Case studies in finance

¶ … Finance

"Cambodia's ACLEDA: From Microfinance to Banking" relates that the 'Association of Cambodian Local Development Agencies' was first established as an NGO in 1993. ACLEDA was formed."..as a part of the Small Enterprise and Informal Sector Promotion project" and was initiated by the United Nations Development Program and the International Labor Organization. The focus of the project is stated to have been the "...rehabilitation of Cambodia as it faced decades of civil war and internal conflicts, which destroyed the economy." (nd)

TRANSFORMATION of ACLEDA to a COMMERCIAL BANK

The work of Channy (2003) states that three criteria had to be met before the transformation could take place and first ACLEDA had to be "fully sustainable in four aspects: (1) Programming; (2) Technical; (3) Organizational; and (4) Financial Viability. Secondly, ACLEDA "needed to achieve at least financial break even." (p. 2) Third, ACLEDA "needed to meet the National Bank of Cambodia's criteria to qualify for a banking license..." (Channy, p. 3) Transformation of ACLEDA into a bank is stated to have been "enabled through the technical assistance provided by the Mekong Project Development Facilities financed by the UNDP." (p. 4) Resulting were upgrades to the: (1) existing policies; (2) existing practices; and (3) organizational structure; to ensure that these were "in tune with the international accounting and banking standards." (p.4) the following shows the transactions that took place during the course of this transformation.

ACLEDA NGO ACLEDA BANK LIMITED

Transferred assets and liabilities Received assets and liabilities

Received 45% of capital worth $4 million Transferred 45% of capital worth $4 million

6% equity stake purchased by ACLEDA Staff Association; and Remaining 49% stake shared in equal parts by the IFC, DEG (subsidiary of Germany's Kff) FMO (the Netherland's Development Finance Company) and Triodos Bank, the Netherlands.

The following chart illustrates the holding following the ACLEDA NGO to ACLEDA Bank Limited Transformation.

ACLEDA NGO to ACLEDA Bank Limited Transformation

Source: Cambodia's ACLEDA: From Microfinance to Banking (nd)

II. ACCOMPLISHING TRANSFORMATION

It is related that balance was achieved between the banking function and the NGO through "segregation of functions." (Cambodia's ACLEDA: From Microfinance to Banking, nd) the new shareholding pattern resulted in the ACLEDA NGO being a shareholder and lender to ACLEDA Bank and this included no other commitment. This released the ACLEDA Bank from its dependency upon the UN and others providing aid. The ACLEDA Bank linked all of its branches resulting in increased convenience for customers.

III. SERVICES OFFERED & FINANCIAL RESULTS

ACLEDA Bank offers the following loan products: (1) Microbusiness or group loan up to below U.S.$380; (2) Small business loan; and (3) Medium size business/small-scale industry loan. (Channy, 2003, p. 4) Other products and services include: (1) Savings; (2) Fixed Deposit; (3) Current Deposit; (4) Local fund transfer; (5) Cash Management service; and (6) in-house exchange. (Channy, 2003, p.5) Channy (2003) states that ACLEDA targets the lower segment of the market and provides both individual and group loans and specifically stated is: "Experience has shown that providing access to financial services to people raises income and creates employment, allows people to improve their liquidity management and increases the efficiency of the use of available capital." (p. 14) it is related in one report that ACLEDA made a 2004 net profit of U.S.$2 million. As of December 13, 2004 the following financial results are stated: