Microfinance and poverty

On March 13, the National Bank of Cambodia (NBC) announced that it will cap interest rates on microfinance loans at 18 percent per year starting April 1 in order to help growing numbers of Cambodians struggling with over-indebtedness. After this announcement, leaders and experts of the microfinance industry responded that this government intervention is merely a political gesture that will backfire and hurt the rural poor even more.
Citing an economic researcher at the NBC, they argued that many small microfinance institutions (MFIs) will not be able to afford their high operating costs if the government imposes an interest rate cap. These MFIs will be forced to reduce their services and potentially stop providing the rural poor with the small loans that they rely upon for basic needs like health care and food. These borrowers will have no other option but to seek out loans from unregulated local moneylenders, which will further drive them into debt and poverty.

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