ABSTRACT
Chapter 2 offers a comprehensive historical overview and current analysis of Cambodia’s microfinance sector. Emerging in the early 1990s to address the absence of formal financial services following the Khmer Rouge era, microfinance institutions (MFIs) initially relied on donor funding and NGO-led initiatives. With increasing government support and regulatory oversight from the National Bank of Cambodia (NBC), the sector became more institutionalized and commercialized by the early 2000s, exemplified by the transformation of entities like ACLEDA into formal financial institutions. Between 2005 and 2015, the sector experienced rapid growth, bolstered by foreign investment and financial innovations such as deposit-taking licenses and mobile banking. However, this expansion also raised concerns over over-indebtedness and market saturation. In recent years, the sector has faced growing regulatory constraints, including interest rate caps and policies promoting the use of the local currency. The COVID-19 pandemic further prompted large-scale loan restructuring programs to support affected borrowers. The chapter also highlights the persistent issue of dollarization, noting that while MFIs are less dollarized than commercial banks, they remain exposed to currency mismatch risks. Outreach-oriented MFIs, which lend predominantly in Khmer riel, are particularly vulnerable under current regulatory requirements.
