Chairman’s MessageIn 2017 Amret maintained its position at the forefront of the Cambodian microfinance sector, which is a key example for the global microfinance industry. Microfinance in Cambodia has performed outstandingly well since the 1990s and has played a key role in the economic and social development of the country, especially in rural areas, by providing credit and other financial services to populations previously lacking access to the formal banking sector.
There are several key reasons behind the success of the Cambodian microfinance sector:the well adapted regulation and close supervision enacted by the National Bank of Cambodia right from the early stages of the sector’s development; the quick implementation of best practices, as recognized by the microfinance industry; initial players’ commitment to developmental and social objectives as demonstrated by the focus on rural microfinance; and the continued involvement of international donors and investors ensuring proper capitalization of the sector.
As of the end of September 2017, the top 10 microfinance institutions and banks had a total of 2.0 million loan clients and a combined loan portfolio of US$5.4 billion with 3.8 million depositors and US$5.9 billion in deposits (CMA).
2016-17 was a turning point for the sector. For several years, Amret’s Board has been monitoring the market, cautious that as it reached maturity, risks of over-indebtedness could build up and eventually lead to a crisis, as experienced in several other countries. The Board therefore constantly encouraged management to focus on ensuring the quality of client selection and loan appraisal, even if this meant lower growth and loss of market share to more aggressive competitors. Fierce competition and high growth has resulted in a deterioration of portfolio quality in the sector and an increase in over- indebtedness for some segments of the population.
In 2017, NBC Authorities, sensitive to clients’ interests and eager to curb the credit growth curve, made some major regulatory changes; these included: the introduction of an interest cap for microfinance institutions; the modification of the rules on provisioning, introducing a provision on performing loans: and the exclusion of the quarterly audited profit in the total equity used to calculate the capital adequacy ratio.
Amret, as an affiliate of the Advans Group, dedicated to providing responsible financial services in Asia and Africa, has always been an advocate for responsible behaviour. This includes: prioritizing portfolio quality over growth, demonstrated by the fact that Amret has the best PAR (0.38%) in the sector, about half that of its competitors; committing to treating clients fairly and implementing the Client Protection Principles as demonstrated by Amret’s SMART Client Protection Certification obtained in June2016; ensuring that its processes and policies help to prevent clients falling into over-indebtedness; and abiding by all laws, especially tax law, with Amret having received a Gold Tax Compliance Certificate.
Despite a difficult context in the sector, 2017 was a good year for Amret with significant but responsible growth on the lending side and a significantly lower cost of risk than the industry average, thanks to the focus on key segments in line with Amret’s mission. The continued high quality of the loan portfolio, with PAR30 at 0.38% demonstrates Amret’s successful implementation of its strategy for sound growth. This growth was accompanied by an increase in volume on the deposits side, with a special focus on boosting small retail deposits from an extended client base. Despite the impact of the new regulation on profitability, Amret has reaffirmed its commitment to its mission to serve MSMEs, especially in rural areas.
Amret has launched a major internal program to adjust to the new regulatory and market environment and to be able to better serve MSMES and low to middle-income families at affordable rates. The year to come will be a year of transformation with three main focuses: maintain responsible growth on the credit side through focusing on serving MSMEs and low to medium-income families in rural and urban areas, develop retail deposits and financial services for a large clientele base; and restructure Amret’s organization to improve quality of service and efficiency to reduce costs. Offering quality services at an affordable price to our customers while providing fair revenues to our staff and lenders as well as a reasonable return to our shareholders remains our overall aim.in Cambodia.
Over the year, Amret was also able to contribute to developing financial inclusion in another South-East Asian country, with the increase of its capital investment in Advans Myanmar. Amret provided technical expertise and support, and the institution was able to reach an outstanding portfolio of US$1.6 million with 5,000 clients.
To conclude, I would like to thank our shareholders for their continual backing of Amret, and management and staff for their efforts to ensure that Amret continues to serve its clients in a sustainable and accountable manner. As we move forward, we can ensure that Amret maintains its influence in the Cambodian microfinance sector, remaining focused on its mission to be a responsible financial services provider.
Dr Claude FALGON
Director, Advans SA