Cambodia’s financial system as it matures. Inparticular, donors will have to determine theirrole in a private-sector, commercial model forproviding financial services to the poor.

COUNTRY-LEVEL EFFECTIVENESS AND ACCOUNTABILITY REVIEW

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Item 1995 1997 2002 2003 2004(June)

Lending Portfolio

ACLEDA 1,157,093 5,860,578 27,461,933 40,572,670 49,711,076

Licensed MFIs n/a n/a 5,637,792 12,552,666 19,019,744

Registered NGOs n/a n/a 12,791,441 10,633,628 8,144,821

Total Loan Portfolio 3,000,000 15,000,000 45,891,166 63,758,964 76,875,64

Total Borrowers 50,000 225,030 327,935 374,056 392,892

Savings Portfolio

ACLEDA n/a n/a 5,678,728 13,160,685 21,603,048

Licensed MFIs n/a n/a 143,433 795,065 1,124,129

Registered NGOs n/a n/a 730,076 811,475 138,074

Total Savings

Portfolio n/a n/a 6,552,238 14,767,225 22,865,251

Total Depositors n/a n/a 107,120 133,628 155,137

Table 1. Microfinance Portfolio and Outreach in Cambodia for Selected Years (in US dollars)

Note: The 1995–1997 data were compiled by consultant Heather Clark, on the basis of data provided by the CCRDand RDB, and includes estimates of all known microfinance programs. Data from 2002 to 2004 were derived fromthe NBC “2003 Network Information Report” and include only licensed MFIs and registered NGOs. Insufficientinformation was available for 1999. Prior to 2000, savings accounts were negligible, consisting only of mandatorysavings. As of 2002, savings numbers reflect both mandatory and voluntary savings. ACLEDA figures include allloans (microloans, small loans, and medium-sized loans).

III. GAP ANALYSIS OF THE CAMBODIAN

MICROFINANCE INDUSTRY

Integrating microfinance fully into the formalfinancial system requires working at all threelevels of the financial system: micro, meso, andmacro. While retail institutions (the micro level)are the backbone of the financial system, micro-finance providers also require support services(the meso level) to train their staff, improvetheir systems, and become more transparent.Institutions evolve well in a conducive environ-ment (the macro level) when policies, regula-tions, and supervision set appropriate rules ofthe game and create incentives.

A financial systems approach takes all threelevels into consideration. This approach hasspecial implications for donors who aspire toassist the ongoing development of microfinancein Cambodia. Historically, donors have concen-trated their support at the micro and macrolevels. The meso level, however, will assume anincreasingly important role as the financialsystem matures. Looking forward, donors areencouraged to reflect on their role in an increas-ingly sophisticated commercial, regulatedfinancial industry.

The following sections identify the main gaps ateach level of the financial system that requirefurther donor support.

Micro-level Gap Analysis

The lack of strong retail, pro-poor financialinstitutions is a significant challenge in mostcountries. Cambodia is an exception: it alreadyhas a critical mass of promising institutions.These financial service providers have

considerable differences in capital and funding,management capacity, governance structure,and supervision. In the future, it is possible thatCambodian finance could experience institu-tional failure and the consolidation common torapidly growing industries. Retail institutionsindifferent to financial sustainability couldpotentially create unhealthy competition andmarket distortion by undercutting sustainableretailers. However, well-managed growth andimproved management capacity of emerginginstitutions will strengthen competition and pro-vide clients with better choices.

The donors that have played a key role at themicro level in Cambodia are Agence Françaisede Développement (AFD), the AustralianAgency for International Development (AusAID),the European Commission (EC), Gesellschaftfür Technische Zusammenarbeit (GTZ),International Labour Organization (ILO),International Finance Corporation (IFC),Kreditanstalt für Wiederaufbau (KfW), UnitedNations Development Programme (UNDP),and United States Agency for InternationalDevelopment (USAID). Strengthening the retaillevel will depend, in part, on the ability ofdonors to help microfinance stake-holdersaddress the six challenges listed below.

Lack of savings services. The developmentof savings services has lagged behind creditservices. As of June 2004, the combineddeposits of MFIs and registered NGOs repre-sented less than 5 percent of their lending port-folios. There were two major exceptions tothis rule: Cambodia Community Savings Fund(CCSF), Cambodia’s largest savings-led micro-finance program (supported by AusAID), andACLEDA Bank.8

ACLEDA Bank offers attractive depositservices and uses savings to fund 43 percentof its lending portfolio. CCSF is a promisingmodel, but the NBC has not yet developedregulations for savings-based institutions that

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Box 1. Three Levels of the Financial System

Micro: Retail financial service institutions (e.g.,NGOs, banks, MFIs, cooperatives) and other suppliers(e.g., money lenders, agricultural traders, etc.)

Meso: Service providers and industry infrastructure(e.g., networks, trainers, auditors, informationtechnology providers, wholesale financing facilities,credit bureaus)

Macro: Policy, laws, and the regulation and super-vision framework (e.g., banking regulations, interest-rate policy)

__________________________8 CCSF is an apex institution for 39 member-owned andmember-operated savings banks with 14,673 participants inthe Battambang and Banteay Meanchey provinces. Thesesavings banks have from 350 to 1,400 members. See MarkPickens, “Savings-Led and Self-Help Microfinance inCambodia.”

protect depositors. The weak level of voluntarysavings mobilization has two major negativeconsequences. Poor people do not have accessto formal deposit services, a service equally asimportant—if not more so—than credit for poorhouseholds, especially in rural areas. Savingsmobilization is also an undeveloped sourceof local funding that could both finance theexpansion of financial institutions and instillinstitutional discipline.

The lag in savings services is partly explained bythe fact that microfinance organizations couldaccept voluntary savings from their membersonly after they became licensed MFIs, an insti-tutional status that was established in 2000. Todate, formal banks have not offered significantdeposit services to poor clients. The formalbanking sector, however, has only recently comeinto existence and targets up-market clients.Informal self-help groups, such as those devel-oped by Church World Service (CWS), do not yetplay a predominant role in the financial sector.

Insufficient technical capacity for growth.Most microfinance providers lack the full rangeof skills required to meet the increasinglysophisticated challenges of a growing market.These challenges apply even to market leaders,such as ACLEDA Bank and several licensedMFIs, that have visionary and talented leaders.The principal areas in which institutions needongoing support are human resource develop-ment, information technology (IT), managementinformation systems (MIS), internal control sys-tems, board development, product innovation,and organizational structure.

Undeveloped funding sources. Microfinanceproviders are highly dependent on funding fromforeign donors and social investors, despite the

high liquidity of the Cambodian banking sector.Moreover, most commercial bank loans aremade in US dollars, whereas poor clientsdemand local currency loans. The typicaldomestic funding markets for financial institu-tions are undeveloped in Cambodia. Domesticsavings is an emerging market, and markets forissuing commercial paper, bonds, and equity donot yet exist. Finally, attempts to create privateinstruments that would provide wholesale loansto MFIs and NGOs are still evolving. The RDBhas been able to meet the demand of MFIs, anda private model is still in the embryonic stage.Lastly, with the exception of Canadia Bank,most commercial banks have not yet shown aninterest in funding MFIs and are not lendingmuch in general.

Untested governance and ownership structure.As the industry expands, the model of institution-al ownership and governance created for the firstprivately owned MFIs in the country will face anumber of challenges. Strong governance is cru-cial to attract equity and capital, which are key tosustainability of Cambodian microfinance. Anumber of issues still need to be addressed:

l Registered and unregistered NGOs do nothave owners with commercial incentives orresponsibility; in fact; it is unclear who theowners of these organizations are.

l To dispose of accumulated assets in NGOsthat became licensed MFIs, donors trans-ferred ownership of their original grantseither to the government or to the NGOs thatremained in existence after transformation.Transfer of ownership to the government,however, introduced public-sector influenceinto a private-sector industry without a clearexit strategy.

l Cambodian owners have a critical role to play in ensuring good governance, yet, withfew exceptions, they have little experience inthis role.

l The composition of shareholders in mostCambodian MFIs means that owners havedifferent orientations, priorities, and knowl-edge regarding private financial institutions.It is unknown how these interests will con-verge, especially in times of crisis.

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Box 2. Cambodian Institutions OfferingMicrofinance in 2005

Banks: 3, ACLEDA Bank, Rural Development Bank,Canadia Bank

Licensed MFIs: 10, AMK (Concern), AMRET, CEB,Hattha Kaksekar, CREDIT, PRASAC, Seilanithih,TPC, Tongsang, Vision Fund

Registered NGOs: 28, including CCSF, MAXIMA,and CREDO

Other NGOs: 60

Uneven playing field. Competition amongfinancial institutions is not yet mature forseveral reasons. First, there is a large gapbetween the market leader, ACLEDA Bank,and the rest of the pro-poor financial institu-tions. The true forces of competition—whichpromote product innovation, decrease prices,and improve services—are not yet fully in playin most regions of Cambodia.

Second, banks, licensed MFIs, registered andunregistered NGOs, and mutual savings andcredit associations are not held to the same setof regulations, incentives, and expectations bytheir owners. For example, banks and licensedMFIs are compelled to make good loans, setinterest rates that maintain profitability, andinvest in good management systems. Othertypes of institutions are not held accountable tothe same performance standards.

Finally, some institutions are unconcerned withsustainability and may charge unsustainableinterest rates, allow their portfolios to dete-riorate, and thus pollute the market.

