Impact Investment and the Cambodian Microfinance Sector

Chapter 6 explores international capital inflows into Cambodia’s microfinance sector, focusing on impact-investing practices, which are essential to maintain financial inclusion and resilience in Cambodia’s microfinance sector. Using a unique dataset from the National Bank of Cambodia, the chapter reveals that while impact investors initially dominated, their share declined as commercial funding rose. Impact investors, who offer low interest rates and stable funding, have played a key role in supporting high-outreach MFIs, especially during the COVID-19 crisis. However, higher-outreach MFIs now face higher borrowing costs, reflecting perceived risks. Large MFIs attract most impact investment, while smaller ones rely on non-impact investors. The chapter also highlights risks of ‘mission drift’ and suggests that reducing information asymmetry through better disclosure and ESG ratings could help attract more impact capital.