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Logo of Phnom Penh Post newspaper Phnom Penh Post - Modernising with the times: SME growth through public and private support

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Te Taing Por, president of the Federation of Associations of Small and Medium Enterprise of Cambodia (FASMEC), speaking to the Post reporter yesterday. Pha Lina

Modernising with the times: SME growth through public and private support

It is no secret that for the majority of small and medium enterprises (SMEs), the lack of accessible capital has hindered growth and innovation. As a result, the SME sector – often called the backbone of every economy – has been falling by the wayside in Cambodia. According to a census conducted in 2011 there were 530,000 enterprises and about 99 per cent of them were SMEs.

The Post’s Dit Sokthy met with Oknha Te Taing Por, president of the Federation of Associations of Small and Medium Enterprises of Cambodia (FASMEC), to speak about the state and development of the SME sector, its perspectives and what part MFIs have to play in it.

Why does the SME sector still face difficulties in getting access to finance and what problems does it cause them?
The main problem SMEs in Cambodia have is difficulties accessing loans due to requirements imposed by MFIs and commercial banks. SMEs generally have little in terms of collateral, and banks and MFIs think they are still at high risk. Plus, banks are more likely to focus on real estate and land as collateral that is required to be in Phnom Penh. Thus, many SMEs still fall short of financial support while interest rates remain high.

How has the recent rise of MFIs helped facilitate access to capital?
MFIs are growing, but SMEs are not growing alongside them. To secure a loan without collateral, your business either has to already exist or has proven profits. In other countries, once you have a good business plan, you can get a loan, but it doesn’t work that way in Cambodia.

You founded your own MFI – FASMEC Microfinance – how does it operate differently from other MFIs?
Our MFI also requires collateral, but we accept land as collateral in the provinces, too. We only take it for the sake of taking it. It does not need to be in the city. We focus on the SMEs’ potential. The interest is not higher than that of other MFIs, but we process the loans quicker. Also, our clients are members of the SME Association.

Can MFIs be the sole financing option for SMEs?
It’s not enough to simply seek loans from MFIs. We need the government’s help. We need to get a loan from the government so that we can provide loans to SMEs with a low interest rate. The interest rates are still high especially for places packed with SMEs like in Kandal, Kompong Cham, Battambang, Siem Reap and Takeo, all of which need access to finance.

To help SMEs, we requested the government to lower the profit tax for SMEs at least in the first three years. We are requesting the government to lower the import tax for production materials. Once we are able to produce ourselves, we won’t be buying finished goods from other countries as much.

How could clearer tax regime help improve SME cooperation with the government?
In Cambodia, we use a flat taxation system—pay the same amount every month or year regardless of the profits. We are trying to educate the sector about a progressive taxation system. The general department of taxation will find a way to help ease the rate of tax for enterprises that have been registered.

How can SMEs adapt to market changes and requirements with a limited capacity to innovate?
At the end of 2015, the ASEAN Economic Community (AEC) is scheduled to open. Most SMEs are ready. We have tried to spread a message telling them to convert from family businesses to registered companies. The more we produce, the cheaper the production will be. We urge family businesses to merge with similar businesses. For example, we can merge 50 enterprises of drinking water production to be one big company, running with a central office and producing higher quantities, thus costs will be less. If family businesses continue existing, we are unable to match the competition. We do not want SMEs to keep the traditional practice. We want them to modernise.

The industrial policy calls for modernising SMEs and linking them to multi-nationals. How does the policy achieve this?
Some can be possible and some can be impossible. SMEs can merge their capital and technology to be one company and they can go for public IPO later. For this transition, there are some difficulties too. SMEs must have the same idea to merge their enterprise because we cannot force them. Sometimes, SMEs can also expand themselves when they have enough capital and the right market as what the MFIs have done. These need support from the government because SMEs cannot stand alone.

What other policies are already implemented and what policies can we expect to be rolled out in the future?
There has been no official policy for SMEs yet. The Ministry of Industry and Handicraft has to work on improving that. We lack human resources and technology. We desperately need an increase in the budget. And we need a strong labour force.
What we expect to be written in the upcoming policy, however, is the reduction of tax for newly formed SMEs for the first three years to enable them to stand stronger.

How can the growth of SMEs help reduce the trade deficit Cambodia faces?
When local production is more, the country will progress. The government policy is to reduce the importation of finished goods from neighboring countries and to urge SMEs to produce. SMEs play a crucial role in all levels of society. They are the backbone of the country’s economy. However, we do not have adequate data on how many SMEs are in the Kingdom. We need to conduct research on how many SMEs there actually are. We do not know what percentage the SMEs have contributed into the country’s GDP. The value of goods imported from Thailand was up to $2.3 billion in 2013 coming from over $1 billion in 2012. But it was down 7 percent in 2014 again, reflecting an increased contribution from SMEs.

How important is the empowerment of the SME sector to lift Cambodia out of the status of a developing country?
SMEs are the key to reduce poverty and imports from neighbouring countries. It demands many years for SMEs to develop. SMEs just contribute into the government policy. Recently, we have struggled to be self-reliant, thus having to ask for support from the government.

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