Poor service delivery in remote areas. Fewmicrofinance providers have extended theirservices to remote areas. Little is knownabout potential demand for financial servicesthere, especially for savings and other non-credit services.9 Many people who wereinterviewed by the review team questionedwhether the rural economy was sufficientlyvigorous to make credit viable, that is,whether remote households could generatesufficient surpluses to repay principal andinterest. Moreover, it is important to distin-guish between remote areas (i.e., areas withsparse populations and poor access to finan-cial services) and rural areas (i.e., areas out-side urban centers). Contrary to broad localperceptions, the review team believes thatmicrofinance providers have achieved remark-able coverage outside Phnom Penh. At theend of 2003, for example, ACLEDA Bankhad 97 branches in 15 provinces, with plansto expand to all provinces, while MFIs and

registered NGOs provided services in 16 of21 provinces.10

Meso-level Gap Analysis

Meso-infrastructure is critical to support theconsolidation and expansion of retail providersand to promote transparency in the microfinanceindustry. In Cambodia, the InternationalFinance Corporation/Mekong Private SectorDevelopment Facility (IFC/MPDF) and AFDhave been the most active at this level, with theAsDB, IFAD, ILO, and GTZ also involved on amore limited basis. For example, the IFC/MPDFsupported a banker’s training institute; GTZ, ILO,and AFD jointly developed a multicurrency“Micro Banker” accounting and portfolio soft-ware package; and AsDB, AFD, and IFADfunded the RDB. The private sector is also sup-plying important services via business schoolsand audit firms. Despite these initiatives, themeso level is the most undeveloped part of thefinancial system, a pattern common in financialsystem development. Four specific challengesof this level are discussed below.

Lack of debtor information exchange betweenfinancial institutions. No formal mechanismexists for MFIs to exchange information onborrowers. The prevailing interpretation of thebank secrecy law is that it prohibits the creationof a credit bureau. Such information would beparticularly useful in Cambodia because clientborrowing from multiple institutions hasbecome widespread, especially in urban areas—behavior that can lead to over-indebtedness anddefault. MFIs are thus deprived of valuableinformation that could help them identify badclients and compensate for the difficulties andcost of noncollateral-based lending.

Promising credit bureau initiatives do exist.Certain banks, for example, are planning to shareinformation on borrowers through the Associationof Banks of Cambodia (ABC). Certain MFIsalso share information informally at the region-al level through branch office networks.

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__________________________9 A forthcoming study on rural savings by the CanadianCooperative Association will provide important data on thistopic.

__________________________10 ACLEDA Bank, 2003 Annual Report (Phnom Penh:ACLEDA Bank, 2004); and National Bank of Cambodia,“Network Information by Province” (Phnom Penh: NBC,September 2003).

Lack of industry-wide technical serviceproviders. The supply of private-sector, fee-based support services for the financial sys-tem, especially for microfinance, is limited.Financial institutions are forced to use expen-sive services from abroad on an individualbasis, or depend on donors to furnish neededservices. Subsidized technical assistance pro-vided by donors to individual financial institu-tions can, however, undermine fair competitionin a commercial market.

No local Cambodian firm specializes inMIS for MFIs. Nor is it likely that the marketwill become large enough to support one, leav-ing most institutions to struggle individually tofind information management solutions. Inaddition, very few firms in Cambodia are able todeliver quality accounting and auditing services,limiting the ability of MFIs to improve theirtransparency and control systems. The absenceof audit and accounting capacity also deprivesthe national banking supervisor and insti-tutional owners and stakeholders of a necessarytool to maintain the transparency and disciplineof all financial institutions, be they MFIs orbanks. Without transparency, it is difficult toprotect clients, attract investors, or improveperformance.

Young industry association. Microfinancepractitioners do not yet have a recognized,formal forum to present their interests. LicensedMFIs, which are considered part of the financialsystem, are legally represented by the ABC.However, these MFIs have created a separateCambodian Microfinance Association (CMA)to meet their specific needs. CMA member andadvocacy services are undeveloped, deprivingMFIs of a means to formally exchange informa-tion, access cheaper services, and advocate withdonors and the public sector as a unified voice.

Inadequate wholesale financing mechanism.The initial experience with wholesale financingmechanisms in Cambodia was with the RuralDevelopment Bank (RDB). Created as a publicvehicle for providing credit to the rural sector,the suitability of the RDB to engage in thecommercial microfinance market is highlyquestionable. Many individuals interviewed forthis review argued that RDB was hampered by

cumbersome administrative procedures andconfusion between its wholesale and retail role.The poor track record of state-owned banksglobally in providing credit to the poor suggeststhat retail lending should be left to the privatesector. A very recent and promising initiativeis the entrance of Canadia Bank into the whole-sale market,11 with guarantees and technicalsupport provided by the IFC and the USAIDDevelopment Credit Authority (USAID/DCA).Other banks have also expressed interest in thisfacility.

Macro-level Gap Analysis

The “Financial Sector Blue Print,” developedby the Cambodian government with AsDB,encapsulates a comprehensive vision for theCambodian financial sector. Getting regulationand supervision right will protect the financialsoundness of institutions and client deposits,and ensure the integrity of the financial system.The regulatory and supervisory framework formicrofinance in Cambodia is one of the mostconducive in the region and offers a viable struc-ture for the emerging microfinance industry. Inaddition to AsDB, AFD and the IMF have alsoplayed a positive role in creating this environment.

Inherent structural risks. Cambodian micro-finance faces some specific risks that derivefrom its organizational structures:

l Unlimited liability exposure of any“influential shareholder” (owning morethan 20 percent of an institution’s capital)promotes fragmentation of ownership anddilutes the owners’ incentive to play anactive governance role.

l The low minimum capital requirement forMFIs promotes the creation of small, weakinstitutions that could potentially over-whelm the NBC’s supervisory capacity.(Conversely, banks, face very high capitalrequirements.12)

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__________________________11 As of October 2004, the bank had not yet processed anytransactions.12 The minimum capital requirement for a licensed MFI is250 million Cambodian riel, approximately equivalent toUS$ 62,500, compared to the US$ 13 million minimumcapital requirement for a commercial bank.

l The lack of systematic public disseminationof market information, such as a monthlybulletin with financial statements and per-formance indicators, reduces transparencyin the industry. Although transparency islargely a meso-level issue, it can be enhancedby the dissemination of information bysupervisory authorities.

Thin regulation and supervision capacity.NBC staff experience in regulating andsupervising microfinance is still quite recent. Atpresent, the regulator does not have sufficientcapacity and resources to manage an expandingmicrofinance industry. The banking regulator’sprimary mandate is to protect public depositsand the payment system. The tiny percentage ofsavings mobilized by MFIs (1 percent of thecommercial banking sector savings) necessarilylimits the resources that can be dedicated tomicrofinance. Yet industry expansion willrequire NBC involvement to guide the sectorand maintain sound standards. For example,the NBC faces the challenges and cost ofintegrating mutual savings and credit associa-tions into the regulated system, once theseinstitutions begin to reach greater numbers ofclients.

Lack of legal framework for NGOs. Nocomprehensive law in Cambodia governs thelegal organization of NGOs, which raises

serious issues of governance, especially forNGOs that are active in microfinance or otherincome-generating activities. (NGOs that func-tion as charities and rely exclusively on grantsand donations may have different issues.) Thequestion of who owns the NGOs that generateand reinvest profits is particularly relevant,because these owners can become shareholdersin licensed MFIs.

Lack of a payment system. The absence ofinfrastructure for cash transfers, clea rances, andsettlements increases the risks and costs associ-ated with market expansion, especially inremote areas. For the moment, ACLEDA Bankprovides these services in those areas where ithas a presence.

Weak framework for secured transactions.Cambodia lacks a legal and institutional frame-work for the use of land and moveable assetsto guarantee loans. Nor is its judiciary trainedin the execution of collateral-based lendingcontracts.

Tax burden on financial intermediaries. Theobligation of financial institutions to withholdtaxes on interest paid on deposits raises theadministrative costs associated with smallsavings accounts. The review team learned ofat least one licensed MFI that postponed itssavings program because of the high costsimposed by this obligation.

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IV. DONOR EFFECTIVENESS: STRENGTHS AND WEAKNESSES

This section highlights the main strengths andweaknesses of the donor community that sup-ports pro-poor financial services in Cambodia(although not all individual donors exhibit themin equal measure). Understanding these strengthsand weaknesses sheds light on some of the gapsthat remain in the financial system and indicatesareas donors can help move forward.

The CLEAR used eight elements of donor effec-tiveness to analyze donor actions and decisionsthat fostered or hindered the development ofmicrofinance in Cambodia. These elementswere strategic clarity, strong staff capacity,accountability for results, relevant knowledgemanagement, appropriate instruments, influenceand clout in the country, commitment to collab-oration, and responsiveness to local stakeholders.

Over time, most key donors involved in sup-porting microfinance in Cambodia (AFD,AsDB, IFC/ MPDF, GTZ, KfW, USAID, andUNDP) developed a unified vision of how theindustry should evolve. At its most successful,this shared vision allowed donors to helpentrepreneurial institutions grow and terminateineffective programs. Yet donors also exhibitedseveral weaknesses—notably, uncertainty abouthow best to work with the national government,foster diversity and depth of financial services,and exchange knowledge.

To complement the overall donor communityassessment, the review team completed briefindividual assessments of the major donors cur-rently active in the sector. These assessmentswill be submitted confidentially to AsDB, AFD,EC, IFC/MPDF, and KfW. Public disclosure ofthese assessments will be left to the discretion ofthe individual agencies. It should be noted thatthe amount of time that the review team spent inCambodia was insufficient to conduct individualassessments of all donors working in the country.

Strengths

Strategic commitment to commercial micro-finance, integrated into the financial system.Leading donors changed their initial strategy of

supporting credit components in integratedprojects to building formal, sustainable institu-tions. The supporters of ACLEDA Bank—KfW,UNDP, ILO, and USAID—provided a visionaryprecedent early in the development of the indus-try that facilitated the transformation of the NGOinto a commercial institution, by offering theright mix of technical and financial assistance.

