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Rice growers hindered by lack of bank credit


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A farmer works in Takeo province. Rice growers and millers are losing out to foreign speculators due to a lack of access to financing.

The inability of rice farmers to access bank credit could be causing them to sell short to foreign speculators, say industry observers, who warn that this practice is slowing development of the Kingdom’s agricultural industry.

“Thai and Vietnamese traders buy considerable stocks of Cambodian paddy and transport it over the border to be processed and stored,” said Yaing Saing Koma, president of the Cambodian Center for the Study and Development of Agriculture.

Cambodian farmers have been selling out right after harvest, when supplies were plentiful and prices low, confirmed the Cambodia Agriculture Sector Diagnostic, an AusAid-funded report.

Profitable production and ensuring long-term supplies required sufficient working capital to grow, harvest and store paddy, and eventually mill it when market demand and prices were higher, the report stated.

Better-financed Vietnamese speculators were enjoying a tremendous advantage, buying up large amounts of Cambodian paddy and storing it until prices were higher.

“Drastic price increases during recent months have made it clear that, due to these informal exports, the country was forgoing an opportunity to add value to its paddy and consequently losing income and job opportunities,” said Saing Koma.

Commercial banks will provide credit … only if we have enough hard collateral like land and machines.

Farmers have looked to banks to help finance them through this post-harvest period of waiting on higher prices, but to no avail.
While Cambodia’s commercial banks have been lending freely on real estate mega-projects, with soaring office towers and enormous suburban housing projects capturing the imaginations of both investors and bank loan officers, financing for rice production – Cambodia’s leading cash crop – has remained out of reach.

 “What farmers have doesn’t fit well with bank criteria,” said National Bank of Cambodia deputy director general Phan Ho. “That’s why loans to agriculture are only 4 or 5 percent of total loans.”

The Kingdom’s banks lack both credit formulae and personnel expert in agricultural commodities and production. Their generic lending models have proven to be an ill-fit for farmers, as they view crops as a temporary or “soft” asset which doesn’t offer sufficient security for a loan.

There was no law prohibiting loans against soft collateral, Phan Ho said, but commercial banks chose not to extend them. Other countries in the region, however, allowed farmers to use crops as collateral, he noted.

“We can’t impose any regulations requiring banks to make these loans because the central bank can’t interfere with the internal operations of commercial banks,” he added.

Millers are also struggling to qualify for bank loans. Pheng Kong, vice president of the National Cambodian Rice Millers Association, which has a constituency of 300 in nine provinces, said some of its members have managed to receive limited financing from the Rural Development Bank but otherwise have had to get by on their own funds.

“Commercial banks will provide credit … only if we have enough hard collateral like land and machines,” he said, adding that Cambodia’s agricultural credit market paled in comparison to that of other countries in the region.

Rural Development Bank general director Sun Kunthor said his group’s $20 million in working capital could do little for the market as a whole.

“We’re trying to encourage credit from other sources. Farmers need to be able to borrow money from commercial banks,” he said.

 “You can’t work with the farmers only. If the millers have limited capacity, how can they turn out the farmers’ produce on the international market?” said Sam Bona, field operations manager for the Cambodian Micro, Small and Medium Enterprises Project.

“Rice millers play a major role in advancing the market. You have to work with the entire supply chain… and a typical commercial miller will work with 200 or 300 farmers,” said Bona.



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