Neav Chanthana, Deputy Governor, National Bank of Cambodia speaks to
Khmer Times in conjunction with the Implementation of Financial Inclusion Strategy 2019-2025 And Official Launch of Let’s Talk Money: Little by Little Campaign.
The following is an abridged version.
Aim of financial inclusion for NBC and stakeholders
Financial inclusion has become instrumental to addressing the country’s economic growth, reducing inequality, and decreasing the overall national poverty rates. Access to finance has become an essential policy tool for national and global policy makers. With population being excluded from access to finance, there is a potential loss of deposits or savings, and investible funds capable of enhancing credit creation and capital accumulation, which results in loss of capacity in generating socio‐economic development. Elimination of blockages to financial inclusion has significant direct impacts on the productivity and GDP growth through more effective allocation of resources and more efficient financial contracting; resulting in stronger entrepreneurial activities and new business start‐ups.
Cambodia has a moderate level of financial inclusion, which requires active participation from government ministries and agencies, private sector, development partners and relevant stakeholders; particularly, in the context of deep regional economic and financial integration under the rapid development of technology in the digital era.
Benchmarks for financial inclusion
Financial inclusion plays a crucial role in poverty reduction in Cambodia. Enabling the unserved population or small and medium enterprises (SMEs) to access affordable financial services would create and broaden potential economic activities across sectors. Such engagement has both direct and indirect impacts on poverty reduction in the society. Cambodia has made efforts in promoting financial inclusion through countrywide and market‐oriented financial sector development, enhancement of financial literacy in all means, reduction of cost in using financial services to a reasonable level, and enabling financial infrastructure development for more convenient and more efficient access to finance.
Financial inclusion and the banking and financial sector
The three dimensions of financial inclusion are access, usage and quality. Financial Inclusion is defined as an access to and usage of formal financial services in a timely manner based on their needs with affordable cost and proper protection. Enhancing financial inclusion will provide socio‐economic benefits to both SMEs and people who have no access to formal financial services.
Financial inclusion and access to finance are two different concepts. This means while financial inclusion focuses on the usage, the lack of use does not coincide with the lack of access. Taking into account the entire population, generally taken to be above the age of 18, some are already using formal financial services and are therefore included, but there are also some excluded population. Among the excluded population, those not using formal financial services, some choose not to do so either because of cultural or religious reasons or because they feel they have no need for financial services.
Though the importance of financial inclusion has been globally recognised, there a number of key barriers that hamper financial inclusion. Elimination of blockages to financial inclusion requires participation, coordination and cooperation among stakeholders, both public and private sector. From public sector, favorable regulatory framework and environment should be in place. From private sector’s contribution, financial services are a means to financial inclusion, and financial development must take into account vulnerabilities and ward off possible unintended consequences. Inclusive and efficient financial markets have the potential to improve the lives of citizens, to reduce transaction costs, to spur economic activities, and to improve the delivery of other social benefits and innovative private sector solutions.
Therefore, for regulators and government entities, improving financial inclusion means promoting country economy while for financial consumers and general public, financial inclusion helps them improving their livelihood and living standard. Last but not least, for the private sector, financial inclusion drives new business concepts, technology and innovations.
The NBC’s financial inclusion strategy and execution
Financial inclusion strategy is prepared as the national policy framework, which brings together ministries and other stakeholders to be fully involved and to have comprehensive and precise action plans. The National Financial Inclusion Strategy is a policy tool to support the effective implementation of Financial Sector Development Strategy 2016‐2025 (FSDS), which aims at achieving stable and effective financial system as well as diversified inclusive financial market to address the domestic demand for financial services, support the sustainability of economic growth, increase people’s incomes and reduce poverty.
On top of that, the NBC and Good Return have partnered since 2015 to promote financial literacy in Cambodia. This partnership resulted in “Let’s Talk Money” campaign which was first launched officially in 2016 to activate financial behavior change and to strengthen economic empowerment in low-income households and vulnerable communities, with the primary target of young people aged 15-30 living in urban and rural areas. Building on this immense success, the NBC is continuing its partnership with Good Return to extend the campaign based on the 6 series above by producing this Financial Education Comic Book as additional reader for children aged between 8-12 years old.
TThe NBC and Good Return continue coop¬eration and launch a new, multi-media finan¬cial awareness campaign called “Let’s Talk Money: Little by Little” to encourage shared participation in financial decisions between men and women in households and preparing for unexpected future financial shocks. The campaign’s call to action is “You can have a better future – it’s not too late, start NOW!” It covers four themes: 1. Manage your money better. 2. Prepare for the unexpected. 3. Know your rights and responsibilities. 4. Speak it out. The campaign will conduct training sessions with 1000 garment workers and 300 women entrepreneurs to reach out to target audiences.
Viability of a basic no-frills banking account for making and receiving payments
Basic no-frills banking accounts require zero or very low minimum balance. Withdrawals via ATM, Debit cards and other means are no charge or little charges to enable universal access to banking facilities. From regulator side, there is no provision to restrict private sector to charge for their services. The operation and fee is driven by supply and demand. However, in this saturated and competitive market, costs of products and services are moving down gradually. Taking interest on loan as example. Annual interest for loans have been decreased from time to time.
With the increasing number of service providers and expansion of outreach, the accessibility is approaching client’s doorstep in urban areas, and also penetrating to rural areas gradually. Also, the digital economy also contributes to increasing number of clients to a formal bank account, at least for receiving their wages.