Other donors, such as AFD, GTZ, and IFC/MPDF, also financed projects with the explicitobjective of creating financially sustainableinstitutions (e.g., Hattha Kasekar, AMRET—formerly EMT—CEB, and Selanithih). Thisstrategic commitment to commercial micro-finance was also integrated into the “FinancialSector Blueprint” funded by AsDB. In thisdocument, AsDB worked with the Cambodiangovernment to lay out a vision for the financialsector in 2010 emphasizing the importance ofdeveloping a sound, market-oriented financialsystem that offers services to Cambodians of alleconomic strata.

Timely and participatory support for theregulation and supervision framework.Cambodia is a case where coordinated donorwork on the regulatory regime facilitated theexpansion of microfinance. The success ofdonor interventions is noteworthy because workat this level requires a delicate mix of skills,influence, and vision. Donors helped build con-sensus among technical advisors, internationalNGOs, microfinance practitioners, and gov-ernment representatives on an innovative andinclusive regulation and supervision framework.

The CCRD, supported by UNDP and AFD,served as the platform for stakeholders’ earlyengagement with the NBC. Two donors—AsDB and AFD—provided technical leadershipin this area. AsDB provided technical and poli-cy support to create multitiered institutionaloptions within the regulatory framework andbolstered the supervisory capacity of the NBC.AFD’s experience at the retail level enabled it tohelp the NBC develop techniques to monitorsome of the first licensed MFIs.

Sustained deployment of specialized technicalexpertise. Donor-funded technical expertiseplayed a crucial role in fostering the emergenceand rapid growth of leading MFIs in Cambodia.

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Donors made this expertise available in numer-ous ways. Some offered specialized expertisein-house, such as the UNDP/ILO, which gavekey technical advice to ACLEDA Bank in itsearly years. Others contracted internationalservice providers with the appropriate micro-finance skills. AFD, for example, hired GRETto set up microfinance projects that eventuallybecame autonomous MFIs. Still other donorsenhanced the microfinance experience ofCambodian staff by sending them to trainingevents, such as the Microfinance TrainingProgram (in Boulder, Colo., USA) and otherdonor-sponsored trainings.

Insistence on performance-based management.Early proponents of creating a sustainable indus-try (AFD, GTZ, KfW, and USAID) set initialperformance standards that contributed to theprofessionalization of the industry. Most donorsinvolved at the retail level used performance-based contracts, both with financial institutionsand their implementing partners (e.g., GRET,Horus, CRS) and implemented monitoring andreporting systems to track performance againstgood-practice standards. Moreover, severaldonors took corrective, and often painful, actionsto address substandard performance and fraudwhen they encountered such problems.

Willingness to adapt. Key microfinance donorsin Cambodia understood their changing role ina maturing market. Accordingly, they helpedbroker relationships between internationalinvestors and the institutions they supported.USAID, KfW, and UNDP, for example,combined resources to simplify the transfor-mation of ACLEDA from a project into alicensed bank. Donors such as KfW helpedidentify development finance institutions andsocial investors to replace donors as investors innew, commercially oriented MFIs. To citeanother example, IFC/MPDF helped CEB attractShorecap and Triodos Bank as equity investors.With private capital now entering the market,donors are no longer lending to strong MFIs.

Weaknesses

Mixed messages on the role of the publicsector. Some donor practices have underminedthe division of roles between the public sector

(as regulator) and the private sector (as ownerand implementer). These practices contravenethe principles of the Cambodian government’s“Financial Sector Blueprint” and undermine thecommercial vision of the sector. Donors thattransferred ownership of donated funds to theRGC (to be invested in licensed MFIs in theform of subordinated debt) gave the publicsector de facto ownership of significant MFIshares.

It is unclear what will happen to this moneywhen the original donor projects end. If an MFIcloses, the legislation specifies that the govern-ment owns whatever money is available after allsettlements have been made. Donors also helpedcreate the RDB, a public wholesale facility,without fully assessing whether it was the mostefficient mechanism to fund emerging MFIs. Itsthree main donors, AsDB, AFD, and IFAD, didnot coordinate their views of whether the RDB’soptimal role was as a wholesaler or retailer.AsDB supported the wholesale role of the RDB,with conditions consistent with the regulationframework. The purpose and use of the AFDand IFAD financing is worrisome, however,because it seems to leave room for the RDB toprovide retail services.

Neglect of noncredit financial services.Donors in Cambodia, as elsewhere, havefocused overwhelmingly on a credit-orientedmodel of microfinance. AusAID’s support ofthe Cambodia Credit and Savings Federation(CCSF) and USAID’s funding of ACLEDABank are notable exceptions. Also, MFIs havereceived virtually no donor support to developother much-needed financial services, such astransfer payments and micro-insurance.

Lack of harmonized performance monitoring.Different donor reporting formats and cyclesimpose undue burden and high costs on micro-finance providers. Almost all NGOs and MFIsstruggle to comply with competing reportingdemands and brought this up as a critical issueduring a focus group convened by the reviewteam. Fulfilling the specific requirements ofdifferent donors also distracts boards of direc-tors from instituting performance reporting andinternal control systems that match an institu-tion’s own needs.

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Inadequate knowledge management. In general,donors in Cambodia have poor institutionalmemories and lack the culture and systems toexchange information regularly. Weak knowl-edge management undermines their ability todesign new programs based on past successesand failures. The frequent rotation of interna-tional staff also destabilizes the continuity oflong-term programs, a problem exacerbated bythe lack of permanent, professional Cambodianstaff. Donors are also not very good at dissemi-nating information to one another and to themicrofinance industry at large. They admittedduring the review that they do not systematicallydocument their experiences in microfinance andclassify much of the available information asconfidential.

Unsuitability of most donors to play aneffective governance role. Few donors have therequirements necessary for good governance ofprivate financial institutions: equity instru-ments, staff with board development skills andexperience, and proper incentives. Donor staffrotate frequently and rarely have private-sectorexperience. Their incentives may be skewedtoward disbursement and political considera-tions. Development priorities, such as narrowlyfocused targeting of specific populations or

geographic zones, may also encourage ortolerate substandard performance. Some ofthese challenges also apply to DFIs.

Lingering support for credit components inintegrated development projects. While creditcomponents in integrated programs havedecreased significantly in Cambodia, certaindonors, such as IFAD and the EC, still financethem. Credit components almost always distortthe market, which creates adverse consequencesfor sustainable institutions and the industry as awhole. Many stakeholders interviewed raisedthe case of PRASAC as an example of a creditcomponent that did not follow good practice.

While often designed with the best intentions,credit components rarely perform well becausethey do not benefit from specialist input, andbecause global program objectives generallyovershadow microfinance objectives, dilutingthe commitment to institutional sustainability.Given the general trend in donor programmingtoward sector-wide approaches, the risk ofcredit components reappearing in donor projectsis increasing. This programming trend is alsocausing the profile of country-office staff tobecome increasingly generalist, with an overalldecline in microfinance and other specifictechnical expertise.

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V. RECOMMENDATIONS

The dedication of enlightened Cambodians to ashared vision, combined with appropriate donorsupport, has resulted in a microfinance successstory. As the story continues to unfold, privateinvestors are prompting donors to reassess theirrole in the maturing microfinance market. In thefuture, the role of public donors needs to bemore strategic and will require more technicalexpertise and fewer capital injections. Donorswill have to identify their strengths vis-à-visprivate-sector actors and assess their compara-tive advantages beyond the retail level. As theline between microfinance and the formal finan-cial system blurs, successful donors are likely tooffer both financial system development skillsand a commitment to serve the poor.

This report includes two sets of recommenda-tions that build on donor strengths, address theirweaknesses, and respond to the gaps in the pro-poor financial system of Cambodia. The first setof recommendations offers donors guidance onhow to address the most important industry gapsat the micro, meso, and macro levels. (Textboxes identify the main characteristics neededfor donors to engage effectively at each level.)The second set of recommendations identifiesspecific actions donors can take to improve theirinternal and collective capacity to be effectivepartners to Cambodian practitioners and thenational government.

Donor Responses to Industry Gaps:Recommendations

The review team believes that donor support isstill needed at all three levels of the Cambodianfinancial system. The meso level, which remainsunderdeveloped, requires particular attention. Afew, specialized donors have contributions tomake at the macro level, but the micro levelshould be largely left to private and commercialactors, with the exception of technical assistance.

Micro Level

Strengthen promising existing institutions.Cambodia already has a plethora of organiza-tions (about 100) that offer some kind offinancial service to poor people, i.e., banks,

licensed MFIs, registered and nonregisteredNGOs, savings-led institutions, and others.Donor support of such institutions should belimited in scope, because these institutionsshould be preparing to operate on a fullysustainable, private basis. For each category,donors who wish to remain in the sector (KfW,AFD, and USAID have an advantage here)should adopt clear funding criteria. Institutionbuilding requires discipline; it means selectingsustainable partners that will deepen the marketthrough sound competition, as opposed to fund-ing target groups or encouraging weak entrants.

Before providing direct funding to any institu-tion, donors should ask themselves the follow-ing questions: Can private investors or privatebanks lend directly to the institution? Can anefficient wholesaler do so? What type of dis-tortion could result from the planned donorfunding?

