USAID/CAMBODIA
SPECIAL OBJECTIVE (SPO) CLOSE OUT REPORT
SpO Name: Expanded Access to Sustainable Financial Services
SpO Number: 442-007
Approval Date: Initiated in1993; approved as part of Rural Economic Growth Strategic 
Objective (REG SO) in 1997, and revised as an SpO in 1999
Geographic Area: Nationwide
Total Cost: $ 6,554,460
USAID:
Mission Funding DA $ 1,398,579
ESF 3,715,881
Global Funding DA 1,440,000
Total USAID Funding $ 6,554,460
NOTE: This amount includes $1,750,000 of ESF funds obligated for financial services activities under 
442-004 in 2000/01, when the Mission proposed to combine SpOs 442-004 and 442-007. 
Principle Implementing Partners:
Association of Cambodian Local Economic Development Agencies (ACLEDA)
Catholic Relief Services (CRS)
World Relief (WR)
Background
USAID initiated support for microfinance in 1993 to promote rural development and economic 
growth. The Special Objective (SpO) was intended to address pervasive poverty in rural areas 
where 85% of Cambodia's population lives. The rural sector is characterized by the scarcity of 
formal savings and credit programs available to the poor. Many rural Cambodians had access 
only to informal credit or credit from shop keepers that could cost as much as 100% for an 
advance of rice seeds (e.g., twice the amount had to be repaid after harvest), or up to 30% a 
month for store credits. Some rural Cambodians are allegedly forced to sell their land as a 
result of excessive debt payments due to high interest rates. Rural women in particular are in 
need of credit as a means to expand their meager incomes.
Through this program, USAID initiated support for three NGOs at the time of the first UN￾monitored national elections of 1993. During the strategy period covering 1994-1997, USAID 
targeted assistance to democracy/governance, economic growth and health services. The 
1997-2002 Strategic Plan continued these areas. Most of the economic growth SO was 
subjected to program cutbacks after the 1997 political disturbances. The microfinance activities 
constituted the only component of the EG SO that was retained after 1997. 
Each of the three NGO partners under this SpO have developed into effective microfinance 
institutions (MFIs), with programs directed at serving the needs of the poor. These programs 
have expanded significantly over the past 8 years, and have nearly achieved long-term 
sustainability. 
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Summary of overall impact at SpO level and IR level
The achievement of results under the SpO and IR have achieved the intended overall impact, as 
discussed below. A list of key SpO activities and outputs is set forth in Table 1 below. 
SpO: Expanded access to sustainable financial services.
USAID partner programs increased the percentage of households with access to loans from 
7.8% in 1996 to 21% in 2001. The majority of loan recipients also participate in savings
programs, some because some credit programs are built on savings (for example, CRS), and 
others because they value savings programs and choose to participate in them.
IR 1: Increased access of the rural poor to credit and savings facilities.
SpO activities have significantly increased the access of the rural poor to credit and savings 
facilities. The number of clients served by USAID-funded microfinance providers increased 
from 87,787 in 1998 to 102,715 in 2001. Outstanding loan balance of partner organizations 
increased from $4.8 million in 1998 to $8.8 million in 2001. 
Association of Cambodian Local Economic Development Agencies (ACLEDA) is the largest 
provider of credit to the rural poor. ACLEDA has experienced a rapid average annual growth 
rate of client outreach since 1995. It currently operates 45 branch offices in 13 provinces (of a 
total of 22 provinces in Cambodia), and has provided over 50,000 group loans, with an 
outstanding loan portfolio of over $4.5 million. ACLEDA is the first microfinance organization in 
the country to become a licensed financial institution.
Catholic Relief Service (CRS) has established over 800 village banks, of which an estimated 
420 new village banks were established in FY2002. The Thaneakea Phum Project (which 
means Village Bank in Khmer) currently serves 27,500 active clients, and has an outstanding 
portfolio of $773,000. Since 1996, over $5 million of credit has been disbursed, with a historical 
repayment rate of more than 95%. Despite concurrent flood and drought conditions during the 
past year, the on-time repayment rate remains at 90%. CRS and Thaneakea Phum staff made 
substantial contribution to policy and licensing or formalization in the sector through eight 
surveys and studies. These included policy and position papers on interest rate caps, 
incentives to operate in rural areas, institutionalization of rural credit, and constraints and 
implications of the draft financial institution law. 
