Following the recent international and local press coverage of microfinance activities in Cambodia, Triple Jump would like to provide the following statement to address any concerns investors or the impact investing community may have.
Background Triple Jump and our contribution to the Microfinance Sector
Triple Jump has been active in the microfinance space since 2006. Over time, we have witnessed improved access to formal credit for a large segment of borrowers who previously depended on informal lenders, enabling the development of entrepreneurial activities and improving the overall living standards of low-income communities. However, with the remarkable growth of microfinance, an environment of intense competition has also led to more aggressive and sometimes deteriorating lending practices among certain microfinance institutions.
Triple Jump closely monitors how MFIs are addressing these concerns. Triple Jump’s efforts expand beyond its own operational scope and include concerted efforts to collaborate and work with key stakeholders in the global microfinance community. These efforts to promote responsible business practices contributed 10 years ago in the creation of The Universal Standards for Social and Environmental Performance Management, developed by the Social Performance Task Force (SPTF) in consultation with key stakeholders. The Universal Standards are used by microfinance providers to help them put clients and the environment and the center of all strategic and operational decisions. The Universal Standards help evaluate microfinance providers across 7 dimensions. The fourth dimension details what providers should put in place in regards to client protection and sets out to prevent over indebtedness, provide accurate information to support decision-making, ensure fair and respectful treatment of clients, protect customer data, and ensure the proper functioning of complaint mechanisms.
Identifying risks and encouraging responsible business opportunities
As an impact-focused investment manager, our mission is to provide capital where it empowers people and improves lives. Our mission permeates everything we do. From the beginning, Triple Jump has prioritized end-clients’ needs and well-being and offers strategic capital and technical assistance services to strengthen its investees’ capabilities. In selecting the financial institutions we support, we ensure they comply with the Universal Standard for Social and Environmental Performance Management and require that they commit to the Client Protection Pathway. Furthermore, our efforts expand beyond our operational scope and include concerted efforts to collaborate and work with key stakeholders in the global microfinance community. As part of the SPTF, Triple Jump plays a leading role in the development and promotion of responsible practices among investors.
Our history in Cambodia
Since attaining peace in 1991, Cambodia has focused on rebuilding the nation and its economy. Thanks to rapid and sustained economic growth, Cambodia has become one of the world’s leaders in poverty reduction. The government recognized from the outset the important role of microfinance in socioeconomic development and has implemented a national microfinance strategy since 2001. Triple Jump has been investing in Cambodia since 2006 and from the start has worked hard to promote best practices among financial institutions. Our approach has been to engage into a firm dialogue with our investees to promote acceptance and implementation of responsible lending practices.
Over the years, the microfinance market has shown strong growth resulting in positive financial and welfare impacts for households in Cambodia as evidenced by a 2019 World Bank report1. The sector has provided access to formal credit for a large segment of borrowers who previously depended on informal lenders, enabling the development of entrepreneurial activities and improving the overall living standards of the poor. However, with the remarkable growth of microfinance, household debt levels have increased significantly over the past decade as the average loan size to borrower grew faster than household income. The pursuit of growth in an environment of intense competition has also led to more aggressive and sometimes deteriorating lending practices among certain microfinance institutions.
Triple Jump has been very closely monitoring how financial institutions in Cambodia are addressing the increased risk of over-indebtedness. In 2014, we joined forces with a small group of investors to support the creation of the Microfinance Index of Market Outreach and Saturation (MIMOSA)2, a new framework for measuring credit saturation and guiding investment decisions to avoid overindebted markets. MIMOSA’s first report in 2015 described Cambodia as one of the world’s most saturated credit markets. Since then, and in addition to our standard and rigorous assessment of social performance management and client protection standards, each institution we finance in Cambodia goes through a deeper review of responsible lending practices specific to the market context. As an endorser of the Responsible Lending Guidelines which have been built on the MIMOSA framework and are promoted by the Cambodian Microfinance Association (CMA), Triple Jump systematically assesses the level of multiple and parallel loans in its partners’ portfolios and the extent to which the partner refinances existing loans with larger amounts. This assessment allows us to identify and select the more responsible institutions and monitor their growth on a continuous basis.
Our current exposure in Cambodia
From supporting eight Cambodian microfinance institutions in 2015, Triple Jump has reduced its exposure across four funds to four carefully selected institutions (a fifth is under consideration) which meet Triple Jump’s high social performance standards. We see a continued need to support these institutions as they broaden their product offer and target clientele, which is why we remain active in Cambodia on a very selective basis.
In our view, the MFIs we consider in Cambodia add a particular value to the sector and our portfolio – either through their support to microbusinesses particularly in rural areas, or by the provision of housing finance products, which allows underbanked poor to buy their most important asset. In addition, we are currently looking at supporting institutions that actively work on climate resiliency, which is especially needed in a country that suffers from both floods and droughts seasonally.
Recent activities and considerations
- Our local team (based out of Bangkok) visits Cambodia regularly to meet with investees and better understand what is happening in the market and also spent time in the field to better understand collections practices across MFIs.
- We require our investees to demonstrate prudent practice client protection principles, show their intentionality by committing to the Client Protection Pathway, and we take comfort from external certifications such as CP Pathway Certification, which replaced the SMART certification as the most rigorous client protection assessment a financial institution can subject itself to. The investment team also spends a lot of time in understanding credit assessments, collections practices and evaluates data on foreclosures as part of our diligence.
- While we recognize improvements and enhancements can continually be made, Triple Jump is committed to ensuring policies and practices are aligned with international best practices. We take our strong social mission seriously, while recognizing improvements and enhancements can continually be made.
- TJ plans to actively participate in the SPTF event in Cambodia later in 2023
- Our investments undergo a high level of scrutiny, including the application of our proprietary ‘Interest Rate Traffic Light’ methodology, which excludes MFIs with prohibitive pricing to end-clients or excessive profitability from our portfolio (assessing affordability for end-clients, benchmarking compared to competition and ensuring profits are not disproportionally benefitting shareholders)
- Our investment analyses undergo an independent review from our ESG & Impact team
Conclusion
Triple Jump wants to maintain an inclusive approach in Cambodia while we carefully work with our partners to navigate the challenges of over-indebtedness. By staying invested in the country, we want to ensure that the rural population has access to institutional options of finance and does not have to rely on informal sources of financing that are predatory and more expensive in nature. We also want to support institutions to build products that promote resiliency in communities through better quality housing and climate smart investments that can encourage stable and improved incomes for rural communities. There is a lot of work to be done still in the country and we look forward to supporting the country and sector through our active participation.