Licensed MFIs. The bulk of outreach will likelycome from the existing ten licensed MFIs inCambodia. Donors should thus prioritize institu-tion building for these practitioners.

l Facilitate access, on a highly selective basis,to top-quality technical support in areas suchas governance, internal controls, and productdevelopment—all critical for managing thegrowth of market leaders (see also the meso-level recommendations).

l Donors can help MFIs link with domestic andinternational private capital, but they shouldleave capitalization to DFIs and socialinvestors, which are better equipped to investequity and play a governance role in licensedinstitutions. To facilitate such links, donorswill need appropriate contacts and staff toengage with financial-sector actors.

Registered NGOs. Some registered NGOsmight have the potential to become licensedinstitutions and reach scale. Others may merge,and a small number may deserve support due totheir ability to offer innovative products inunderserved areas.13

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__________________________13 It should be noted that the review team based its analysison a small sample of registered NGOs that may not be rep-resentative of this category of microfinance providers as awhole.

l Based on a competitive process, fundonly registered NGOs that can becomecommercial, either by transforming intolicensed MFIs or by linking to sustainableMFIs. Selection criteria could include thepotential to become sustainable, includingcharging market interest rates; ability toreach scale quickly; commitment andcapacity of management; and innovativedelivery systems and product mix to reachunserved clients.

l Link support for their transformation to performance benchmarks. Transformationplans should include guidelines for inte-grating the NGO into an existing MFI orbank if the organization is unable to becomean independent, licensed institution.

l Help NGOs that transform into licensedentities to identify and structure the firstround of private investment. Agencieswishing to play this role will need to contractspecialists with investment banking experi-ence. The IFC, for example, has good net-works in this area.

l Explore ways to transfer ownership ofdonor grants to transforming NGOs in amarket-based, private-sector manner.

Savings-led institutions. These institutionsshould typically not require large amounts ofexternal funding. Donor support should befocused on technical assistance, not capitaliza-tion or credit lines.

l Provide assistance to promising savings-ledinstitutions (i.e., institutions with a mini-mum level of outreach, vision, and basicsystems), such as mutual savings and cred-it associations. AusAID’s work with theCCSF in providing limited technical assis-tance through the Credit Union Federationof Australia and the Canadian CooperativeAssociation appears to be a model worthexploring. Other donors with deep savings-led traditions, such as France and Canada,may also have useful contributions tomake.

Other suppliers of microfinance services (non-registered NGOs, community-based organiza-tions, and credit components). In general, thiscategory of suppliers will not achieve massoutreach, making donor subsidies difficult tojustify.

l The Cambodian market does not need,nor can it sustainably support, hundreds ofcredit-led financial institutions. Given thestage of development of the micro-finance market, donors should not supportweak organizations that provide financialservices.

l Avoid funding credit components inintegrated development programs or anyother unsustainable institutional structure.Depending on the final objective of a pro-gram, using grants or linking with existingfinancial institutions will be less damagingfor the poor in the long run.

Fund innovations jointly, using time-boundperformance thresholds. Donors have animportant role to play in supporting innovationsby retail institutions. They should be willing totake risks and be patient in support of innova-tions that allow institutions to better meet clientneeds. Possible areas of support include:

l Fund action research, pilot projects, andtechnical assistance for product and deliverymechanism innovations. Such funding isparticularly needed for the development ofreliable deposit services and for servicedelivery systems that reach remote areas.

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Box 3. Characteristics of Effective Donors atthe Micro Level

l Strategic commitment to financial systemsdevelopment

l Staff with microfinance experience

l Capacity to work with specialized consultantsand implementing partners

l Instruments that can be used to directly supportthe private sector (e.g., grants, loans, equity)

l Commitment to financing initiatives that takerisks

l Performance-based project management

l Whenever possible, put mechanisms inplace that allow all industry members tocompete for donor resources. At the veryleast, donors should coordinate plannedactivities and consider joint fundingwherever feasible. For example, a locallymanaged innovation fund could provideresources on a cost-sharing basis to institu-tions that have a clear capacity to deepen themarket.

l Establish performance thresholds and incor-porate them into funding agreements withpractitioners and institutions.

l Develop explicit exit strategies to fundinnovations. Although donor funding shouldallow institutions to run through the fullproduct development cycle, new products ordelivery systems should not require ongoingsubsidies.

Meso Level

Support a commercially based wholesalemarket. In compliance with the RGC “FinancialSector Blueprint,” donors should supportprivate-sector wholesalers, rather than public-sector wholesale facilities, via options such asthese:

l Learn from and build on the pilot guaranteeproject with Canadia Bank, initiated byUSAID/DCA, IFC/MPDF, and KfW. Otherdonors interested in developing thewholesale market should consult andcoordinate with these three agencies beforelaunching new initiatives. As commercialbanks develop the interest and capacity toprovide wholesale funds to MFIs, similarmodels could be replicated by the privatesector.

l Donors that have supported the RDB(IFAD, AFD, and AsDB) and donors thathave been working on a private-sectormodel (IFC, KfW, and USAID/DCA) shouldmeet to agree on a collective vision forthe wholesale financial market. Thisvision should be widely shared with alldonors working in microfinance inCambodia.

Facilitate development of local services forMFIs. Donors should consider creating a multi-donor project to fund and strengthen the supplyof commercial support services to the micro-finance industry in these areas:

l Organize training of trainers courses tobuild the capacity of Cambodian trainers.Coordinate with the IFC/MPDF tostrengthen the Cambodian Institute ofBanking’s training curricula.

l Provide financial and technical support to theaccounting and auditing industry association.The World Bank and the AsDB are wellsuited for this activity.

Support the development of the CambodianMicrofinance Association.

l Advise the NBC to find an institutionalarrangement for CMA that is consistent withthe banking law. A good relationship andcollaboration with the Association of Banksof Cambodia (ABC) will be important for theCMA’s effectiveness. The current work ofthe IFC/MPDF with the ABC makes it a nat-ural partner for the CMA.

l Provide technical assistance to strengthenthe association in three key areas: memberservices, advocacy dialogue with the bank-ing regulator and the RGC, and strategicplanning (for the institutional viability ofthe CMA). A strong CMA can be a usefulvehicle for ensuring that practitioners’concerns are integrated into future work onregulation and supervision.

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Box 4. Characteristics of Effective Donors atthe Meso Level

l Strategic commitment to financial systems devel-opment

l Sufficient staff expertise to manage technicallysophisticated projects

l Grants that directly support the private sector

l Flexibility to co-fund and invest in multidonorprograms

l Credibility to work with the private sector anddevelop markets

Fund an initiative to facilitate exchange ofdebtor information among MFIs.

l Provide advisory support to the NBC toreview the banking secrecy law and allowdebtor information to be shared amongfinancial institutions. Such an initiativecould become a natural part of AsDB’s workwith the NBC.

l Develop a technical assistance program tosupport operating systems for informationexchange among institutions and create acentral clearinghouse for information. Thisinitiative could be coordinated with theCMA and the ABC, because it would requirethe commitment of all MFIs and banks to beeffective.

l Informal mechanisms may be appropriatein the short and medium term, but in thelonger term, donors could help establish anational credit bureau that would includeinformation from microfinance providers.

Promote the acquisition of MIS by MFIs.

l Help develop local advisory support servicesthat can help microfinance providers makeMIS decisions. One option would be for theIFC/MPDF to seek co-financing to build thisanalytical capacity within the CMA (or tofind another suitable “home” if the nascentCMA is overburdened). The strategy mightinclude training IT specialists in microfi-nance (including young graduates) to pro-vide this service. Donors can also help linkinstitutions to international MIS specialiststhrough facilities, such as the CGAPInformation Systems Fund.14 The CMAcould potentially pool the purchasingrequirements of its members for increasedbargaining power with MIS providers.

l Establish an Information Systems MatchingFund to assist MFIs with MIS implementation.

Macro Level

Offer sustained technical assistance to theBank Supervision Department of the NBC.Donors should help the NBC address thechallenges and risks of the growing microfinance

industry, such as managing the proliferation oflicensed institutions, integrating mutual savingsand credit associations into the formal financialsystem, and protecting the growing depositor base.

l Ensure ongoing technical support to thebanking supervision department. Based onits previous work, AsDB is particularly wellpositioned to continue this task. Someattention might be given to reviewingminimum capital requirements for licensedMFIs, the unlimited liability exposure ofinfluential shareholders, and the creation of amonthly bulletin to increase transparency.Donors could also help the NBC create aWeb site with yearly statistics on all retailersin the financial system, including banks.

l Provide training to supervision staff andensure that manuals are adequate, updated,and applied in daily work.

l Integrate mutual savings and credit associa-tions into the regulated financial system.Donors could provide financial and technicalresources to the NBC so that it develops aregulatory and supervisory frameworkadapted to this model.

Coordinate work on the regulation andsupervision framework.

l Work in concert to avoid sending conflictingmessages. Avoid overburdening the NBCwith tasks that could undermine its capacityto manage its core responsibilities. AsDBshould play the leading role, together withthe IMF (the principal advisor to the NBC).Other donors should consult with these twoagencies.

l Involve the CMA and CCSF in dialogue onregulation and supervision.

Support development of a payment systeminfrastructure. Broader support of the entirefinancial system should include developing anational payment system infrastructure.Strengthening secure transfer services (i.e., theinfrastructure required for clearances andsettlements) is crucial to extending financialservices to remote, rural areas. The World Bankhas specialized expertise in this area that couldbe harnessed for Cambodia.

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__________________________14 See www.isfund.org.

Strengthen legal and judiciary capacityregarding collateralized loans. The reviewteam recognizes that this task will take manyyears to implement. Donors could initiallyprovide funding and technical assistance tocreate a registry and a unit of judgesspecifically trained in secured transactions law.Donors could also work in parallel to identifyextra-judicial solutions, such as relying on localauthorities or respected elders to offer practicaloptions over the short term.

