Sustainable Economic Growth in Cambodia: The Role and Challenges of Non-Performing Loans in Microfinance

This study examines the impact of Non-Performing Loans (NPLs) on Cambodia's economic growth using panel data analysis, leveraging annual data from 62 microfinance institutions over the period 2017–2023. Data were obtained from the National Statistics Institution of Cambodia, the National Bank of Cambodia, and the World Bank. The analysis reveals that NPLs exert a significant and negative influence on GDP growth, underscoring the detrimental effects of deteriorating credit quality on macroeconomic stability. Conversely, inflation exhibits a positive association with GDP growth, indicating that moderate levels of inflation may act as a catalyst for economic activity. Additionally, government regulatory frameworks demonstrate a positive impact on GDP growth, emphasizing the critical role of robust and adaptive governance in fostering economic resilience. These findings highlight the imperative of enhancing financial sector stability, maintaining optimal inflation levels, and strengthening regulatory frameworks to ensure sustainable economic growth in Cambodia. The study further advocates for targeted efforts to promote sectoral diversification, which could mitigate risks associated with economic concentration. Finally, the research calls for deeper exploration of the causal mechanisms underpinning the interactions between NPLs, inflation, regulatory environments, and economic performance, contributing to a nuanced understanding of sustainable development strategies in emerging economies.