Milestone in ADA’s promotion of responsible finance in Cambodia

ADA not only supports individual microfinance institutions, it also helps regional and national networks to strengthen local and national microfinance sectors. In this context, ADA has supported the development of the microfinance sector in Cambodia since 2009 via a longstanding partnership with the Cambodia Microfinance Association (CMA), the national umbrella organisation for microfinance service providers (MSPs). During the first few years, ADA’s aim was institutional strengthening and capacity building of CMA and its members.  

Over time, the focus of the partnership shifted to promoting responsible finance, transparency and client protection in response to an increasing awareness of risks of client over-indebtedness in the Cambodian inclusive finance sector.  

Preventing over-indebtedness of microfinance clients 

ADA helped CMA to prevent over-indebtedness of micro borrowers through research, advocacy, financial literacy campaigns as well as improved regulation and monitoring. Regarding the latter, CMA promoted responsible practices of its members to increase client protection. This was done in collaboration with its members, ADA and main stakeholders such as the Credit Bureau of Cambodia (CBC), international social investors and development partners.  

CMA’s efforts gained momentum when increased client protection became a priority under Cambodia’s National Financial Inclusion Strategy to ensure long-term market sustainability. With the support of ADA, CMA initiated a collaboration with the Association of Banks of Cambodia (ABC) and the Cambodian Association of Finance and Technology (CAFT) to set up a more comprehensive common responsible inclusive finance framework.  

Financial sector code of conduct and lending guidelines 

This collaboration was successful: in early March, Cambodia’s financial sector adopted the ‘Banking and Financial Institutions Code of Conduct’ to increase the level of trust and accountability of financial institutions. The code includes specific lending guidelines for MSPs (all financial institutions providing loans under 20 000 USD) and the requirement to comply with the SPTF/Cerise Client Protection Pathway framework.   

This new code of conduct will strengthen consumer protection thanks to its guidelines on marketing and advertising content, selling techniques and debt collection. The code also encourages microfinance service providers to protect customer data, provide financial education, encourage women entrepreneurship and prevent over-indebtedness of clients. 

ADA’s Head of Sectoral Programmes Asia, Wendy Medrano, explained that “we at ADA are glad that our efforts to professionalise and strengthen the microfinance sector not only contributed to the creation of an official code of conduct and lending guidelines for the microfinance sector but for the Cambodian financial sector as a whole. This shows that the impact of our technical support reaches beyond our partner associations and their members. By promoting best practices, we can support all financial institutions in developing countries to adopt a more transparent and client-centric way of working for the benefit of the local population.” 

The new code of conduct is in line with Cambodia’s Financial Sector Development Strategy 2016-2025 and the National Financial Inclusion Strategy 2019-2025. The self-regulated code will guide all banks (both commercial and specialised), microfinance institutions as well as payment service providers licensed under the industry regulator, the National Bank of Cambodia.