Review taxes on financial intermediation.Donors should examine the disincentives to pro-vide small savings accounts resulting from thecurrent tax structure and propose appropriatemodifications. Donors involved in Cambodia’sprevious fiscal reforms, i.e., the World Bankand IMF, should conduct this reassessment.

Explore the possibility of developing atrust/NGO law that establishes a legal status forprofit-making NGOs. Donors could initiate adialogue with the RGC on the timing and priori-ty of tackling the legal status of NGOs. The con-versation could be limited in the first instance toNGOs involved in income-generating activities,such as microfinance. If appropriate, donorscould later provide funding for legal support onthe issue, working through one of the TechnicalWorking Groups in Cambodia or a subgroup ofthe Private Sector Forum. Donors that haveexperience working directly with a large numberof NGOs, such as USAID, would be best suitedto ensure a participatory process for discussingthe issues and, eventually, draft legislation.

Donor Effectiveness Recommendations

Not every donor can or should work at all threelevels of the financial system, because they donot all possess the eight elements of effec-tiveness (strategic clarity, strong staff capacity,accountability for results, relevant knowledgemanagement, appropriate instruments, influenceand clout in the country, commitment tocollaboration, and responsiveness to localstakeholders). Various combinations of theseelements are needed to respond to existing gapsin the financial system and meet its evolvingrequirements. Five of the eight elements ofdonor effectiveness are highlighted in thissection, and are presented with specific actionsdonors should take to improve their overalleffectiveness in Cambodia.

Strategic Clarity

Stick to the vision of microfinance as part of thecommercial financial system. Moving forward,donors should proactively ensure that their cur-rent operations and new programming reflectthis common vision.

l Put on paper the key principles for donorsupport of microfinance in Cambodia. Theseprinciples should briefly codify the opera-tional implications of the vision. At its mostbasic, the document should encourage alldonors to adhere to a “do no harm” principle.To develop the principles, the donor commu-nity can refer to the “Financial SectorBlueprint,” recommendations in this report,new donor guidelines for microfinance,15 andsimilar donor principles from other countries(e.g., Uganda).

l Induct new donor staff into the Cambodianmicrofinance community by explaining thevision and principles in informal orienta-tions. Special effort should be made to intro-duce implementing partners and consultantsto the vision as well.

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Box 5. Characteristics of Effective Donorsat the Macro Level

l Strategic commitment to financial systemsdevelopment

l Influence and clout with the RGC and NBC

l In-country staff with financial-sector expertiseand strong communication and negotiation skills

l Grants for technical assistance

l Experience supporting policy reforms in financial,economic, and legal sectors

l Willingness to cooperate with other donors onsectoral initiatives

__________________________15 See the new donor principles for supporting microfinance,Building Inclusive Financial Systems: Donor Guidelines onGood Practice in Microfinance (Washington, D.C.: CGAP,2004), at www.cgap.org/docs/donorquidelines.pdf.

l Build on donor successes in Cambodia.Certain leading donors that have specifictechnical expertise and a good track record inthe country still have contributions to make,although their new role will differ from theirprevious role. These leaders—AFD, AsDB,IFC/MPDF, and KfW—can make targetedinterventions based on their respectivecomparative advantage to consolidatesuccesses achieved thus far. In parallel,donors should plan a progressive phasing outof current activities, leaving space for privateCambodian and international actors to pro-vide ongoing services required by the sector.

l Let private investors (DFIs and socialinvestors) take on the equity investment rolein licensed intermediaries.

l Promote this vision with governmentpartners. This could prevent damaging non-market influences, such as public officialsquestioning interest rates or loan collectionpractices that can inhibit the provision offinancial services to the poor.

Strong Staff Capacity

l Continue to invest appropriate technicalexpertise in program design, implementa-tion, and monitoring. At its current stage ofdevelopment, microfinance in Cambodiarequires specialized technical expertise, notlarge donor subsidies. Donors should trainCambodian and international donor staff,using internal resources and tapping intoexisting donor training courses, such as theMicrofinance Training Program in Turin,Italy, and the one-week UNCDF/CGAPdonor training course.16

Investing in permanent Cambodian staff is espe-cially relevant for donors that frequently rotatetheir staff, because this investment will providea reservoir of strong human resources. Donorsshould also have international staff in Cambodiaor the region that possess sufficient knowledge ofmicrofinance and the formal financial system tomanage specialized consultants and discusstechnical and policy issues with local stakeholders.

Accountability for Results

Maintain commercially oriented, performance-based management of programs. Donors shouldcontinue to use performance-based contractswith implementing agencies, consulting firms,and financial institutions, and should be willingto take corrective action if necessary. AFD andGTZ have developed particularly good practicesin this area.

Relevant Knowledge Management

l Document and disseminate microfinanceexperience internally and to the industry atlarge. Donors, for example, could set up alibrary hosted by an agency with the spaceand capacity to manage it. The library couldalso be made available on the Web. UNDP,the World Bank, or IFC/MPDF might be ableto provide this service.

l Translate and disseminate publications ongood practice into the Khmer language.Given the high cost of translation, the CMAcould identify the most useful documents totranslate. Every donor agency could thencontribute to disseminating such materials.(A selection of succinct materials on micro-finance written specifically for donor staff isavailable on the CGAP Donor InformationResource Centre at www.cgap.org/direct.)

l Create low-cost mechanisms for internallearning. Donors should institute financialand nonfinancial incentives to encouragestaff to participate in knowledge networks,consult with technical specialists at head-quarters and in the field, and generallyparticipate in knowledge exchange withcolleagues and partners. Both GTZ and KfWhave developed impressive mechanisms andincentives for knowledge management, suchas regional staff sector networks.

Commitment to Collaboration

Donors in Cambodia have exhibited strong will-ingness to collaborate, as evidenced by theworking groups that have been established inseveral sectors. Although some donors expressfatigue with the large number of meetings, there

COUNTRY-LEVEL EFFECTIVENESS AND ACCOUNTABILITY REVIEW

21

__________________________16 For more details on these two programs, seewww.cgap.org/direct/special/training.html.

is a strong commitment to working groups thattackle issues best handled jointly, rather thanthrough individual action. Donor support tomicrofinance could benefit from greater collab-oration, through such specific means as these:

l Consult with key industry players duringproject design, implementation, and evalua-tion. Before launching new initiatives,donors should consult widely to ensure theyare filling a gap and are not duplicating orundermining the work of others. There arealso key moments in a project’s cycle whereconsultation with others would be particular-ly beneficial, for example, during mid-termreviews. Consultation on specific technicalissues can be crucial. For example, donorsshould coordinate their financial and techni-cal support to the NBC and RDB.

l Involve donor staff with some technicalknowledge and decision-making authority inthe consultations. To ensure they know eachother, key staff will have to invest time inattending private-sector or financial-sectorgroup meetings. Informal lunches can also beeffective.

l Co-fund, especially when individual agencycapacity is inadequate. Donors without thein-country experience or staff required tofund and manage successful programsshould consider co-funding with donors thathave complementary strengths.

l Agree on common reporting standards.Donors should task a small technical groupof donor staff with developing a commonreporting format that incorporates indicatorsthat are useful to MFI management, satisfydonor headquarter requirements, and adhereto international standards. Lessons can belearned from the common reporting toolagreed upon by KfW, USAID, and theUNDP for ACLEDA Bank. Donors shouldthen commit to accepting the exact samereport from all microfinance providerssupported by them.

l Regularly update a contact list of micro-finance stakeholders. (Annex 4 provides anextensive contact list of industry stake-holders; one donor will need to take theresponsibility for regularly updating thislist.)

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COUNTRY-LEVEL EFFECTIVENESS AND ACCOUNTABILITY REVIEW

23

LEVEL RECOMMENDATIONS REQUIRED ELEMENTS OF EFFECTIVENESS

MICROLEVEL

• Strengthen promising existing institutions• Fund innovations jointly, using time-bound performance thresholds

• Strategic commitment to financial systems development• Staff with microfinance experience • Capacity to work with specialized consultants and implementing

partners• Instruments that can be used to directly support the private sector

(e.g., grants, loans, equity)• Commitment to financing initiatives that take risks• Performance-based project management• Responsiveness to local practitioners

MESOLEVEL

• Support a commercially based wholesale market • Facilitate development of local services for MFIs• Support the development of the Cambodian Microfinance Association • Fund an initiative to facilitate the exchange of debtor information among MFIs• Promote the acquisition of MIS by MFIs

• Strategic commitment to financial systems development• Sufficient staff expertise to manage technically sophisticated projects• Grants that directly support the private sector• Flexibility to co-fund and invest in multidonor programs • Credibility to work with the private sector and develop markets• Patient, long-term perspective

MACROLEVEL

• Offer sustained technical assistance to the Bank Supervision Department of the NBC

• Coordinate work on the regulation and supervision framework• Support development of a payment system infrastructure• Strengthen legal and judiciary capacity regarding collateralized loans• Review taxes on financial intermediation• Explore possibility of developing a trust/NGO law that establishes a legal

status for profit-making NGOs

• Strategic commitment to financial systems development• Influence and clout with the RGC and NBC • In-country staff with financial-sector expertise and strong

communication and negotiation skills• Grants for technical assistance• Experience in supporting policy reforms in the financial, economic,

and legal sectors• Willingness to cooperate with other donors on sectoral initiatives

DONORSYSTEMS

• Put on paper key principles for donor support in Cambodia and get buy-in from donors and government

• Let private investors take on equity investment role in licensed intermediaries• Ensure appropriate technical expertise for program design, implementation,

and monitoring• Maintain commercially oriented, performance-based management program

