Beyond Borders, Beyond Banking (eBook)

Foreword 11
Reference 13
Acknowledgments 14
Contents 17
Abbreviations 24
List of Figures 26
List of Tables 32
Part I: A Decade of Growth 33
Prologue 33
The Future Perspective 33
Reference 33
Chapter 1: Introduction: Building the Future—Beyond Borders, Beyond Banking 34
1.1 Part I: A Decade of Growth 37
1.2 Part II: Flight to Quality 38
1.3 Part III: ACLEDA Bank Plc.: Traditions and Transitions 38
1.4 Part IV: ACLEDA Bank Plc.: Expanding Beyond Borders, Beyond Banking 39
1.5 Epilogue 40
Chapter 2: The Big Picture: Cambodia Then, Cambodia Now (2004–2019) 41
2.1 More than a Decade of Growth 41
2.2 Growth with Equity 45
2.3 Growth and Poverty 47
2.4 Competitiveness and Innovation 47
2.4.1 The Global Competitiveness Index (GCI) 48
2.5 The Current and Future Advantage 51
References 52
Part II: Flight to Quality 55
Prologue 55
The Historical Perspective 55
References 57
Chapter 3: Cambodia’s Financial Market System (2004–2019): History, Structure, and Performance 58
3.1 An Introduction to Cambodia’s Financial Market System 58
3.1.1 Demand and Supply of Financial Services Fuel Economic Growth 58
3.1.2 A Responsive Regulatory Framework and Supporting Infrastructure Advance Financial Inclusion 59
3.2 Cambodia’s Financial Market System 62
3.2.1 A Brief Tour of the Financial Market System: Supporting Functions 63
3.2.2 A Brief Tour of the Financial Market System: Rules and Norms 64
3.2.3 At the Core: Customers and Financial Services Providers 65
3.3 An Inclusive Financial Market? 67
3.3.1 How Inclusive Is Cambodia’s Financial Sector? 68
3.3.2 Inclusion and Exclusion 70
3.3.3 The Relationship Between Financial Inclusion and Poverty Reduction? 70
3.4 The Core Market and the Vital Statistics About Market Expansion 72
3.4.1 Serving the Market Well 72
3.4.2 Creeping Delinquency and Increasing Non-Performing Loans 74
3.4.3 The Discovery of an Innovative Business Model 76
3.4.4 The Return on Innovation 77
3.4.5 Serving the Market Better 77
3.5 Rules and Norms in Practice 78
3.5.1 The Consultative Process and Product 78
3.5.2 Truth in Lending 80
3.5.3 The Precedent for Market Transparency 81
3.5.4 Opening the Financial Market to New Entrants 82
3.5.5 The Precedent for Experimentation 83
3.5.6 The Importance of Norms 84
3.6 Supporting Functions 84
3.6.1 Capital Markets: The Cambodia Securities Exchange (CSX) 84
3.6.2 Information Services 88
3.6.2.1 Research, Advocacy, and Coordination: Industry Associations 88
3.6.2.2 The Credit Bureau of Cambodia (CBC) 88
3.6.3 Financial Consumer Education 89
3.6.4 Financial Consumer Protection 90
References 91
Chapter 4: Cambodia’s Financial Market System: Inclusive Dynamics, Impending Crisis? 95
4.1 Introduction 95
4.1.1 Five Factors for Concern 96
4.2 Proliferation of Small Credit Operators at the “Bottom of the Pyramid” 97
4.3 The System Capacity to Absorb More Debt Nears the Breaking Point 99
4.3.1 Tracking the Evidence 99
4.3.1.1 Traditional Measurement Inadequate to Detect Early Warning Signs 99
4.3.1.2 Borrower Difficulty Meeting Financial Commitments 100
4.3.1.3 Aggressive Competition: Number of Microcredit Loans Outstanding 101
4.3.1.4 Aggressive Competition: Rapid Growth in Loan Size and MFI Portfolio Size 102
4.3.1.5 Average Loan Outstanding to GDP Per Capita 103
4.3.1.6 Multiple Borrowing 105
