A senior industry representative defended Cambodia's microfinance institutions (MFIs) Wednesday over the high interest rates charged.
Speaking on the sidelines of an industry conference, Cambodian Microfinance Association (CMA) board member Sim Senacheert said that the rates reflected the borrowing costs of the lenders.
"If the rates are too high and the market did not accept them, then we wouldn't be able to disburse the loans," he said.
Between 60 and 70 percent of all capital disbursed by microfinance lenders in Cambodia is borrowed from international partners who charge between 10 and 11 percent per annum, said Sim Senacheert, who is also the general manager of the Prasac Microfinance Institution.
The Cambodian lender then calculates the interest rates it will charge based on the borrowing costs and expenses, such as wages, rent and transport, he said.
These account for around 15 percent of the value of loans, and a further 1 or 2 percent is then added to hedge against default risk.
"After these expense calculations, we add 5 to 7 percent into the loan for profit," he said, adding to an interest rate anywhere from 28 percent to 34 percent per annum.
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