(e.g., performance-based contracts)• Document and disseminate microfinance experience internally and to the

industry at commitment to collaboration• Consult with key industry players during project design, implementation, and

evaluation• Agree on common reporting standards

ANNEX 1—SUMMARY OF DONOR RECOMMENDATIONS

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Bilateral and Multilateral Development Agencies Other Funders

AREAS OF ACTIVITYAND INSTRUMENTS ADB EC IFC /

MPDF UNDP USAID AFD AUSAID KfW ConcernWorldwide Shore Cap SIDI Triodos World

Relief

MACRO

MESO

MICRO

Institution building

Loan funding

MFIs

Commercial banks

State-owned banks

Credit unions/ cooperatives

Credit lines/multisector projects

Instruments available to support MF

Grants for capital

Grants for technicalassistance

Equity

Guarantees

ANNEX 2—CONSOLIDATED PROFILES OF DONOR ACTIVITIES (self-reported by agencies)

COUNTRY-LEVEL EFFECTIVENESS AND ACCOUNTABILITY REVIEW

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Bilateral and Multilateral Development Agencies----- Microfinance Portfolio (in US dollars)

Other Funders-----Microfinance Portfolio (in US dollars)

ADB ECIFC/

MPDFUNDP USAID AFD AUSAID KfW TOTAL

ConcernWorldwide

ShoreCap SIDI Triodos World

Relief TOTAL

Microfinancedisbursement2001–2003

1,869,000 2,500,000 2,311,000 2,000,000 8,680,000 505,945 100,000 605,945

Microfinancecreditcomponentsdisbursement2001–2003

1,300,000 1,300,000 2,000,000 4,600,000889,000 4,592,500 5,481,500

Commitment-----Microfinance2004(stand-aloneprojects and creditcomponents)

1,257,000 200,000 1,935,700 560,000 4,500,000 8,452,700 1,100,000 500,000 1,500,000 3,100,000

ANNEX 3—SUMMARY OF DONOR AND INVESTOR SUPPORT TO THE CAMBODIAN

MICROFINANCE INDUSTRY (as of January 2005)

MICRO LEVEL

Support to NGO credit programs (completed)l AFD grant to ACLEDA NGO l AFD grants for credit program expansion to GRET/EMT project, HK project, CARE/Seilanitih

project, and ANS (Battembong) l AFD grant for transformation of EMT (grant provided through GRET, as the technical assistance

provider, both in-country and in-house)l AFD grant to HK NGO and Seilanitih NGO (financed an individual, in-house technical advisor)l EC grant in support of PRASAC project credit componentl EC grant to PCA for its transformation from project to RFIl GTZ grant to ACLEDA NGO for branch start-up in Kompong Thoml GTZ grant to HK NGO for pilot savings projectl GTZ grant to CEB to support its transformation from NGO to LLCl GTZ grant to ACLEDA Bank for BAAC exposure visit (Thailand)l IFC/MPDF technical assistance to CEB for its transformation from NGO to LLC to RFI

(completed)l IFC/MPDF grant to finance credit rating of CEBl IFC/MPDF ongoing support of CEB (corporate advisory assistance) l KfW support of ACLEDA NGO through government of Cambodial USAID grants to NGO MFI programs through international NGOs, including World Relief and

CRSl USAID grant to ACLDEA for BRI exposure visit

Support to credit components in integrated programs (completed)l AusAID grant of US$ 200,000 to Ministry of Rural Development integrated health projectl EC grant of US$ 4 million to PRASAC credit program

Support to regulated financial institutions by bilateral donors (ongoing)l AFD support to AMRET for in-house technical assistance by GRET l AFD support to AMRET for improvements of MIS (Micro Banker Windows) with GRET and

HORUSl CGAP grant to AMRET for IT/MIS developmentl CGAP grant to GRET for developing an insurance productl KfW represents ACLEDA NGO on board of ACLEDA Bank

Support to commercial banks l AFD support to RDB for refinancing NGO MFIs l IFAD loan to RDB for refinancing NGOs and project partners of IFAD (e.g., project in

Battembong)

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l IFC loan to Canadia Bank for SME lending and refinancing MFIs with USAID loan guarantee (pilot)l KfW loan to ACLEDA Bank for SME lending (pilot)l USAID loan guarantee of IFC loans to small and medium enterprises and MFIs: US$ 500,000,

with up to US$ 5 million over 5 years (pilot)

Support to credit mutuel/credit unions/cooperatives (ongoing)l AusAID support to CCSF (Battembong)

Investors/shareholders supporting banks (ongoing)l DEG investment in ACLEDA Bank

Investors/shareholders supporting MFIs (ongoing)l ACLEDA Bank shareholders: DEG, IFC, Triodos-Doen, Triodos Bankl AMRET shareholders: SIDI, La Fayettel HK shareholder: SIDIl CEB shareholder: Shore Cap, plus loans from Blue Orchard, Novib, and Triodos Bank

MESO LEVEL

Capacity building: Training (ongoing unless otherwise noted)l ADB technical assistance grant to Cambodian Institute of Bankers (pending)l AFD grant to MFI partners (EMT, HK, Seilanitih) for management and staff training (completed)l AFD grant for MFI manager training on a cost-sharing basis (grant funded HK manager in Swedish

International Development Cooperation Agency program, facilitated by IFC/MPDF and Sida)l IFC grant to Canadia Bank for MFI appraisal training to be provided by EDA Indial IFC/MPDF collaboration with Cambodian Institute of Bankers (Association of Bankers of

Cambodia)l IFC/MPDF collaboration with EDA (India), which has proposed to offer training for banks and MFIs

Advocacyl CMA registered in 2004 with 11 members (no funding as of yet)l IFC/MPDF and ABC: Business Enabling Environment—Working Group on Banking and

Finance, Technical Working Group on Financial Sector Developmentl Collaboration between WB, GTZ, Asia Foundation, and others on Conference on Land Law Reforml Collaboration between WB, IMF, ADB, and others on Cambodian Rural Finance Strategy

Second-tier lending through RDB (ongoing unless otherwise noted)l ADB grant to RDB for TA (completed)l AFD grant to RDB for MFI onlending l ADB loan to RDB for MFI onlending l ADB grant to RDB for TAl IFAD grant to RDB for MFI onlendingl USAID guarantee to Canadia Bank (up to US$ 5 million)l IFC technical assistance to Canadia Bank (US$ 500,000)

COUNTRY-LEVEL EFFECTIVENESS AND ACCOUNTABILITY REVIEW

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Reforms in accounting and auditing (completed)l Uniform chart of accounts (2003)

MIS (ongoing unless otherwise noted)l EC funded DOS-based Micro Banker program for PCA (completed)l AFD support to AMRET for improvements to Micro Banker Windows l CMA plan for providing collective MIS training and support to a small group of RFIs, including

CEB, HK, Seilanitih, AMRET

Credit rating and institutional assessments l M-CRIL rating of EMT (2001)l CGAP assessment of EMT (2002)l CGAP assessment of HK (2002)l M-CRIL rating of CEB (2003), partially funded by IFC/MPDFl Moodys rating of ACLEDA Bank (2004)

MACRO LEVEL

Regulation and supervision (ongoing unless otherwise noted)l AFD and ADB worked to forge the legal and regulatory framework for Cambodian microfinance

sector (AFD completed)l ADB supported technical assistance to the NBC on regulation and supervision of licensed MFIs l AFD grants to NBC to monitor four MFI NGO partners transforming (EMT, HK, Seilanitih, and

ANS) into licensed MFIs¾used as a learning opportunity for NBC (completed)

Influencing government policy (ongoing unless otherwise noted)l ADB: Financial Sector Blue Print l WB: Cambodian Rural Sector Strategyl UNDP and AFD: CCRD (completed)l IFC/MPDF: Private Sector Forum, Working Group on Banking and Finance; also looked at

ASEAN experience on withholding tax and taxation laws in the region to advise NBC andgovernment

l WB, GTZ, ADB, others: Annual Forum on Land Law (2005)l Proposed Technical Working Group on Microfinance

CAMBODIA

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DONORS

Last Name First Name Title Organization E-mail

Bajpai Shyam P. Country Director ADB Cambodia Resident Mission sbajpai@adb.org

Jaeckel Wolfram Rural Development Specialist

ADB Cambodia Resident Mission wjaeckel@adb.org

Hem VanndyEconomic & Financial Sector Officer

ADB Cambodia Resident Mission vhem@adb.org

Lewis Sukanda FinancialEconomist ADB Manila slewis@adb.org

Terracol Yves Director AFD terracoly@groupe-afd.org

Grebert Didier Deputy Director AFD GREBERT@groupe-afd.org

Calas Julien Chargé de mission AFD calasj@groupe-afd.org

Dixon Raine Second Secretary AusAID raine_dixon@AusAID.gov.au

Hean Vuthy Senior Program Officer AusAID vuthy_hean@AusAID.gov.au

Yasui DavidCounselor(Development) & Head of Aid

CIDA, Cambodia, Lao & Thailand david.yasui@dfait-maeci.gc.ca

Smith Elizabeth Head of Office, Health Advisor DFID Lizzie-Smith@dfid.gov.uk

Mc Colgan Winston Chargé d'Affaires European Commission winston.mc-colgan@cec.eu.int

