Effective control of the Covid-19 outbreak has brought the local economy back to normal. Banking and financial sectors in Cambodia have also shown resilience and have actively contributed to supporting Cambodia’s economic activities. Total assets of the microfinance sector increased by 23.2% (to USD 11.2 billion), while gross loan portfolio increased by 24.7% (to USD 9.7 billion) with 2.1 million accounts. Meanwhile, deposit collection of microfinance institutions increased by 21.2% to USD 5.1 billion with 2.6 million deposit accounts, according to the Annual Report 2022 of the National Bank of Cambodia.
In 2022, LOLC Cambodia conducted its business operations with caution and maintained its loan portfolio growth by focusing on quality and strong internal control. While the country was still recovering from Covid-19, Cambodia was hit by a severe natural disaster brought on by climate change, catastrophic floods, with 14 out of 25 provinces affected. Houses, infrastructure (roads, schools, hospitals) and agricultural land were all inundated. With regulatory support from the National Bank of Cambodia (NBC), LOLC Cambodia was able to continue providing its clients with relief measures, allowing them the necessary time and space to resume their business activities.
LOLC Cambodia maintained quality growth in 2022, increasing its loan portfolio by 21% to reach USD 1,253 million, while the portfolio at risk greater than 30 days was 2.95%. The number of borrowers increased by 7% to around 342 thousand. Our borrowers are made up of groups and individuals, representing 47% and 53% respectively. The vast majority of loans outstanding are individual and group loans going to low-income and non-poor clients reflecting LOLC Cambodia’s mission to create lasting positive impact on the communities it serves through the sustainable delivery of inclusive and client-centric financial services, while at the same time generating stakeholder value.
Loan Portfolio Quality
expansion of its loan portfolio growth by focusing on quality and strong internal control. The Board of Directors and management team have collaborated closely to enhance credit risk management and internal control by implementing the following measures:
Loan assessment and evaluation are conducted following cash flow base analysis;
Different levels of authorities are required for loan review and loan approval;
Frequent reviews of the policies, procedures or manuals and their implementation;
System support on detecting and restricting the implementation of policies and procedures;
Continued strengthening of credit monitoring after disbursement through a variety of approaches;
Integration of risk management culture throughout LOLC Cambodia;
Continued strengthening of credit quality assurance team to ensure the implementation of internal control;
Internal Audit Department to play a crucial role in ensuring the application of robust internal controls;
Credit quality-based incentive structure for financial sale advisors and other field personnels;
Requiring that the Credit Bureau of Cambodia checks 100% of borrowers and co-borrowers before disbursement to supplement rigorous in-person loan evaluations (cash flow base assessment);
Continued provision of training and retention programs to strengthen staff capacity and enhance staff’s skills and knowledge to ensure proper implementation;
Incorporation of Client Protection Principles as a fundamental risk management practice;
Maintaining compliance with ABC/CMA lending guidelines regarding multiple loans and refinancing.
The deposit base has drastically increased reaching an amount of over USD 767 million, a growth of 32% when compared to the end of 2021. The number of depositors has increased to more than 517 thousand with a growth of 12%. The exponential growth of deposit balance and depositors demonstrates that LOLC Cambodia is a reliable microfinance institution delivering superior customer service, guaranteeing client protection, and providing competitive and innovative deposit and loan products. By the end of 2023, LOLC Cambodia aims to nearly double its deposit amount in order to catch up to its competitors.
In order to support business development and cater to the fast growth of digital financial service requirements, LOLC Cambodia has been investing in various innovative digital banking projects in order to provide superior customer experience.
In 2022, LOLC Cambodia upgraded its iPay Cambodia mobile app with new interfaces and more convenient functions and encouraged its customers to use available digital products and electronic payment via FAST payment, RFT (real-time fund transfer), Bakong and internet banking. These digital payment platforms enable LOLC Cambodia customers to perform banking transactions conveniently via their smartphones anywhere and anytime without any charges.
Additionally, with LOLC Cambodia ATM CARD, LOLC Cambodia customers are able to withdraw cash nationwide from thousands of ATM machines of partnered institutions who are CSS members.
Besides these initiatives, LOLC Cambodia is launching a tablet banking system and expects to implement it in all branches by the end of 2023. Through the tablet banking system, our officers are able to perform their tasks (such as loan origination, loan collection and customer onboarding) conveniently from tablet devices reducing manual work, and increasing productivity, efficiency, and effectiveness.
In addition, LOLC Cambodia has also been integrating third party connectivity in order to contribute more distribution channels and provide the best customer experience.
Environmental, Social, and Governance (ESG)
LOLC Cambodia continues to deliver its inclusive, responsible, and environmentally friendly financial services to rural Cambodians. As of December 2022, about 78% of its loan clients were living in rural areas, around 70% of borrowers were females, and 47% of borrowers were involved in agriculture where there was no significant environmental risk exposure. 4.8 thousand clients had access to clean energy, 9.8 thousand clients were using home improvement loans, 5.4 thousand clients were using WASH loans for better sanitation and clean water, and 517 thousand clients had access to savings. Approximately 24% of clients were likely living below 150% of the National Poverty Line (using PPI tools for measuring poverty).