World Relief (WR) has provided over 25,000 women with access to savings and credit, working 
through over 40,000 maternal and child health training programs that are integrated with village 
bank meetings. During the past year, they served 7,000 clients with an outstanding portfolio of 
$630,000 and client savings of $101,000. Facing the same constraints of flood and drought 
conditions, WR is behind projections for repayments for the year and has written off one of its 
loans. WR continues to build institutional strength, expand its market share and move towards 
incorporation as a limited liability microfinance institution. 
Another important result of the SpO is that poor rural women can now access reliable financial 
services. This is particularly attributable to the fact that CRS and World Relief have successfully
adapted the village-banking system in Cambodia with a focus on rural women and their needs.
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Table 1: Summary of Activities to Achieve SpO Results 
ACTIVITIES MAJOR OUTPUTS
Technical assistance and 
training to Association of 
Cambodian Local Economic 
Development Agencies 
(ACLEDA), in collaboration 
with UNDP, to facilitate its 
transformation into a licensed 
financial entity.
® ACLEDA is the first microfinance organization in the country 
to become a licensed financial institution and is recognized 
worldwide for its performance.
® Operating 45 branch offices in 13 provinces, it is the largest 
provider of credit to the rural poor.
® Outstanding loan portfolio of over $4.5 million with more than 
50,000 group loans provided.
® Rapid average annual growth rate of client outreach since 
1995.
Support to Catholic Relief 
Services’ poverty lending 
program in seven provinces.
® More than 800 village banks established with more than 
27,500 active members.
® Over $5 million in loans disbursed with a repayment rate 
more than 95%.
® 44 training courses provided to more than 500 staff to 
increase organizational capacity.
® 2 local NGO partners to merge into a single financial 
institution. 
Support to World Relief’s 
innovative community 
banking/maternal and child 
health care training program. 
® Over 25,000 women provided access to credit and savings 
facilities.
® More than 40,000 maternal and child health care training 
programs integrated with village banking meetings.
® Over 50,000 loans disbursed with a loan recovery rate of 
more than 95%.
IR 2: Increased self-sufficiency of microfinance institutions.
USAID partners are self-sufficient from several perspectives, including financial cost coverage, 
formal licensing as an MFI, and a demonstrated ability to grow. The partners have worked to 
ensure that micro-finance institutions (MFIs) will be a sustainable source of financial services for 
the rural poor. Training is one end to such means – judged by the results, the training which 
partner NGOs have provided has been effective in maintaining cost efficiency of operations and 
good loan repayment rates.
Overall, partners increased financial cost self-sufficiency from 70% in 1997 to 90% in 2001. 
This means that 90% of operational costs are covered. ACLEDA has already achieved financial 
self-sufficiency, and CRS and WR anticipate doing so by the end of this year.
USAID’s partner ACLEDA was the first NGO microfinance program to become approved as a 
formally licensed financial institution. ACLEDA is widely recognized for its outstanding 
performance, with favorable press coverage and participation in international conferences. 
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The two Cambodian partners benefiting from CRS support have agreed to merge into a single 
financial institution, and are preparing to apply for licensing and to expand outreach. World 
Relief has also made substantial progress towards licensing as a financial institution. Both 
partners expect to complete licensing procedures within six months. 
Financial self-sufficiency has been challenged recently by three factors which partners have 
identified. First, the Government has recently implemented controls on interest rates and the 
methods used for calculation of interest rates. Although lowering interest rates has reduced
operating margins and incomes, USAID partners have adapted and continue to improve their 
operational efficiency. There is no indication that the government will impose artificially low 
interest rates as is the case in Vietnam. However, given the unique niche that MFIs have in the 
overall financial market, it is clear that the cost of doing business is higher with the responsibility 
of administering many small loans. MFIs may have to consider other compensating options. 
One option to consider may be to impose administrative, handling or training fees, because 
micro finance loans are more expensive to handle, and some business training may be required 
as part of the loan package. Such fees could be added on to the loan amount to be paid back. 
USAID programs have taken this approach in countries where interest rate limits are insufficient 
to provide micro loans. These small fees and the coaching to improve business skills are well 
worth these extra costs to rural borrowers, given how difficult it is to acquire credit from other 
sources.
Another factor is reduced incomes and increased cost due to competition. Increased costs
have limited the capacity of World Relief to include health messages as part of micro credit 
programs. Micro credit provides a valuable network for health education messages, but 
separate funds are needed to support the cost of health education. Coordination with NGOs 
active in the health sector, that also promote income generating activities (such as Helen Keller 
International, which supports gardens as part of preventive nutrition programs) may help these 
partners to address this cost issue.