Felts Tony Senior Program Officer European Commission tony.felts@cec.eu.int

Fleddermann Angelika Senior Advisor/Team Leader GTZ rdp.angelika@online.com.kh

Brew James P. Project Manager PSF/IFC jbrew@ifc.org

Minnaar Jacco Bank Training Consultant MPDF/IFC jminnaar@ifc.org

Pak SereivathanaBusinessDevelopmentOfficer

MPDF/IFC psereivathana@ifc.org

Quizon Karla Deputy General Manager MPDF/IFC mquizon@ifc.org

Sack Adam General Manager MPDF/IFC asack@ifc.org

Wielimga Doekle Chief Technical Advisor ILO doeklew-ilo@online.com.kh

Khieu Kola National Project Manager ILO kola@online.com.kh

Hagemann Robert ResidentRepresentative IMF rhagemann@imf.org

Schon Helmut KfW helmut.schoen@kfw.de

Müller Klaus KfW office@kfwvn.com

Long Sophat Country Program Manager KfW kfw-cambodia@gtz.de

Gardner Douglas

UN Resident Coordinator and UNDPRepresentative

UNDP douglas.gardner@undp.org

ANNEX 4. LIST OF PERSONS CONSULTED

COUNTRY-LEVEL EFFECTIVENESS AND ACCOUNTABILITY REVIEW

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ANNEX 4—LIST OF PERSONS CONSULTED

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DONORS, cont’d

Last Name First Name Title Organization E-mail

Hong Sokheang Poverty Specialist UNDP hong.sokheang@undp.org

Konishi Yoko Junior Professional Officer UNDP yoko.konishi@undp.org

Laaksonen Sari Trade & PSD Analyst UNDP sari.laaksonen@undp.org

Kooi Peter Director, Special Unit for Microfinance UNCDF peter.kooi@undp.org

Addleton Jonathan Mission Director USAID jaddleton@usaid.gov

Agrawal Nisha Country Manager World Bank nagrawal@worldbank.org

Fernando Nimal Lead Rural Finance Specialist ADB nfernando@adb.org

Schonberger Steven Navon Rural Sector Coordinator World Bank sschonberger@worldbank.org

MICROFINANCE INSTITUTIONS

Chetan Tanmay Chief Executive Officer

AngkorMikroheranhvathoKampuchea (AMK) Ltd.

ceo@amkcambodia.com

Torres OlgaTraining, Research & Marketing Manager

AngkorMikroheranhvathoKampuchea (AMK) Ltd.

tram@amkcambodia.com

Chea Phalarin General Manager AMRET info@amret.com.kh

Nou Bonnarith General Secretary Cambodia MicrofinanceAssociation bonnarith@amret.com.kh

Yuttarat Sahasin Director & General Manager

Cambodia Community Building (CCB) ccbpp@online.com.kh

Bun Mony Board Chairman & General Manager

Cambodian Entrepreneur Building (CEB) Ltd.

cebltd@camnet.com.khccbco@camnet.com.kh

Lewin Karen Program Director CREDIT klewin@wr.org

Soung Engchhay CREDIT credit_mfi@online.com.kh

Chan Mach Operation Director CREDIT credit_opd@online.com.kh

Hok Bun Thoeun Executive DirectorCambodia Rural Economic Devt Organization (CREDO)

credo@forum.org.kh

Hout Ieng Tong General Manager Hattha Kasekar Iengtong.h@hkl.com.khinfo@hkl.com.kh

Lay Rachana Senior Credit Manager Hattha Kasekar rachana.lay@hkl.com.kh

info@hkl.com.kh

Kuch Setha General Manager Seilanithih seilanithih@online.com.kh

Huchet Olivier Seilanithih olivier.huchet@ifrance.com

Chea Sokun Internal Audit Manager Seilanithih cheasokunnn@yahoo.com

seilanithih@online.com.kh

Apostol Maros Chief of Operation Officer

Thanakea Phum (Cambodia)

tpcltd@online.com.khmaros.apostol@online.com.kh

Choun Sophal Deputy CEO Thanakea Phum(Cambodia) Chuon@tpc.com.kh

Samphea Sartop Finance Manager Vision Fund Cambodia samphea_sartop@wvi.org

COUNTRY-LEVEL EFFECTIVENESS AND ACCOUNTABILITY REVIEW

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OTHER FINANCIAL INSTITUTIONS

Last Name First Name Title Organization E-mail

Ow Soon Wing Executive Director Association of Banks in Cambodia bankers@online.com.kh

In Channy General Manager ACLEDA Bank channy@acledabank.com.kh

So Phonnary Marketing Manager ACLEDA Bank phonnary@acledabank.com.kh

Vann Charles CEO Advisor Advanced Bank of Asia (ABA)

Im Malene Teller ABA malene_im@yahoo.com

Tan Phich Kien DirectorCambodia Agriculture Industrial Specialized Bank (CAISB)

kien@online.com.kh

Thoeng Sokcheav Credit Officer CAISB kien@online.com.kh

Khiev Sophina Customer Service CAISB kien@online.com.kh

Yem Kimchhan Accountant CAISB kien@online.com.kh

Yee Con Long Canadia Bank Ltd ycl@camnet.com.kh

SUSI Credit Officer Canadia Bank Ltd

Tim Bophal Deputy General Director

Foreign Trade Bank of Cambodia ftb@camnet.com.kh

Pal Phirom Manager Peng Heng Bank phirom_pal@yahoo.com

Chor Leng Huong Director General Rural Development Bank rdb@online.com.kh

Mak Sophal Credit Department Rural Development Bank rdbcredit@online.com.kh

Chou Vannak Assistant to Coordinator PASMF/RDB chouvannak@yahoo.com

Son Koun Thor Chairman and CEO Rural Development Bank sonkounthor@camnet.com.kh

REGISTERED CREDIT OPERATIONS /LOCAL NGOS

An Bunhak Vice Chairman MAXIMA Micro Finance anbunhak@yahoo.commaximacredit@yahoo.com

Sim Senacheert General Director PRASAC Credit Association senacheert@pca.com.kh

Weissenberg Tom von Credit Advisor PRASAC Credit Association tomvw@pca.com.kh

Phal Pisey CEOCambodianCommunity Savings Federation

ccsf@online.com.kh

De Crouy-Chanel Véronique Program Manager

Cambodia Mutual Saving & Credit Network (CMSC)

cicm-cambodia@camintel.com

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INTERNATIONAL NGOS

Last Name First Name Title Organization E-mail

Brian Agland Assistant Country Director CARE brian.agland@care-cambodia.org

Abrera Elizabeth CEO CRS - Catholic Relief Services

betsy@online.com.kh;betsy@tpc.com.kh

Salze Cedric Representative GRET assurance@camnet.com.kh

Daubert Pierre GRET

Nishioka SachikoCoordinator for DevelopmentPartnership

JICA nishioka@jica.org.kh

Wierda VincentCommunityFinancialSpecialist

Oxfam America vwierda@oxfamamerica.org

Pomeroy Jacqueline L. Representative The Asia Foundation jpomeroy@cb.asiafound.org

Salze-Lozac'h Veronique Economic Program Manager The Asia Foundation vsalze-lozach@cb.asiafound.org

Luchtenburg Paul Asia Regional Technical Advisor World Relief pluchtenburg@wr.org

D. Caringal Rommel PeterMED Program Manager, WVI & GM of VFC

World Vision Int'l (WVI), Vision Fund Cambodia (VFC)

rommel_caringal@wvi.org

INVESTMENT FUNDS

Bos Femke Senior InvestmentOfficer, Asia

Triodos International Fund Management B.V. femke.bos@triodos.nl

Metz Gabriel HORUS gmtz@horus-df.com

Falgon Claude HORUS cfalgon@horus-groupe.com

Crochet-Damais Pierre-Yeves SIDI

COUET Alka SIDI SIDIOPE1@aol.com

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GOVERNMENT

Last Name First Name Title Organization E-mail

Lauv NyVice Rector, Royal University of Agriculture (RUA)

Ministry of Agriculture, Forestry and Fishery/RUA

NyLauv@online.com.kh

Ung Dara Rat Moni Deputy NationalProject Coordinator

Ministry of Agriculture, Forestry and Fisheries psuadess@camnet.com.kh

Hang Chuon Naron Secretary General Ministry of Economy & Finance hangnaron@yahoo.com

Suos Kong Secretary of State Ministry of Rural Development skong@online.com.kh

Chuop Som Ath Director General, Administration & Finance

Ministry of Rural Development cphally1@yahoo.com

Cheam Nimorl Director General,Technical Affairs

Ministry of Rural Development cbrdp@online.com.kh

Lao SokharomDeputy Director General, Technical Affairs

Ministry of Rural Development sokharom@yahoo.com

Hour Kolvan Director, CommunityDevelopment Dept.

Ministry of Rural Development kolvoan@yahoo.com

Phan Saphoeun Director, Rural Economic Dept.

Ministry of Rural Development kolvoan@yahoo.com

Ma VannyDirector, Family EconomicDevelopment Dept.

Ministry of Women's & Veterans Affairs (MoWA)

Pen Yutteka Chief of Office MoWA

Tal Nay Im Director General National Bank of Cambodia nbc2@online.com.kh

Phan Ho Director, Bank Supervision (BSD)

National Bank of Cambodia phan.ho@online.com.kh

Patrick Hugues General Advisor National Bank of Cambodia phugues@online.com.kh

Loek Thy Officer, BSD National Bank of Cambodia nbcsupervision@bigpond.com.kh

Siv Vuttha Division Chief, BSD

National Bank of Cambodia siv_vuttha@yahoo.com

Mom Somalay Deputy Division Chief, BSD

National Bank of Cambodia somalay_mom@yahoo.com

OTHERS

Ramm Johann-Friedrich Consultant Intercorporation jf.ramm@gmx.net

Clark Heather Consultant heather_clark@comcast.net

Boisselet Bertrand AFD boisseletb@groupe-afd.org

Matthews BrettTechnicalConsultant,Community Finance

Canadian Co-operativeAssociation brett@mathwood.com

Mark Gomez General Manager PWC m.gomez@kh.pwc.com

Fernando Senaka Senior Manager Price Waterhouse Coopers senaka.fernando@kh.pwc.com

ANNEX 5—MFI RECOMMENDATIONS TO DONORS

These recommendations were collected during a meeting with all licensed Cambodian MFIs inOctober 2004.

l Work directly with financial institutions (save time and reduce costs).

l Be responsive and flexible: Do not impose conditions (e.g., interest rates, targeting, loan sizes).

l Conduct due diligence and support MFI business plans.

l Focus on sustainability and exit strategy.

l Hire donor staff with the right technical skills.

l Agree on common reporting requirements and accept standard reports, audits, etc.

l Strengthen capacity of the Cambodian Microfinance Association.

l Identify gaps in the microfinance market and align donor operations to comparative advantage.

