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SMEs call for interest rate change

Tough loan requirements and high interest rates were hindering growth among the Kingdom’s small and medium enterprises, some entrepreneurs said yesterday.

Banks generally accept only buildings and land in Cambodia as collateral, restricting capital available for businesses to expand, according to Te Taingpor, co-chair of the manufacturing and SME working group.

Speaking yesterday at the national forum between financial institutions and SMEs, he called on financial institutions to widen their definition of collateral needed to secure loans.
“Banks should evaluate the practical business situation facing each firm,” he said.

He suggested that movable assets such as vehicles or machinery should also be considered as collateral.

Cambodia has 320,123 SMEs employing 1.4 million people, he said at yesterday’s forum, which was attended by representatives of some 50 financial institutions and 300 SMEs.
Limits to loan length and high interest rates were also cited by Te Taingpor as impediments to obtaining financing to expand smaller business.

“Financial institutions should extend the limit for long term loans to SMEs from five to ten years, with interest rates below 10 percent per annum,” he said.

Heng Heang, president of Phnom Penh’s SME Association, claimed there was a large gap in the interest rates offered to large and small businesses.

“The banks lend to big companies at low interzest rates of 8 or 9 percent, while to SMEs the rates are from 18 to 24 percent per annum,” he said.

“We do not demand the interest rates to be as low as big enterprises, but the gap should not be quite so wide.”

But representatives from some of Cambodia’s smaller lenders said yesterday there were minimum interest rates they could not feasibly charge.

Sim Senacheert, general manager at Prasac microfinance institution, said it was impossible to offer interest rates below 10 percent on small loans.

“Some 80 percent of the portfolios at Cambodian MFIs are borrowed from foreign creditors, at rates of up to 10 percent interest per annum,” he said.

“And we have to add in operation costs of another 10 percent.”

The average interest rate MFIs charge is between 19.2 percent and 36 percent per year, depending on loan sizes and risk assessment, he added.

Meanwhile, larger firms received cheaper loans because they had more confidence from lenders, according to National Bank of Cambodia officials.

“Big companies have proper financial statements, paperwork and collateral, so the risk is low and banks trust those firms,” said Chea Serey, director at the NBC’s Banking Supervision Department.

“SMEs may not meet those requirements, so bankers set higher interest rates for them to prevent risks,” she said.

It was also challenging for banks to accept moveable assets as collateral for loans, she added.

Most of the money banks lend out was from depositors. Fixed assets, such as land and houses, were necessary to ensure that money was secure when lending, which is only fair to depositors, she said.

Minister of Industry, Mines and Energy Suy Sem encouraged financial institutions to grant more loans to SMEs at the forum yesterday.

Smaller firms played crucial roles in job creation and in generating revenue for low-income earnings, he said, but some 90 percent of SMEs used their own money or borrowed from families and friends to operate.

As of September, there were 28 commercial banks, six specialised banks, 23 MFIs, and 27 foreign-credit operators in Cambodia, according to NBC deputy governor Ouk Maly.

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