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Logo of Phnom Penh Post newspaper Phnom Penh Post - Loans bring trust, not rate cuts

Loans bring trust, not rate cuts

PRASAC mfi
A woman conducts a transaction at PRASAC, Cambodia’s largest microfinance institution, in Phnom Penh. Pha Lina

Loans bring trust, not rate cuts

Three of Cambodia’s largest financial institutions were granted $105 million in loans during last month alone.

PRASAC, Cambodia’s largest microfinance institution, last week signed a loan agreement worth $20 million with German development bank KfW. On May 19, Amret MFI, Cambodia’s second-largest microfinancer, received a $10 million loan from the same German investment bank.

KfW’s loan to PRASAC is valid for five years and accrues 6.8 per cent interest annually.

In the commercial banking sector, the Asian Development Bank (ADB) last week gave Acleda Bank a $75 million loan.

All three of these loans were granted on the condition that the funds be used to benefit Cambodia’s small- and medium-size enterprises (SMEs).

PRASAC chief executive officer Sim Senacheert said, however, the increase in funding will only make more money available to loan applicants, not reduce interest rates.

In Channy, CEO of Acleda Bank, last week said interest rates for long-term SME loans will also remain the same, despite the $75 million ADB fund injection.

Te Tain Por, president of the Federation of Associations for Small and Medium Enterprises of Cambodia, called on the financial institutions to consider easing interest rates in order to reduce financial pressure on business owners.

“Yes, having more funding for SME loans means business owners will potentially have access to more money when they need to expand their production,” he said.

“But banks also need to find ways to lower interest rates so that our production will be faster expanding,” he said.

Meanwhile, Sean Thornnin, an economics lecturer at Limkokwing University in Phnom Penh, said the inflow of foreign credit indicates that confidence in Cambodia’s finance sector is high.

“[Foreign creditors] always consider risks such as repayment ability and social stability before they provide a loan of such a size,” he said, adding that he believed the ongoing political standoff had not significantly damaged Cambodia’s reputation. “Not all political deadlocks create deadlocks in the economy.”

Sim Senacheert, chief executive of PRASAC, backed the lecturer’s reasoning.

“Economic activity is growing; as such, it needs larger financing to support it,” Senacheert said.

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