Another cost factor is the facilitation fees that CRS identified as one of the major costs of micro 
credit programs. While cooperation with and involvement of local officials is key to the success 
of rural credit programs, excessive facilitation fees could limit outreach and sustainability. 
Exploring options for reducing costs or 
With the establishment of financial self-sufficiency and licensing as a formal MFI, all three 
partners appear to be in a position to continue to expand outreach and to grow institutionally. 
The ability to grow with primary reliance on internal resource generation is the ultimate 
indication of sustainability and self-sufficiency.
IR 3: An enhanced enabling environment for providing financial services to the poor.
The Royal Government of Cambodia (RGC) has made significant progress in the 
institutionalization of micro credit programs, with the aim of converting all programs into micro 
finance institutions. All three USAID partners have, or are currently making the transition and 
should benefit from the increased structure of the sector. MFIs will have access to funds at 
favorable rates through the Rural Development Bank of Cambodia. There are currently nine 
MFIs in Cambodia, a sufficient number to ensure competition as they grow, which will spawn 
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efficiency in service provision. It is also a sufficient number to provide coverage for the entire 
country over time. 
The RGC has adopted a number of new laws and regulations in recent years to establish a 
prudent regulatory regime for the operation and supervision of financial organizations. These
include regulations governing licensing and supervision of microfinance institutions. A coherent 
framework now exists for supporting MFI development and full service coverage in rural areas. 
Our partner organizations have contributed to the evolution of this enabling legal and regulatory 
framework through the development of studies, analyses and surveys, and analyzing proposed 
legislation and regulations.
This enabling legal and regulatory environment provides a sound framework for the continued 
growth and development of the nine micro-finance institutions which currently operate in 
Cambodia. With the three USAID-supported institutions providing services to 21% of 
Cambodia’s total rural population, and the existence of six other MFIs, it is possible that all rural
and urban Cambodians will have access to savings and credit services within a few years.
Significant changes in the Results Framework during the life of the SpO 
This SpO was originally part of the Rural Economic Growth (REG) Strategic Objective, which 
was approved in early 1997. The results framework for the REG SO was not implemented, 
since the political events in mid-1997 led to the termination of all REG activities with the 
exception of NGO activities in the development of microfinance institutions. 
The revised SpO results framework for MFIs was approved in FY 1999. This framework has 
retained the essential elements of the MFI component of the REG SO, as witnessed by the IRs. 
Prospects for long-term sustainability of impact and principal threats to sustainability
The Microfinance institutions and the Royal Government of Cambodia have made significant 
progress in the institutionalization of micro credit programs with the aim of converting all 
programs into micro finance institutions. All three USAID partners are expected to make the 
transition and stand to benefit from the inproved structure of the sector. MFIs will have access 
to funds at favorable rates through the Rural Development Bank of Cambodia. This access to 
loan funds is expected to boost their outreach if other costs can be contained.
While financial and operational sustainability have been attained by one partner, and appears to 
be close for the other two partners, there is never a guarantee for financial sustainability. 
Competition may increase, and loan programs are always vulnerable to events such as natural 
disasters which may reduce repayment rates. What is important to institutionalize is resilience 
and the ability to adapt to unforeseen circumstances, such as the RGC imposing interest rate 
ceilings. USAID partners have developed greater understanding of their financial and 
operational environment through participating in policy formulation and meeting the 
requirements for licensing. Hopefully, they will continue to adapt to their unique business worlds 
and will continue to serve the credit needs of the rural population. 
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Ultimately, the ideal outcome from USAID’s perspective is the institutionalization of credit and 
savings services for all rural Cambodians. What are the prospects for significantly higher 
coverage of MFI services? The USAID program has been successful in reaching 21% of the 
country's rural population with access to basic credit and savings facilities. USAID partners 
have also contributed to the enabling environment for other MFIs to expand and deepen their 
work. Currently, there are nine MFIs working in Cambodia to ensure that micro-finance 
institutions will be a sustainable source of financial services for the rural poor. Thus, the 
prospects for greater MFI coverage appear to be good. 
The potential for successful loans is increasing in terms of macro-economic conditions. The 
Cambodian economy has been growing at about 5% per year, roads and infrastructure are 
improving, and security is expanding access to remote areas. These factors all translate into 
expanded economic opportunities. While some MFIs may drop out of the sector as a result of 
greater competition, the overall prospects for the sector are promising.
The potential demand among the rural poor is at once promising and disheartening. Education 
and training opportunities are expanding, and there is a large demand emanating from need. 