As per the company’s strategy, environmental, social and governance management standards including Client Protection Principle (CPP), Universal Standard of Social Performance Management (USSPM), environmental, social, and governance best practices, etc. are all integrated into institutional policies, procedures, training, delivery of products and services, and monitoring tools. This is because management and the Board of Directors wholeheartedly believe in the philosophy that “the company succeeds only if the clients succeed”. As a result, in 2022, LOLC Cambodia was awarded the Gold Level of Client Protection Certification from Cerise and SPTF. This verified that LOLC Cambodia always protects and supports its clients to financially grow their businesses through efficient and sustainable financial services. Besides these, LOLC Cambodia was awarded the s BB+ of social rating, which indicates adequate social performance management, client protection systems and alignment to the social mission. And, the α Medium of institutional rating by Microfinanza, which indicates strong outlook for financial sustainability, strong and stable fundamentals.
To support Sustainable Development Goals (SDGs) as well as to be part of the solution toward environmental and social protection, LOLC Cambodia has put a lot of effort into embedding key points that can address concerns about environmental, social, and governance, into the loan process, making sure the loan origination process involves ESG in decision-making.
LOLC Cambodia has an exclusion list which prohibits the financing of activities that negatively impact the environment and community. LOLC Cambodia has robust measures in place to prevent loans being granted for the financing of any excluded activities. All loans are assessed by the field staff and reviewed by supervisors against the exclusion list and assessed on the environmental and social impact. Environmental and Social assessments are carried out with all loans. For loans which are lower than USD 30,000, environmental and social awareness is discussed with clients regarding risk areas and suggestions are given for improvement. For Small and Medium Enterprise loans (SME) which are bigger than or equal to USD 30,000, a comprehensive tool is fully integrated into the lending process. The detailed assessment is conducted to evaluate whether the impact is low, medium or high, and to make suggestions to the client about awareness and where to make improvement. As an ongoing implementation, the progress of the environmental and social assessment is monitored. At least two times (during assessment and before disbursement), clients are informed about the product’s features, fee charges, cooling off period, terms, and conditions by using visual aids (A4-Metacard). In addition, the video guideline using visual aids A4-Metacard is disclosed on LOLC Cambodia’s website.
Due to Covid-19, in-class training for financial literacy awareness and other related activities were postponed during the year. As such, 4 financial literacy videos were produced and posted to the public on the LOLC Cambodia Facebook page and other LOLC Cambodia’s social media to deliver financial literacy messages, consumer protection, selfmotivation and small business management skills. From 2020 to 2022, 24 financial literacy videos were produced and posted. The videos reached more than 16 million viewers. Furthermore, LOLC Cambodia also allocated part of its budget to contribute to other social activities such as the following:
Bench installation in public places, holding school activities, organizing tree planting, sponsoring books for local libraries, building wells and installing hand washing stations;
Donation to Cambodian Red Cross for charity activities;
Donation of food, trash bins and study materials to children organizations;
Funding of Youth for Community program to assist with various humanitarian programs to reduce poverty and family hardship;
Educated One Village One Product Project beneficiaries on “How to Get the Right Financial Services” in some provinces;
Assisted FASMEC in developing successful business activities for project beneficiaries on “How to Get the Right Financial Services”;
Contributed to social work by delivering anti-drug campaign leaflets and other promotional materials to help the General Secretariat of National Authority for Combating Drugs (NACD) disseminate drug-related awareness to the public.
STRATEGIC PRIORITIES FOR 2023
We see 2023 as the year of new opportunities and challenges for LOLC Cambodia.
On the lending side, we will continue to follow our existing strategy and keep focusing on micro, small and medium business loans and asset-backed lending/leasing, which are the core business of LOLC Cambodia.
On the deposit side, we will keep strengthening our customer services and using diversified digital channels to promote more deposit collections. We will also diversify products and services to meet clients’ needs, including plan savings accounts, kids savings accounts, bill payment services and payroll services.
On the digital side, LOLC Cambodia will keep innovating inclusive digital financial services to cater to client’s requirements with anywhere banking experience in Cambodia.
On the funding side, LOLC Cambodia will diversify sources of funds to ensure funding requirements are sufficient to support LOLC Cambodia’s growth. Aside from sources of funds from shareholder paid-up capital, borrowings and deposits, LOLC Cambodia issued its first corporate bonds to support LOLC Cambodia’s long-term growth and is in the process of issuing its second corporate bonds to potential investors.
On the ESG side, LOLC Cambodia will continue focusing on implementation of environmental, social, and governance best practices to fulfill LOLC Cambodia’s commitment toward sustainability and to uphold LOLC Cambodia’s core value: “LOLC Cambodia values the vision of a balanced social and profit organizational agenda.”
In short, we will try to make the most of the opportunities that our current successes have opened for us and we are confident that LOLC Cambodia is well positioned to bring further value to its customers, investors and shareholders.
Finally, I would like to express my sincerest thanks to our shareholders, Board of Directors and committee members for their leadership, support, and guidance throughout the year. I would also like to express my sincerest gratitude to all the LOLC Cambodia staff who have been working hard/smart and highly committed to performing their work with integrity, ethics, professionalism and high responsibility. Additionally, I would like to express my sincerest thanks to all LOLC Cambodia’s clients, investors and business partners for supporting LOLC Cambodia and for being a part of its achievements. To the Royal Government and the National Bank of Cambodia, I offer my sincerest thanks — both for your support in 2022 and in anticipation of happy and prosperous coming years.