AMK (Cambodia) and AMZ (Zambia): Success built on similar principles

During 2020, our two main successes were in exiting AMK MFI Plc in Cambodia – which we have helped build since its inception – and the emergence of AMZ in Zambia as the country’s largest rural finance institution, and one with a strong track record on financial and social performance. 

As we exit from AMK and look forward to further establishing AMZ – as well as venture into new markets – we discuss below the contributors to success in these two disparate markets and highlight what connects our work, as well as what is unique.

Our ex-colleague, late Olga Torres once mentioned – “it was great fun working in Cambodia and rejoicing in the successes there, but if I had to write a book, it will be about our work in Zambia.”  She was referring to the challenging conditions we were faced with at the time in Zambia.  She would know, after having spent the better part of her work life in these two countries helping build both AMK and AMZ from inception.

Market environments

As one would expect, the two markets do not seem to have a lot in common.  When AMK began in 2003, Cambodia had an emerging rural economy built on agriculture and a young generation intent on breaking free from the violent horrors of the past.  Cambodia has a much higher population density (95/sq km compared to 25/sq km for Zambia) that lent itself well to group based financial products.  Further, Cambodia had/has a largely dollarized currency, making it attractive for overseas investors.  In short, it had market conditions quite conducive for microfinance investors and operators, made further appealing by the pro-active regulation for microfinance that was in place as early as 2003.

Zambia, on the other hand, was and still is hugely dependent on copper exports as its main income.  Agriculture has remined largely subsistence based and is often constrained by price anomalies.  Being landlocked, the cost of imports is high and results in high costs of production for most commodities including agriculture produce.

Infrastructure has remained patchy with limited access to irrigation or electricity.  Most of all, the currency is volatile, making the cost of funds (raised almost exclusively from overseas) prohibitively high for microfinance.

As a result of the above, while Cambodia saw a boom of microfinance institutions and is one of the most competitive markets today, our operations in Zambia have remained largely free from any real competition.  Only 2-3 other institutions exist that work with rural Zambians.

The GDP data for the two countries for their respective periods (Cambodia:2003-2013; Zambia: 2010-2020) shows the different trajectories that the two countries have charted during our entities’ first ten years of existence.

Whether looked at in terms of current prices or in Purchasing Power Parity (PPP, 2017), Zambia’s economic progress had stalled during the period under review, whereas Cambodia’s economy was on an upswing (though starting from a lower base).  As a result, Cambodia’s GDP p.c. levels in 2013 are comparable to Zambia’s 2020 level, highlighting the gap between the two countries in their economic conditions.  By 2020, Cambodia had moved up into the middle-income-country category.

Though annual official data on poverty and economic inequality is difficult to obtain for the periods under review, an estimated 60% of Cambodians were living in poverty in 2003, and that had dropped to approximately 30% by 2013.  By comparison, Zambia had an estimated poverty rate of 80% in 2010, which had reduced only to 55%-60% by 2020.  The Zambia of 2020 therefore seems comparable to the Cambodia of 2013 in some respects.

The economic realities of the two countries tell us that the operating models of microfinance would need to adapt to the conditions if the operations were to be viable and sustain over a period of time.  We discuss this later in this piece.

Paths to success

The two entities have had vastly different paths to success, determined in part by their operating environments but also by the strategies that they have been able to pursue at different stages of their evolution.

AMK MFI Plc in Cambodia had inherited some 8,000 clients and an existing operation from its parent charity Concern Worldwide, and as a result was quick off the blocks in 2003.  Within two years it had realised its first profits before it reached 35,000 clients.  By 2008, it had surpassed 100,000 active clients and had a presence in every province of the country.   A year later it applied for a deposit license and in 2010, it began offering deposits to customers.  By its 7th year of operations in 2010, it was able to offer both loan and deposit products.  By year 10, it had added micro-insurance and agent banking to its array of services.  It was a full-scale financial institution operating across every province of the country by 2013.

Meanwhile, the Cambodian economy had seen strong growth during this decade despite a periodic setback during the global financial crisis, as highlighted in the previous section.

Near double-digit growth was the norm during this decade, fuelling greater demand for financial services.  AMK’s loan sizes that began at around $100 in 2003 had grown 4-5 times in this period buoyed by the uptick in the economy.  More and more domestic agriculture produce was now being exported, and Cambodian rice became a sought-after commodity in the region and internationally.

Competition amongst microfinance institutions had intensified by now, bringing multiple options for clients.  More aggressive MFIs offered bigger and longer-term loans, and clients began to borrow from multiple sources and shop around for the best products available in the market.  Deposit interest rates were quite high at the time as MFIs jostled to capture a greater share of the deposit market.

AMK emerged as the largest MFI by client numbers during this period, mostly on account of reaching the deepest bottom-of-the-pyramid segments that were less attractive to its competitors (denoted loosely by its smallest loan sizes in the market).  It was ahead of the competition in offering agent banking and micro-insurance and was thus able to build on its client outreach even further.  However, competition was always close on its heels and getting ever more aggressive.