4.3.2 The Unique Dynamics of Cambodia’s Micro-lending Market 106
4.3.2.1 A Different Pattern of Over-indebtedness 106
4.4 The Interest Rate Cap on Microcredit Fuels Expansive Borrowing 107
4.4.1 The Market in Cambodia Worked Well to Lower Micro-lending Interest Rates 108
4.4.2 Do Interest Rate Caps Strengthen the Market for Borrowers and Lenders? 109
4.4.3 Market Research Around the World 110
4.4.4 Interest Rate Caps as a Tool to Curb Debt Stress 111
4.4.5 Interest Rate Cap Performance After Two Years of Implementation 111
4.4.6 How Did the Interest Rate Cap Perform as “a Good Tool to Curb ‘Debt Stress’?” 112
4.4.7 Reversing the Trend 113
4.4.7.1 Market Behavior Prior to the Interest Rate Cap 113
4.4.8 Abating a Debt Crisis: Six Important Lessons from Cambodia So Far 115
4.4.9 Summary and Prospects 118
4.5 Mergers and Acquisitions at the Top of the Pyramid 119
4.5.1 The First Merger and Acquisition: Sathapana Limited 120
4.5.2 The Next Candidate: Thaneakea Phum Cambodia, Ltd. 122
4.5.3 Then It Was Another MFI’s Turn: Hattha Kaksekar Limited 122
4.5.4 The Latest Change of Ownership in 2017: PRASAC MDI 123
4.5.5 Ownership of Cambodia’s Leading MDIs 2012–2019 124
4.6 Taxation Target 127
4.7 Conclusion: Rational or Irrational Exuberance? 129
References 130
Part III: ACLEDA Bank Plc.: Traditions and Transitions 133
Prologue 133
The Historical Perspective 133
Chapter 5: ACLEDA Bank Plc.: Principles and Practices 137
5.1 Introduction 137
5.2 The Birth of an Ethical Bank 139
5.2.1 The Local Economic Development Agencies (LEDAs) 140
5.2.1.1 The Pioneering ACLEDA Staff 140
5.2.1.2 The First Organizational Breakthrough 141
5.2.2 Becoming ACLEDA NGO: The Professional Organization 141
5.2.2.1 ACLEDA’s First Corporate Culture 143
5.2.2.2 Shared Core Values Develop into a Set of Corporate Ethics 143
5.3 The Crossroads: Options for the Future 144
5.3.1 “If We Listen to Customers, We Can Build It.” 144
5.3.2 “Understand the Customer, Develop the Product to Suit the Customer, and Provide Excellent Customer Service” 147
5.3.3 “Capacity Leads, Capital Follows” 150
5.4 The Ethical Bank Emerges 151
5.4.1 Traditions and Transitions 152
5.4.1.1 No Tolerance for Corruption 153
5.4.1.2 Technology, Fintech, and Things that Light Up in the Night 153
5.4.1.3 Staff Ownership and Governance 155
5.4.1.4 Professional Development: A Learning and Teaching Organization 155
5.5 Formalizing the Contribution to Cambodia’s Microfinance Sector 156
References 157
Chapter 6: Pioneers and Protégés 158
6.1 Introduction 158
6.2 The ACLEDA NGO: Ownership and Governance 159
6.2.1 A Focus on Sustainability 160
6.2.2 The Benefits and Challenges of Participatory Governance 161
6.2.2.1 Organizational Critical Thinking Advances 162
6.3 The Origins of ACLEDA Bank Ltd. 163
6.3.1 Outgrowing NGO Status 164
6.3.2 Counting with Support of the National Bank of Cambodia (NBC) 165
6.3.3 Examining Options for Ownership and Governance 165
6.3.4 Implementing Organizational Change and Financial Mechanisms 166
6.4 The ACLEDA Staff Association and ACLEDA Financial Trust 167
6.4.1 Creating the ACLEDA Staff Association (ASA) 167
6.4.1.1 The Thinking Behind the Creation of ASA Inc. 168
6.4.1.2 Lessons About Structuring Employee Stock Ownership 168
6.4.1.3 Staff Ownership: A Nonnegotiable Position 169
6.4.2 The ACLEDA Financial Trust (AFT) 170
