Promoting Inclusive Markets and Financial Systems
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Recently a team from the Consultative Group to Assist the Poorest (CGAP) completed a study of Cambodia that focused on the emerging micro-financial markets.2 They concluded that the biggest gap at the retail level was extremely weak savings mobilization.
The second biggest gap was low institutional capacity.
A third important gap was service delivery in remote areas.
In this study, the Canadian Co-operative Association (CCA) explores the gaps in savings and institutional capacity, with special reference to rural areas.
We make the case that the key gap is institutional capacity. Addressing that one gap will resolve the other two.
What does the institutional gap look like in rural Cambodia? In January and February 2004, CCA sponsored a series of meetings with practitioners involved in developing rural, community-based financial institutions (“community finance institutions” or CFIs). They provided a list of problems, an "institutional capacity gap".
Household money managers in Cambodia are often shrewd and resourceful people, achieving remarkable things under constraints that almost defy belief. This observation is a premise of the study. It is also reinforced in the main findings.
The study uses village-based market research to open a searching consultation with poor rural Cambodians in villages where there are CFIs.
Poor people told CCA that they do save, and in large amounts. Furthermore, they have clear goals for saving, beginning with food security, medical emergencies, and education. They have developed informal methods of saving that are geared towards achieving these savings goals. Tragically, these methods are very risky and lead to considerable losses. Gold is the most popular informal savings strategy because it is relatively illiquid and women like to wear it. Unfortunately gold, like other informal strategies, is subject to losses, especially from local oligopolies, from forgeries, and from theft.
Ensuring that deposits are safe is vital to both groups. The poorest families are the least likely to be CFI members and often feel excluded by the regular deposit requirement.
Members are saying they would like managers to have more skill; this is a training issue. However, managers must also show more respect for the rules agreed to by the CFIs’ shareholders; this is not a training issue and training is useless if it does not happen.
Accountability on the part of managers, and exercising rights on the part of members, are acts of will. Managers and members need knowledge, but knowledge is not sufficient by itself. NGOs and donors must monitor the emergence of will within CFIs, and invest in those in which managers have the will to respect the rules, and members have the will to exercise their rights.
Some observers argue that there is too much corruption in Cambodia to build institutions that are responsible for protecting deposits. It could even be argued that the attitudes outlined here, and the stories presented here, support that case.
It is well known that a legacy of distrust casts a long shadow over efforts to build institutions in Cambodia. Stories of NGOs, Thai banks and other operators collecting money from villagers and then vanishing with it were common everywhere the CCA team travelled.
Clearly, it is not the fault of savings groups that they face distrust in their villages. But in order to build a successful community finance movement in Cambodia, CFIs must tackle the problem of trust head-on – and so must donors. It is not about the money. The last thing communities trying to build healthy, safe institutions need is cheap external credit. It is about people, institutions and trust. Without getting those parts right, savings will remain hidden in bamboo poles and tied up in high risk strategies like livestock. The security of rural families, and the chances that their children will go to school will depend on matters like the heath of their chickens and their ability to identify fake gold.