AMZ in Zambia, on the other hand was a greenfield operation initiated by Agora in 2011 and therefore started from scratch, as opposed to its Cambodian counterpart.  It had a tumultuous first few years trying to understand the nature of challenges posed by the Zambian market, and therefore did not grow rapidly like AMK during its first 3-4 years.  Rather, it stayed small while it worked on the right mix of products, processes and people to build its operations.

The first 3 years were largely a learning, and a somewhat sobering experience for all of us.  Tools and techniques learnt from Cambodia did not always seem to yield similar results.  Financial discipline, which was the foundation of our work in AMK, seemed to take longer and harder to attain.  Physical distances and poorer infrastructure/connectivity put substantial strain on costs.  To cap it all, a volatile currency deflated whatever progress was being made on the ground.

Things began to change from 2014 onwards, once the above lessons had been internalised and our team had a deeper appreciation of the challenges.  Slowly, AMZ began to regroup and recalibrate its operating strategies and methodologies.

What followed was a tightening of discipline, and first a measured and then a more ambitious growth path.

The growth trajectories of the two entities (scales adjusted for population density differences) can be seen in the chart below, as explained above.

 * Y1 = 2003 for Cambodia, 2011 for Zambia 

* Y10 = estimated for the ongoing year (2021) for Zambia

The financial performance of the two entities had its ups and downs due to various internal and external factors but by year 7-8 both had stabilised their financial performance; and by the tenth year both had achieved a strong balance sheet and a consistently healthy financial performance.

The Zambian operations had needed longer in the first phase of establishment and as a result the initial investments would take longer to yield a return.

A comparison of the first five year of profitable operations for the two institutions shows similar trends.  Both show strong profitability profiles, but the performance of AMZ trends slightly upwards compared to AMK.  However, this needs to be contextualised – AMK’s years 4 and 5 were in the middle of the global financial crisis that put a strain on its viability.  Also, once the return is converted into US Dollars, the inherent weakness of the Zambian Kwacha results in a significant impact on investors’ return even when the entity’s Return on Equity is quite attractive.

*Y1 = 2005 for AMK, 2016 for AMZ

The three crucial factors for success that we can derive from our green-field experience are:

  • Establish a strong foundation before pursuing growth  (mission, people, systems)
  • Incentivise efficiency rather than scale/sales
  • Build systems to keep learning from clients

Before we discuss the above and what they meant in real terms, let us look at the first ten years of evolution of the two institutions.

   1.  Establish a strong foundation before pursuing growth

It is a common folly of many start-ups to begin scaling up too fast before their people and systems are ready for the growth.  If not done well, this has the potential to overwhelm the systems and infrastructure and can result in substantial negative impact.  Successful start-ups are the ones that pace their early years well.  Microfinance is no different, and in some ways even more vulnerable to this risk.  Integrating the mission and establishing rules that are applied diligently takes time and needs to be placed in the cultural context of the working environment.

Our initial years in Cambodia were quite measured for several reasons.  In its early years AMK did not have excessive funding behind it, even though it had adequate funding for more organic growth.

This worked as a natural limiting factor for growth and gave AMK the time to build its processes and systems in time for more rapid growth that came later.  Equally, the more competitive nature of the Cambodian market also worked towards slowing AMK down somewhat.

Conversely, in Zambia we got tempted into growing rapidly as soon as operations began, to meet as much of the demand as we could.  Within two years, we were faced with the hard reality of spiralling loan losses and the inability of our systems and people to cope with challenges posed.  Eventually it took us another two years to create the necessary operational discipline and adequate systems that could handle the scale that we had built up in the first 18 months of our launch.

Based on our experience, a process flow such as below works better than rapid initial growth.  While some of the process can be carried out in conjunction, the first 2-3 years are nevertheless spent in preparation, after which the institution can scale up without putting its initial years at risk.

  2.  Incentivise efficiency rather than scale

Even though scale is important for microfinance business models given the small margins, focusing on scale as a goal can often dilute quality and introduce inefficiencies.  A better approach is to focus on unit economics and the inherent efficiency attainable at that level, while keeping a lid on heavy head office structures.

Both AMK and AMZ have high operating efficiencies today, but it has taken time to build this into the model, especially in Zambia.  AMZ had to refine and redesign its loan processes – from client identification to repayments – to arrive at the optimum efficiency levels without affecting the quality of operations.  Today it is a market leader on unit efficiency with CO caseloads averaging around 600 (active clients per Client Officer) over the past 5 years, compared to an industry average of ~200-250 in the region.

Alongside streamlining of processes and smart use of technology to cut down on processing times, both AMK & AMZ have developed staff incentive systems built around quality and efficiency.  This has worked well over time and has ensured that the focus on efficient delivery of products is never lost.  The early years of AMZ were spent in learning (and unlearning) the processes that needed to be adapted to the geography and the demography of Zambia.  Once this initial period was over, AMZ began consistently operating at efficiency levels that rival the more populous Asian markets.

