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Logo of Phnom Penh Post newspaper Phnom Penh Post - Gov’t rice loans find few takers

An employee pours rice into a machine to be milled at a processing facility in Phnom Penh last year.
An employee pours rice into a machine to be milled at a processing facility in Phnom Penh last year. Heng Chivoan

Gov’t rice loans find few takers

It has been over two months since the government made available a $27 million emergency loan package to the beleaguered rice sector, yet only 5 percent of the funds have been disbursed.

Officials from the state-owned bank in charge of issuing the loans claim the low figure is proof that rice millers’ claims of facing imminent bankruptcy were overblown, while rice industry players charge it is because the lending comes with onerous strings attached.

Kao Thach, CEO of the Rural Development Bank (RDB), insisted yesterday that the rice industry was not, as it has claimed, in dire need of capital.

“The RDB expected that loan applications, especially for fragrant rice harvesting, would have increased, but now with 40 percent of the fragrant rice paddy harvest completed, the application rate has not increased,” he said.

“Based on the flow of loan requests, the rice sector is still not facing a shortage of capital.”

In September, the government transferred its share of the $27 million package to RDB so that the bank could disburse loans to rice millers that would allow them to purchase rice paddy from farmers.

According to Thach, however, the bank has released just $1.5 million in emergency loans to three millers, and in total has received requests from just five millers.

“Two of the millers who submitted requests for funding withdrew their requests for personal reasons,” he said.

Thach stood by the notion that the RDB’s loans – offered at 7 percent annual interest and on the condition that millers purchase rice paddy from farmers for no less than $208 per tonne – compared favourably to those offered by private financial institutions.

He noted, for example, that while bank loans typically take up to a month to process, RDB’s loans to millers took just two to three days to receive approval, provided millers had sufficient collateral in the form of paddy stock.

“Our requirements are simple and fast compared to traditional banks,” he said. “The shortage of capital that rice millers complained about was just something for them to yell about when in reality they still have plenty of capital on hand.”

However, Song Saran, CEO of Amru Rice and a member of the Cambodian Rice Federation (CRF), the industry body that had championed for the emergency lending package, stood by his earlier statements that the funding was a lifeline, especially for the country’s smaller millers.

He attributed the low response from millers to the RDB requirement of putting up paddy stock as collateral, which he said was overly stringent.

“I still believe that rice millers are faced with a shortage of capital, and if the RDB made it easier to get loans the flow of applications would increase,” he said.

The main impediment to access the credit lines, he said, was “due to the payment terms offered and that rice millers do not have large enough storage and drying facilities to apply”.

Amru Rice is one of the country’s largest rice exporters. Saran said, however, that the company would apply for a loan from RDB as soon as it runs out of capital and has exhausted its investment into expanding its rice storage capacity.

“[Rice millers], based on their business plans, will ask for loans if they are confident that they can make a profit and repay the loan,” he said.

Yang Phirom, a business advisor for Cambodian Centre for Study and Development in Agriculture (CEDAC), said that the RDB’s 7 percent annual interest rate was too high.

“Based on our observations, the interest rate of loan from the RDB is still high compared to other countries that are offering lower interest rates,” he said. “Most of the rice millers would not dare to apply for the government’s loans as they are not confident that they will be able to pay them back.”

Additionally, he said that the sector was still faced with large quantities of illicit milled rice coming in from Vietnam, while paddy rice was going out, skewing Cambodia’s rice prices and its ability to compete even domestically.

“These challenges still have not been addressed,” Phirom said.

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