CAMBODIA

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ANNEX 6—LIST OF DOCUMENTS CONSULTED

Please note that these documents are available at IFC/MPDF.

FINANCIAL SECTOR REPORTS

AsDB, DFID, and WB. “Cambodia Country Assistance Strategies and Plans.”

AsDB. TA 3467 – CAM: “Preparing a Financial Sector Development,” aide memoire.

——. “Financial Sector Blueprint 2001–2010. Manila: AsDB, 2001.

——. “Proposed Loan Sub-program II of the Financial Sector Program and on the Progress

of SubProgram I.” Loan 1859-CAM. Manila: AsDB, November 2002.

Cambodia National Poverty Reduction Progress Report. August 19, 2004.

Coordination Process–Consultation Workshop with the Private Sector. Phnom Penh, October 2004.

IMF. “IMF Statistical Appendix,” in Profile of the Commercial Bank System. Washington, D.C.:August 31, 2004.

IMF Staff. “Country Report Cambodia—Fifth Review Under Poverty Reduction.” Washington,D.C., July 2002.

——. “Country Report Cambodia—Fifth Review Under Poverty Reduction: Selected Issues andStatistical Appendix.” Washington, D.C., March 2003.

IMF Statistical Appendix. August 2004.

National Bank of Cambodia. “Economic and Monetary Statistics.” (Phnom Penh, NBC, December2003.

——. “Economic and Monetary Statistics.” Phnom Penh: NBC, June 2004.

——. “Organigram of the Banking System in Cambodia.” Phnom Penh: NBC, December 31, 2003.

Royal Government of Cambodia. “Rectangular Strategy for Growth, Employment, Equity andEfficiency.” Address by HUN SEN Samdech, Prime Minister of the Royal Government ofCambodia, July 2004.

“The Development of Microfinance in Cambodia.” Cambodia Development Review 6, no. 3(July–September 2002).

Torres, Olga. “Rural Finance and the Microfinance Sector in Cambodia.” Report for EASRD,January 2004.

World Bank. “Toward a Rural Sector Strategy,” Cambodia Rural Sector Strategy Note, Washington,D.C., April 2004.

World Bank. “Cambodia: Seizing the Global Opportunity: Investment Climate Assessment andReform Strategy.”

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LICENSED MFIS

AMK Fact Sheet.

“AMK Institutional Overview.” Cambodia, June 2004.

AMRET Annual Report. Cambodia, 2002.

Asia Development Bank. “Organizations into Regulated Financial Institutions.” AsDB, June 2004.

“Cambodia Mutual Savings and Credit Network Fact Sheet.” CMSC, EMT Client-Led Assessment,2003.

Cambodia Mutual Savings and Credit Network—overview.

CEB. Appraisal Report. July 2004.

CEB Business Plan.

CGAP. “Hattha Kaksekar, Ltd. Appraisal Report.” Washington, D.C., 2001.

Clark, Heather. Comments on CLEARs terms of reference and contacts, personal communication tothe author.

EMT. Appraisal Report. December 2003.

GRET. Health Insurance Project Cambodia. “Briefing Note.” June 2004.

GRET. “The Microeconomic Impact of Rural Credit in Cambodia.” 1997.

Hattha Kaksekar, Ltd. Annual Report. 2001.

Kaksekar, Hattha. Appraisal Report. December 2001.

M-CRIL. “CEB Rating Report.” 2003.

Microfinance Operator Information. March 31, 2004.

Oxfam. “Hong Kong Selling Debt: Micro Credit in Cambodia.” Confidential memo.

Pickens, Mark. “Savings-Led and Self-Help Microfinance in Cambodia: Lessons Learned and BestPractices.” Phnom Penh: PACT, 2004.

Reille, Xavier, Alfonso Vega, and Mamier. “CGAP EMT Appraisal.” Washington, D.C., August 2002.

Reille, Xavier, and Alfonso Vega. “CGAP Mission Report—Cambodia.” Unpublished internal report.Washington, D.C., June 2002.

Seilanitih. Appraisal Report. April 2004.

Seilanitih. “Financial Statements and Report of Auditors.” December 2001.

Seilanitih. “Management Report.” December 2001.

Sokheang, Hong. “Microfinance and Its Role in Poverty Alleviation in Cambodia.” Master’s degreeresearch essay. International University of Japan , 2001.

Thaneakea Phum (Cambodia). Appraisal Report. February 11, 2004.

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COMMERCIAL BANKS

Appraisal Report Canadia Bank, Ltd., January 2003.

Canadia Bank Annual Report, 2002.

Canadia Bank Annual Report, 2003.

SPECIALIZED BANKS

ACLEDA Annual Report, 2003.

ACLEDA Fact Sheet, 31 August 2004.

Appraisal Report ACLEDA, February 2003.

Clark, Heather. “Capacity Leads, Capital Follows: Donors and Investors Match Instruments toACLEDA’s Stage of Development.” Case Studies in Donor Good Practices. Washington,D.C.: CGAP, June 2004. www.cgap.org/direct/resources/case_studies.html/.

Rural Development Bank. “Strategic Plan.”

——. “Financial Statements Audit Report.” December 2003.

——. Handout, updated June 9, 2004.

DONORS

Asia Development Bank, Financial Sector Loan Document, 2002 – MF.

European Union. “NGO Projects Funded by the EC to Cambodia.” 2004.

Fernando, Nimal. Micro Success Story? Transformation of Nongovernment, ADB, 2004.

Government-Donor Partnership Working Group. “Practices and Lessons Learned in theManagement of Development Cooperation, Terms of Reference.” March 2003.

——. “Case Studies from Cambodia.” Sub-Working Group No.3. January 2004.

Government-Donor Partnership Working Group. “Terms of Reference.” March 2003.

Government-Private Sector Forum Working Groups. List.

JICA. “Country-Specific Project Implementation Plan for 2004 Fiscal Year, Cambodia.” Draft. May2004.

IFC. “Media Release: IFC and USAID Agreements with Canadia Bank.” September 2004.

——. “Media Release: IFC and USAID Agreements with Canadia Bank.” September 2004.

IFC/MPDF. “Training Schedule and Curriculum.” 2004.

Maurer, Klaus. GTZ Workshop Report.

NGO Statement to the 2001 Consultative Group Meeting on Cambodia.

US Assistance to Cambodia Fact Sheet. Updated May 2004.

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USAID. “Cambodia Briefing Booklet.” August 2004.

USAID Fact Sheet.

USAID/Cambodia Mission Director. Draft remarks at signing ceremony for Micro and SmallEnterprise Development Initiative. USAID-Canadia Bank, September 2004.

Work Programme Cambodia, ILO Presentation.

GOVERNMENT MINISTRY

Ministry of Women’s and Veteran’s Affairs (MOVA), 2002—WID (Women in Development)Program under UNICEF Grant 1985–1995 (English translation and Khmer).

KRAMS (LAWS)

Kram on Foreign Exchange.

Kram on the Law on Banking and Financial Institutions.

Kram on the Organization and Functioning of the National Bank of Cambodia.

PRAKAS (ADMINISTRATIVE REGULATIONS)

Prakas on licensing of banks.

Prakas on licensing of rural credit specialized banks.

Prakas on licensing of MFIs.

Prakas on the calculation of interest rates on microfinance loans.

Prakas on banks’ capital guarantee.

Prakas relating to liquidation of banks and microfinance institutions.

Prakas on banks’ minimum capital.

Prakas related to banks’ solvency ratio.

Prakas on the calculation of banks’ net worth.

Prakas on the accounting process for foreign currency transactions.

Prakas on the classification of and provision for bad and doubtful debts, including interest insuspense.

Prakas on controlling banks’ large exposure.

Prakas on loans to related parties.

Prakas on the establishment of the Interbank Market Working Group.

Prakas on fixed assets of banks.

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Prakas on transfer of shares of banks.

Prakas on the maintenance of reserve requirements for microfinance institutions.

Prakas on reporting requirement for registered NGOs and licensed MFI.

Prakas on the liquidity ratio applicable to licensed microfinance institutions.

Prakas on registration and licensing of MFIs.

Amendment to the Prakas on the classification of and provision for bad and doubtful debts,including interest in suspense.

Amendment to the Prakas on loans to related parties.

Prakas on US Dollars net settlement clearing house.

Prakas on the Riel-denominated checks’ clearing house.

CAMBODIA - GENERAL COUNTRY BACKGROUND

The Economist Intelligence Unit. “Country Report: Cambodia.” August 2004. www.economist.com/countries/.

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The Consultative Group to Assist the Poor1818 H Street, NW, MSN P3-300, Washington, DC 20433 USA

Tel: 202 475 9594 Fax: 202 522 03744

Paris Office66, Avenue d’Iena

75116 ParisTel: 33 (0) 1 40 69 32 73 Fax: 33 (0) 1 40 69 32 76

www.cgap.org

For more information on CLEARs contact: Eric Duflos (eduflos@worldbank.org) or Alexia Latortue (alatortue@worldbank.org)

cgap@worldbank.org