The benefits to clients for efficient operations is twofold – in the short term it means that client meetings are quick and focused, and in the long run the efficiency gains can be passed on to clients in the form of better prices for products accessed.

This aspect of efficiency, however, can have limited impact if the funding cost for MFIs stays high.  In Cambodia, the cost of borrowings has reduced over time and its dollarized economy has allowed large amounts of overseas funds being available for microfinance.  This has not been the case in Zambia thus far, where cost of borrowings remains as high as they were 10 years ago.

A perfect solution from both the client as well as the MFIs’ perspective is to offer deposits.  The value of easily accessible deposit accounts for microfinance clients is well documented, and there is no argument to the fact that it is considered equally important by clients as other financial products.  However, deposit products need to be preceded by strong risk management, robust information systems, a strong physical infrastructure, and appropriate technology.  These take time and investment, and as a result, deposits are seen by Agora as a necessary product, but one that should not be rolled out in a hurry, even if regulatory approval can be obtained.

AMK received its deposit license in its 8th year of operations, and it took another 2-3 years before it was able to scale this product sufficiently.  Thereafter, it has had considerable success – with over a million deposit accounts today.

AMZ plans to follow a similar path, and will actively prepare to introduce a deposit product in the future, once regulatory approvals have been obtained and its risk management and information systems upgraded with a view to managing clients’ money.

  3.  Build systems to keep learning from clients

Too often, institutions take a practical and cost-effective route to client feedback by relying on their frontline staff for (anecdotal) evidence of demand and satisfaction.  This then leads to situations where institutions hear more of their frontline staff’s feedback rather than clients’.  For example, Client Officers want to be able to lend higher amounts to clients, as that could improve their own earnings.  This can be passed up the channel as client demand and can lead to incorrect product design.  There are many examples of such kind, when good intentions go awry when the institutions do not have a good ear to the ground and are receiving filtered information about client preferences.

AMK has been a pioneer in the industry in creating a strong independent feedback loop since its early days.  Its research department has been structured along the lines of internal audit in terms of decision making and oversight, and reports directly to the Social Performance Committee of the Board.  This structure has enabled AMK to take some key strategic decisions over time, driven by independent data and research.  The introduction of its bold credit-line facility for small farmers, as well as its successful forays into micro-insurance were driven by its deeper understanding of clients need for flexibility and risk cover.  Many other examples of the use of independent research for management decisions can be found in AMK’s history.

AMZ, on the other hand, was not able to build such systems early on despite its best intentions.  During its first few years of operations, it instead had to focus on operating viability first.  Zambia’s market conditions were substantially more challenging for a start-up than they were in Cambodia.  It has begun setting up a system and putting necessary resources behind a research function only in the recent past and expects to build them up in the coming years.  Even in its short experience, it has nevertheless created two products that are a result of direct client feedback – a farm loan for selected crops, and a farm equipment leasing product (currently under development).  It will follow the same path to research and social performance as outlined in the section on Agora’s Social Performance in this publication.


The two microfinance companies today are at different stages of their development.  For Agora, AMK in Cambodia is mission accomplished, and Agora is no longer involved as a shareholder.  AMK is a success story by most counts – one of the largest MFIs in the country that still has the smallest loan sizes in a competitive market; the only MFI that has a large micro-insurance coverage to boast; the only MFI that reaches remote parts of the country through its 5,000 strong agent network; the only MFI that works predominantly in the local currency; the only MFI to have never executed a loan collateral – and these are but a few amongst its many feathers.  The future for AMK is about maintaining what it has and provide stability to the market, while adding new market segments where opportunities arise.  Its clientele now reflects the wider Cambodian population, though still skewed in favour of the poorer, unbanked populations.

AMZ has had some important successes already, but it is still early days in its life and therefore much work still needs to be done.  In its first 10 years, it has emerged as the largest rural microfinance institution in Zambia and is also one of the few that offer a wide range of insurance products (life, health, and crop) to its clients.  Importantly, it is perhaps the only MFI in Zambia that shows a consistently profitable performance with an impeccable loan book, a rarity in the market.  It is also the cheapest source of credit, built on its high operating efficiency discussed earlier.  The next phase of AMZ’s development should come in the form of a deposit license in due course, as well as an expansion of its relatively new mobile money service.

One key element of the two institutions’ success, not discussed in this note, is the regulation.  In both countries, the MFIs have benefited from pro-active and clear microfinance regulations and the supportive approach applied by the respective central banks.  In the absence of this, it is hard to see how the two entities could have fared so well.

Whilst at very different stages of their evolution, the successes in both Cambodia and Zambia are explained well by the three factors discussed in this note.  Both entities have seen much success once they had established their foundation well, began delivering products efficiently and kept their ears to the ground.  Agora’s experience of establishing successful green fields will aid the next phase of AMZ’s development, by way of emphasis on risk management, further systems upgrades, expansion of product lines, and importantly the development of a deposit business.  AMZ will continue to further establish its research function that can provide good information for business as well as impact related decisions. 

And as for AMK, we will observe from a distance and will savour AMK’s future successes with much delight and take pride in the role we played.