The basics of budgeting, creating and maintaining a budget
NBC aims to build the financial literacy of all Cambodians and understanding and maintaining a budget is one important aspect for people to put into practice. This is why NBC invites financial institutions to collaborate actively in developing and delivering financial literacy campaigns to clients. Beyond the basics of budgeting, NBC – through the Let’s Talk Money: Little by Little series, supports Cambodians to make more informed choices – in borrowing money/taking out a loan, saving, communicating with their providers when they have problems, and planning for the future.
The new campaign “Let’s Talk Money: Little by Little” developed by NBC and Good Return involved the target audiences of 25-45-year old rural adults and women entrepreneurs during the research and design process, to ensure that their needs and knowledge gaps around budgeting could be understood and addressed.
Understanding interest rates
We acknowledge that the matter of interest rate is crucial for financial consumers. Not every consumer knows how it works and how it impacts their financial decision making. That means, in general, this matter has been taken for granted from the demand side. Thus, some service providers take the opportunity to benefit from those who have little understanding of interest. For example, some providers calculate or charge interest from their clients using flat rate method rather than declining balance method. This practice could undermine the confidence in the credit market and in the banking system. However, at its early detection of the problem, the NBC took steps to intervene by mean of regulation and supervision.
With that, the NBC issued Prakas on Calculation of Interest Rate on Microfinance Loans to prohibit MFIs to calculate interest rate on flat rate. In addition, the NBC issued Prakas on Transparency on Granting Credit Facilities of Banks and Financial Institutions which requires banks and financial institutions to disclose the interest rate calculation including Effective Interest Rate to their clients in order to ensure that loans are granted with transparent, fair, reasonable and responsible manner.
Ensuring sufficient liquidity
Banking system is metaphorically regarded as blood veins of the economy. It mobilises funds from those who have surpluses and finance those who have demands. Those with surplus funds will place their funds as deposits into account for the safety, return or interest from the deposit and also convenience in withdrawing their funds when needed. Savings is important, not only to fulfil this intermediary function by providing liquidity to the banking system, but also for depositor’s financial emergencies and the future needs. Still, there are many populations do not have formal saving account or opt to save in-kind such as save in animals or jewelry. Encouraging formal saving or changing people behavior toward saving needs jointly efforts from relevant regulators, service providers and consumers themselves.
The NBC strongly believed that changing financial behavior and mindset of people is critical to get them involved in formal financial service. There are a number of reasons one decides not have saving account. These include difficult access to service provider’s office,
being unable to fulfil service provider’s requirements, dissatisfaction of services available or having no information about formal financial service. More importantly, these people do not understand the importance of saving/using formal financial service. These have inspired the NBC to focus on financial literacy as one of top priorities. Let’s Talk Money campaign has explicitly targeted formal saving demonstrated by the educational video “The Boy Who Save”.
Credit-debt cycle traps
In the simplest definition, a debt trap is spending more than you earn and borrowing and then you choose to arrange credit to facilitate or cover that spending. While this can certainly be caused by unnecessary spending, one less commonly addressed debt trap happens when you don’t have adequate savings to handle unforeseen costs. Everyone spends their money every day, for example whether you need paying your dentist for dental care services, replacing the air conditioning in your home or paying for your utilities bill, things happen. Without an established emergency fund, credit cards are often the only option for dealing with these unexpected expenses.
Then, as your debt-to-income ratio increases and you don’t have much left to put into savings, this problem can get worse. Even if you’re able to regularly make your monthly minimum payments, interest rates can keep your debt from decreasing significantly — allowing the cycle to perpetuate. With so much of your monthly income going toward your debt, you’ll continue struggling to save and unforeseen costs will continue to come up.
Further perpetuating the cycle is the allure of paying off debt with debt. While refinancing your credit card debt with a lower-interest personal loan isn’t always a bad idea, borrowers get into trouble when they then acquire new debt on the now-paid-off credit cards — and again, the cycle perpetuates.
Of course, the easiest way to handle a debt trap is to avoid getting into one in the first place. Though certainly easier said than done, the number one way to avoid a debt trap is by building your savings so you’ll be prepared to handle any potential “trap-makers” that pop up.
Understanding of finances and how credit works
The “Let’s Talk Money!” Financial Consumer Awareness Campaign was launched by the NBC and the Australian International NGO, Good Return, in 2016 to encourage Cambodian youth to talk about important money matters within their household and seek out the information they need to make wise money decisions. Financial institution representatives were consulted in developing the educational messages around comparing loan interest rates, understanding contract terms, the impacts of multiple borrowing and more, as clients and institutions need to work together for a strong financial sector that is supporting Cambodian people and businesses to thrive.
In just the first three months, the Campaign reached nearly 1.5 million Cambodians through the 6 video Public Service Announcements, TV, social media networks, radio, SMS and face-to-face educational sessions in schools and factories generating 26,800 household conversations about the educational messages. The NBC and Good Return have learnt from the evaluation of the first campaign to design and deliver the new, exciting “Let’s Talk Money: Little by Little” Campaign aimed at 25-45 year-old adults and women entrepreneurs.
Another tool that NBC and Good Return developed together with Viamo and Cellcard and operated for a number of years was the 3-2-1 phone hotline 3 service on the financial education topic. It enabled anyone with a mobile phone to access trusted information from NBC and learn more about savings and its advantages, how to use credit effectively, how to manage debt, and how to prevent over indebtedness, as well as learn about the different types of products offered by formal financial institutions, such as business, personal or home loans. These types of phone services particularly enable those with low literacy and limited internet to access much needed information. The NBC recognizes that it needs to reach out to the public across various channels and platforms to ensure the financial inclusion of all.
- Tags: Let’s Talk Money, Neav Chanthana
Source : From the Web