25 Nov 2019

In the wake of the fourth industrial revolution, startups and the technology sector need to be a critical part of the Cambodian economy to achieve aspirations of becoming an upper-middle income economy by 2030. Although the country has experienced strong GDP growth of 7% per annum, its primary growth sectors are at risk. With an economy dominated by agriculture, textile and manufacturing, the country needs to look to alternative sectors for long-term growth and value creation. Automation is expected to replace a significant proportion of low-skilled labour, such that the digital economy can be part of the answer for fundamental challenges in employability and the future of work.

Cambodia has positive market conditions for foreign investment and government support for the tech startup ecosystem. A 90% US-dollarized economy reduces currency risk compared to more volatile emerging market national currencies. Capital flows are significantly less restricted than neighbouring ASEAN markets coupled with aspects that improve ease of doing business, such as registration and immigration. A foreign national can move to Cambodia, register their tech business, and wholly own their company in a matter of weeks, making it an attractive destination for tech entrepreneurs. A number of undeveloped sectors present opportunities for innovation and “leapfrogging”. On the consumer side, 78% of the population remains unbanked in a largely cash-based economy. While this could be considered a challenge for tech startups in areas such as e-commerce, it also represents opportunity. There are many consumer problems to solve, with
international entrants Grab and iflix starting to infiltrate the market in very early stages (within the past two years or less at the time of publication). However, localized solutions are required and may provide a stronger, more relevant proposition, exemplars included later in this report. With the market gathering momentum and ready to adopt digital products, now is the time to catalyse the growth of the digital sector.

Perceptions of becoming a tech entrepreneur are rapidly improving amongst young people. Increased media coverage of international startup success stories, as well as local role models, is reducing the perceived risk of choosing an entrepreneurial career versus a more traditional pathway. Government support for the digital economy as defined in the Rectangular Strategy IV, shows public support for the startup agenda as an economic priority.

Cambodia has the building blocks to create a positive environment for startups to flourish and solve some of the economy’s most pressing needs. Given the increased digital literacy of the young, as well as scalable nature of tech solutions, this could be the gateway to boosting Cambodia’s competitiveness in regional markets while solving large-scale market inefficiencies domestically.

This research project was undertaken to provide an independent snapshot of the tech startup sector up to Q3 2018, characterising existing challenges and an outlook for the future of the sector. While the research synthesises the views of over 100 startup founders, it is not exhaustive coverage of all startups nationwide, but takes a systematic stakeholder approach to provide a comprehensive perspective of the ecosystem. This report aims to be a basic resource for all stakeholder groups in the market, including organisations or individuals outside of Cambodia who are already working in, or interested in participating in, the Cambodian tech startup ecosystem. It serves to:

  • Provide an overview of the landscape of the current tech and startup ecosystem for potential corporate, institutional or individual investors.
  • Identify and compile key challenges and existing support resources in the ecosystem.
  • Catalyse constructive discourse by providing recommendations to enable more systematic approaches by all stakeholders to develop the digital economy

Above text included in introduction

Study on the Drivers of Over-Indebtedness of Microfinance Borrowers in Cambodia

03 Jun 2014

Microfinance has grown rapidly over the last decade, directly reaching millions of poor people worldwide, providing credit and other forms of financial services. If used judiciously, it can serve as an effective instrument in promoting financial inclusion. It is mainly for this reason that BlueOrchard Finance, Incofin and Oikocredit have been investing significant amounts of capital and other resources in MFIs around the world.

The microfinance sector in Cambodia has grown rapidly over the last ten years. It has successfully professionalized as one of the leading microfinance sectors in the Southeast Asian region. There are claims, however, that the sector might be nearing saturation. Concerns have been raised that the possibility of over-indebtedness among borrowers could undermine the social mission and the sustained healthy development of the sector.

In some countries where microfinance services have rapidly expanded, the problem has shifted from the poor having too little access to finance, to having too much access, with the option of even borrowing from several MFIs. Aggressive growth of microfinance, even if driven by the desire to reach out to those with limited access to capital, could have a negative impact when borrowers take too much debt.

Over-indebtedness has become among the most serious risks of microfinance today and impacts all stakeholders. Most importantly, borrowers who are unable to repay their loans risk losing their assets, even their livelihoods, potentially worsening their living conditions. Where client protection and safety nets are weak, microfinance borrowers are often left with no financial or social support once they become over-indebted. The potential economic, psychological and sociological consequences are far reaching. Significant loan defaults can also gravely affect the portfolio quality of MFIs, putting institutional stability and sustainability at serious risk as has been seen in various countries around the world. This in turn can hurt returns for investors in the sector, tarnish the overall image of the industry, and potentially jeopardize the excellent work that so many are doing to build a healthy and sustainable inclusive financial system.

While over-indebtedness is a pressing and urgent challenge for the microfinance sector, the truth is that we know little about it and no industry level publication on multiple borrowing and OID in Cambodia exists. This is the reason that we embarked on this study, the aim of which is to contribute to a better understanding of the drivers of over-indebtedness among borrowers in selected saturated areas in Cambodia. As such, the study is limited to selected areas in the country. It will not be able to answer all our questions but we feel that it offers important insights from the borrowers and the factors that drove them to over-indebtedness. These should serve as key elements of our understanding of over-indebtedness.

Oikocredit, Incofin and BlueOrchard Finance strive to finance MFIs that hold to their mission of providing access to finance for those excluded from the formal financial system. We are cognizant that the challenge for Cambodian MFIs has shifted from financial sustainability to responsibility in ethical lending. Anchored by our commitment to the fair treatment and protection of microfinance clients, we invest in MFIs that offer services to disadvantaged people in a responsible, transparent and sustainable manner. As social investors, we want to ensure that as the microfinance sector grows, so does steadfast adherence to strict standards in responsible lending. We hope that this study will provide valuable inputs to improve collective efforts among stakeholders of the microfinance sector to prevent over-indebtedness and to ensure further protection of borrowers in Cambodia. We also hope that this study and its methodological framework could be used in other countries in order to better understand the drivers of multiple borrowing and over-indebtedness more broadly, to prevent their development and ensure the preservation of a sound and responsible microfinance industry.