We continue on to the “Island of Silk,” on the Mekong River, with a loan officer from the MFI “Maxima” to meet three of its microentrepreneur customers. The situation here seems less precarious than in the rundown neighbourhoods we visited yesterday. The reason for this is simple: the Island of Silk is one of the main tourist sites outside of Phnom Penh. This influx of tourists provides the surrounding villages with a relatively stable source of economic development, except during the rainy season.

Phnom Penh, Cambodia: Ntuon Chhouk, a microentrepreneur and a grower of ginger, which he sells from his stall

Ntuon Chhouk recently took out a $200 loan, primarily to buy fertilizer, which is essential for growing his small crop of ginger. He took out his first loan 10 years ago, and has taken out a loan each year ever since. However, to answer our favourite question: “Do you feel confident about the future?” Mr. Chhouk answered “No.” This was the first time we had come across a situation such as this. While his business allows him to meet his needs, if the slightest thing goes wrong, his whole family will find themselves, once again, in a state of serious hardship. This showed us the value of other microfinance products, namely microsavings and microinsurance.

Phnom Penh, Cambodia: Chann Sopheap, microentrepreneur and owner of a silk clothing factory

Chann Sopheap took the initiative herself and introduced herself to the loan officer directly. Today, she holds a loan for $800, which she has used as working capital for her business. And following her advice, her sister is now also a customer of Maxima.
Since the time that she took out her first loan from Maxima, other MFIs, either misinformed or unscrupulous, have offered her loans: “I am perfectly aware of the potential dangers of microfinance. I am already a customer of Maxima, and every year they lend me the amount that I need. I have therefore consistently refused loan offers from other MFIs.”
In addition, she confided that she wants to take out a new loan next year for a larger amount. Clothes and souvenirs are selling well, thanks to the tourist trade, and she feels capable of producing more and selling a part of her stock on the Cambodian market.
We noted that, in contrast to her neighbours, the foundations and the roof of her house are built with durable materials, while everyone else’s are made of fabric or bamboo.
“I manage to raise enough money for my family because the amount of the loan is small and the interest rates are low too.”

Phnom Penh, Cambodia: Sott Seab, microentrepreneur and owner of a souvenir factory (MFI Maxima)

Word of mouth led Sott Seab to meet one of the Maxima credit officers. She took out a loan for $1,100 and she began to turn her family manufacturing business into a small workshop. Maxima has not provided special training to help develop her business; however, the MFI has advised her on how to manage her capital.
The collaboration seems to work well, as Sott has not had difficulties in making her monthly instalments. However she does not want Maxima to intervene in her sales process: “Today I sell my products to tourists and to Cambodian wholesalers. If I went through Maxima, it would be less profitable.”
She understands the competition among MFIs for new customers, but she realizes that combining several loans would be a mistake. For the moment, her greatest fear is that she will run into financial difficulties because of the economic crisis, which is causing a slowdown in her sales.
“Next year, I will take out a new loan with Maxima, but for a smaller amount”, and she hopes that one day “my company will be big enough to thrive without the support of an MFI.”

Phnom Penh, Cambodia: Uong Kimseng, CEO of the MFI “Maxima”

The microfinance sector is growing in Cambodia and there are now 1 million microentrepreneurs. Mr. Kimseng explained that the global economic crisis has had repercussions for some micro-entrepreneurs engaged in international markets, such as a vegetable farmer who sells his produce to a wholesaler who exports it abroad.
The Director of Maxima remains confident about the development potential of the microfinance industry. The 20 MFIs are very active and show a desire to improve this sector. In addition, they have joined together to form a think tank: the Cambodian Microfinance Association, which works with the Central Bank. The association also audits each MFI once a year, both to ensure compliance with legislation and also to identify possible improvements.

Mr. Kimseng summarised the state of the industry: “The industry is growing well under the regulation of the Central Bank, which now takes the interests of microfinance into account on an equal footing with the interests of conventional banking.”
Mr. Kimseng then reminded us of the limits of the traditional banking system which, with its codes, its formality and its rigidity, is not a good fit for the needs of the countryside. This observation led Maxima and number of MFIs to turn to the rural areas of Cambodia. When Maxima began its business, its intention was “to bring together the businesses and the inhabitants of the countryside in order to eliminate poverty by providing economic and social opportunities.”
Based on its knowledge of its customers, Maxima seeks to both develop the rural areas of Cambodia and to slow the rural exodus.
To succeed in this undertaking, Maxima surrounds itself with specialists in finance who have, for the most part, wide experience of the traditional banking system. For 5 years it operated as an NGO and built up its knowledge of microfinance. In 2005 it became an MFI after receiving a license from the Central Bank.
The main difficulty encountered by Mr Kimseng is a shortage of funds and investors. After several attempts, the MFI obtained initial funding from the Rural Development Bank of Cambodia, and then in the same breath from Kiva and ADA.

Now the MFI has more than 2,300 customers, mostly in areas within the province of Phnom Penh (the capital of Cambodia).
Mr Kimseng explained Maxima’s second challenge: “The office was sufficiently functional for the business to operate, but our employees did not have adequate knowledge of the microfinance sector.”
To remedy this structural problem, Maxima commissioned training programs for its employees with specialized organisations, and enticed away some of its competitors’ employees.
Today the weakness of the MFI lies in its organisational structure.
When Maxima was created, the founders took on the roles of both of investors and managers. This organisational structure is now creating transparency. Mr Kimseng is fully aware of this and he has expressed his willingness to change, although other challenges are more pressing.
The most immediate issue for the MFI is to attract more investors and to increase its capital so that it can increase its lending. For the next step, the director would like to develop staff training programs and acquire better quality IT equipment … The long-term goal is to develop a broader range of products, with products adapted to a wide and varied population.

Mr. Kimseng has not lost sight of Maxima’s original goal: “to reach as many regions as possible and as many customers as possible in order to eliminate poverty.”

What do you think?