6.4.2.1 The Original Intent of a Trust Law in Cambodia 170
6.4.2.2 The Disappointment of a Focus Only on Microfinance 171
6.4.2.3 The Long-Term Objectives of the ACLEDA Financial Trust (AFT) 171
6.5 Summary and Conclusion: The Gamble and the Promise of ACLEDA Bank Plc 172
6.5.1 Preparing to Serve the Next Generation Well 175
References 175
Chapter 7: Products and Performance 177
7.1 Introduction 178
7.2 ACLEDA Bank Values Influence the Wider Financial Market System 178
7.2.1 The Ministry and the Motorcycle 180
7.2.2 Digital Pioneers 182
7.3 Product Innovation: Two Decades of Lessons About Products and Performance 183
7.3.1 Lesson 1: Ensure Safety and Ready Availability of Customer Deposits at All Times 183
7.3.2 Lesson 2: Economic Growth Rates Influence the Uptake of Products and Services 184
7.3.3 Lesson 3: Match Customer Demand to the Organization’s Capacity to Deliver 186
7.3.4 Lesson 4: Match Customer Demand for the Product to the Organization’s Capacity to Manage the Product’s Risk 187
7.3.4.1 Features of the Balloon Loan Product Designed for Agriculture 188
7.3.4.2 A Responsible Product Designed for Agriculture 188
7.3.4.3 Resolving the Crisis, Strengthening Management 189
7.3.5 Lesson 5: Innovation in the Market Is Dynamic It Encourages the Competition to Work Harder
7.3.5.1 Little Competition for a New and Highly Valued Product 191
7.3.5.2 The Competition Emerges with a New Model 192
7.3.5.3 Lessons About Market Dynamism 193
7.3.6 Lesson 6: Innovation Is a Mainstay of the ACLEDA Bank Plc. Business Culture 193
7.3.7 Technology, Physical Infrastructure, and Human Talent 194
7.4 Summary and Conclusions 196
7.4.1 Product and Service Innovations Influence the Market 197
References 199
Part IV: ACLEDA Bank Plc.: Expanding Beyond Borders, Beyond Banking 200
Prologue 200
Invitations: Near and Far 200
Chapter 8: Building ACLEDA Bank Lao Ltd. 205
8.1 The Lao People’s Democratic Republic (Lao PDR) Today 206
8.1.1 The Lao PDR: A Brief Profile 206
8.1.2 Growth and Growth Sectors of the Economy 207
8.1.3 Poverty 208
8.1.4 Southeast Asia’s Techno Boom 210
8.1.5 The Business Environment 212
8.1.6 The Demographic Dividend 212
8.2 The Lao PDR Banking Sector 214
8.2.1 Retail Banking in the Formal Financial Sector 214
8.2.2 Retail Banking in the Informal Sector 215
8.3 Access to Financial Services and Financial Inclusion 217
8.4 Regulatory Environment for the Banking Sector 220
8.4.1 Interest Rate Caps 220
8.4.1.1 Interest Rate Caps and Spreads on Lending and Deposits 221
8.4.2 Banking Sector Capitalization, Restrictions, Credit Growth, and NPLs 221
8.5 Regulation Promoting and Inhibiting Financial Inclusion 222
8.6 Invitation: “Please Come As You Are!” - A Welcome to Build ACLEDA Bank Lao, Ltd. 224
8.6.1 The “Highs and Lows of ABL Performance” 226
8.6.2 A New Kind of Bank 227
8.6.3 Growing Pains of a New Start-Up: ABL 2008–2011 230
8.7 ACLEDA Bank Lao Ltd.: Year-on-Year Performance 232
8.7.1 Bumps in the Road: The Early Years 2008–2011 232
8.7.2 Good Practice and Good Fortune 235
8.7.3 Smooth Sailing?: The Latter Years 2011–2018 236
8.8 Lessons 238
8.9 Epilogue: 2019—A New Beginning 240
References 241
Chapter 9: Banking on the Future: ACLEDA MFI Myanmar Co. Ltd. and the Evolving Financial Sector of the Republic of the Union of Myanmar 243
9.1 The Rebirth of ACLEDA Microfinance 245