However, rural poverty has perhaps increased over recent years, and some 15% of rural 
households are estimated to be landless. This has occurred as USAID’s MFI partners expand 
their services. Thus, there is both a large unmet need and perhaps an inability on the part of 
many poor rural Cambodians to act effectively to meet that need.
There continues to be a long way to go in terms of impact on poverty. NGO leaders advise that 
some households are forced to sell their last resource, their land, to meet payments of hawkers 
who charge as much as 30% per month for basic consumer credit to meet food requirements.
These households, including women-headed households, constitute major potential
beneficiaries of improved and expanded financial services. The majority of micro-enterprise 
operators are women, and females head 17% of all households in rural Cambodia. Reducing 
poverty and expanding access to basic services are key to the sustained improvement of living 
standards in Cambodia. 
Lessons learned
A prolonged internal ownership dispute between World Relief and its local NGO partner 
provided some important insights into issues surrounding the localization of microfinance 
programs. In particular, the experience of these two organizations highlighted the importance of 
how advisory boards and boards of directors are constituted; the importance of effective 
channels of communication between international and local partner NGOs; and, the effective 
use of negotiated mediation to resolve internal disputes. The lessons learned will improve 
program performance throughout the sector.
Performance indicators
Indicator 1: 20% minimum average annual growth rate in client outreach.
This indicator provides a direct measure of the extent of microenterprise outreach programs to 
the rural poor. 
· This indicator may inaccurately show progress when expansion is not smooth, as when 
additional offices or areas of coverage are added to programs. 20% growth within a fixed 
population with access to micro credit is a rapid expansion, but 20% expansion when 
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expanding into an area without previous access is more achievable. Expansion within 
existing areas of service and the increase of total clients might be better indicators.
· External factors beyond the control of MFIs can have a profound effect on growth rates, 
including expansion of the economy, climatic factors, overall growth and competition in the 
sector, access to markets for small enterprises, and the cost and availability of funds. These 
factors are not taken into account in the indicator. 
· This is a relatively useful indicator of performance, but a description of the micro credit 
environment should be included.
· This indicator could also be refined to track access to credit by poor and illiterate women.
Indicator 2: 20% minimum average annual growth rate in outstanding loan balances.
This indicator provides a direct measure of the rate of the expansion of capital flows that provide 
the rural poor with increased access to investment credit opportunities.
· Although helpful for an individual project this is not a good indicator for comparison between 
projects. 3 USAID partners concentrate on small and medium enterprises, urban women, and 
rural women. Growth of outstanding loan balance cannot be equally compared between the 
three. 
· This is a relatively useful indicator of performance, but a description of the micro credit 
environment should be included. 
· Number of average loan size and client on average borrow small sums of money could be 
another indicator.
Indicator 3: Percent of operational self-sufficiency achieved by credit providers.
This indicator provides a direct measure of the capacity of USAID-funded organizations to 
sustain credit operations without donor support, and to achieve financial self-sufficiency in the 
long run.
Good indicator:
· Measures the progress of credit operation of USAID funded partners for reaching 
sustainability to construct financial self-sufficiency.
Evaluations and special studies
USAID Reports
R4 Reports: February 1998, April 1999, April 2000, April 2001
Partner Evaluations
· World Relief Final Evaluation Survey for Gateway Project, 1996
· CRS Evaluation of Credit Program, 1998
· Mid-term Evaluation, 1998
· ACLEDA Closeout Report 1998-2001
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Key contacts
USAID/Cambodia
Office of General Development
Phone:(855-23) 217-640; 
Fax: (855-23) 217-638
Kevin A. Rushing, DVM, Director
Email: KRushing@usaid.gov
Lee Forsythe, Humanitarian Advisor
Email: LForsythe@usaid.gov
Tep Sreypov, Development Assistance Assistant
Email: STep@usaid.gov
Partner Organizations
Association of Cambodian Local Economic Development Agencies (ACLEDA)
In Channy, General Manager
#28, Mao Tse Tung Blvd.
Phnom Penh, Cambodia
Catholic Relief Services (CRS)
David M. Leege, Country Representative
#26, Street 125
Phnom Penh, Cambodia
Email: CRSCambodia@bigpond.com.kh
Phone: (855-23) 211-165; Fax: (855-23) 216-960
World Relief (WR)
Tim Amstutz, Country Director
#31, Street 388
Phnom Penh, Cambodia
Email: W.R.Cambodia@bigpond.com.kh
Phone: (855-23) 217-942; Fax: (855-23) 214-085