Despite an expanding financial sector, increasing access to credit and strong economic growth in recent years, fewer than 1 in 20 Cambodians has a bank account, according to a new policy working paper by the World Bank.
According to the paper—released earlier this month and based on questions added in 2011 to the Gallup World Poll, which surveyed at least 1,000 people in each of 148 countries—the low number of people covered by the banking sector is a barrier to Cambodia’s economic progress.
“Without financial inclusion, individuals and firms need to rely on their own resources to meet their financial needs, such as saving for retirement, investing in their education, taking advantage of business opportunities, and confronting systemic or idiosyncratic shocks,” the World Bank paper says, adding that those with bank accounts are more likely to save money and be prepared for harder times.
Highlighting how underdeveloped the banking sector still is in Cambodia, the paper says that just 19 percent of Cambodian adults surveyed had received a loan from a financial institution in the past year. But far more, 39 percent, had taken a loan from family or friends.
Only 4 percent of people nationwide have a bank account in which they can deposit money—a figure that is halved when only the poorest 40 percent are looked at. And even among the richest 20 percent of Cambodians, only 12 percent have a bank account, the report says.
Those figures put Cambodia well below its peers in the number of people with a bank account—a key measure of financial inclusion according to the report. Cambodia is among only a few countries—including the Central African Republic, Kyrgyzstan and Yemen—where more than 95 percent of adults are without bank accounts.
The report says rates of financial inclusion depend largely on banking costs, how close people live to a bank and the kind of documentation required to open a bank account.
“Policies targeted to promote inclusion—such as government requirements to offer basic or low-fee accounts, exempting small or rural depositors from onerous documentation requirements, and the use of bank accounts for government payments—are especially effective among rural residents and the poor,” the paper says.
The low banking rate cannot just be explained by Cambodia’s large rural population, said Chan Sophal, president of the Cambodian Economic Association.
“Even in Phnom Penh, many people do not bank and it’s fewer in the provincial towns,” he said. “Because of the upheaval in history, people did not use banks for many years. It’s been changing but it is slow to catch up.”
Still, Mr. Sophal said the low bank coverage in the country did not mean people in the country were not spending or investing.
When the Khmer Rouge came to power in 1975, the regime abolished money and banks in Cambodia, blowing up the National Bank of Cambodia. Many in the country still remember when the riel was reintroduced in 1980.
“That means they don’t feel secure enough about the social-political situation…. Maybe instead of putting the money in the bank, they use the money to buy property or land,” said independent political analyst Chea Vannath, noting that many believe they can make more money from speculating on land rather than putting it in bank accounts.
“There is a cultural barrier—Cambodian people have not used bank accounts in their lives,” said Bun Mony, chair of the Cambodian Microfinance Association and chief executive at Sethapana Limited microfinance bank.
He said the seven leading microfinance institutions had expanded into all provinces and were now offering deposit accounts, which would make more people aware of the benefits of banking.
“The number of customers using the microfinance banking service accounts is increasing every day, so people will begin to understand why it is helpful,” Mr. Mony said.