9.2 The Republic of the Union of Myanmar Today: An Overview 247
9.2.1 The Economy: Overall Performance and Growth Sectors 247
9.2.2 Poverty 249
9.2.3 Human Development Index 250
9.2.4 Doing Business in Myanmar 251
9.2.5 Southeast Asia’s Techno Boom: Focus on Myanmar 255
9.3 The Financial Sector 256
9.3.1 Financial Inclusion 257
9.3.2 Retail Microfinance: A Big Part of the Financial Sector in Myanmar 258
9.3.2.1 Microfinance Continues to Grow as a Significant Part of the Financial Sector 260
9.3.2.2 Key Indicators and Trends, Policies, and Promises 261
9.4 Banking on the Future: The Journey Begins 263
9.4.1 Regulatory Barriers to Financial Inclusion 263
9.4.2 The Experience of Parents and Sisters 264
9.4.2.1 Lessons from ACLEDA Bank in Cambodia and ACLEDA Bank Lao 265
9.4.2.2 Progress Continues in Myanmar 266
9.4.3 AMM Performance 267
9.4.4 Behind Great Numbers Are Great People 271
9.4.5 A Shining Star 272
9.4.6 The Last Word 273
References 273
Chapter 10: ACLEDA Institute of Business: A New Generation of Bankers 276
10.1 Higher Education in Cambodia 278
10.1.1 Strategy and Expenditure 279
10.1.2 A Long and Difficult Journey 280
10.1.3 A Refreshing Vision Keeps the Main Goal Insight 282
10.1.4 Stumbling Blocks: Access, Quality, and Composition 285
10.2 ACLEDA Institute of Business: The Dream 286
10.2.1 ACLEDA Institute of Business: Joining a “Flight to Quality” 288
10.2.2 AIB and Its Many Transitions 288
10.2.2.1 The ACLEDA Training Division (2000–2008) 290
10.2.2.2 ASEAN Regional Microfinance Training Center (AARMC) (2008–2011) 290
10.2.2.3 The ACLEDA Training Center (2011–2016) 291
10.2.3 The Birth of the ACLEDA Institute of Business (2016–Present) 293
10.2.4 ACLEDA Institute of Business: The First Day of School 295
10.2.5 ACLEDA Institute of Business: Performance 296
10.2.6 ACLEDA Institute of Business: Discovering a New Business Model 297
References 298
Epilogue 300
The Changing Landscape in the Financial Sector: Cambodia’s Microfinance Segment, Ownership, and Governance 300
A Question of Governance in MFI Ownership Transitions 301
Ownership Transitions and Responsibilities 302
The NBC Rules and Informs 303
Increasing Vigilance of Governance Practices 303
Independent Directors Play an Important Role for Banking Establishments 303
Solid Governance Within the ACLEDA Group Receives Attention 304
Fintech in Cambodia and in the Region 305
Financial Education Is a Fairly New Priority: Is Financial Consumer Protection Far Behind? 305
ACLEDA Bank Plc. Transitions and Transformations: Past and Future 306
The Drive to Learn, Adapt, and Innovate Increased with Time 307
The People of ACLEDA Care About Their Customers and Their Bank 308
They Are Builders 309
The ACLEDA Staff Association (ASA): The Pioneer of Staff Association Ownership in MFIs and Banks in Cambodia 309
ACLEDA Securities Plc. 309
The Drive for Institutional Innovation 310
Banking Beyond Borders 311
Microfinance in Myanmar: Full Circle 311
Lao PDR: A Small Enterprise Bank in the Making? 311
Beyond Boundaries: Banking to Higher Education 313
ACLEDA Institute of Business (AIB): The Beginnings 313
ACLEDA Institute of Business (AIB): The Rationale 313
ACLEDA Institute of Business (AIB): Performance 314
ACLEDA Institute of Business (AIB): Lessons from the First Years 315
A Retrospective Journey: 2005–2020 316
References 317
Index 318