The Asian Development Bank (ADB), in an effort to support the government, has approved a $40 million policy-based loan to expand access to credit among micro-, small-, and medium-sized enterprises (MSME) and implement reforms to boost financial stability and upgrade financial sector infrastructure amid the health crisis.
The loan is under the third subprogramme of the Inclusive Financial Sector Development Programme, the bank said on October 18.
The two previous subprogrammes were implemented from 2016-2019 to help the Kingdom build an efficient and stable financial system by enhancing inclusion and stability, it said.
ADB financial sector specialist Benita Ainabe said that “under the new subprogramme, the Cambodian government has adopted key legislation supporting a national financial inclusion strategy”.
She added that the government “launched several initiatives to increase access to finance, including Cambodia’s first-ever small- and medium-sized enterprise [SME] public credit guarantee scheme”.
“The government of Cambodia has made significant strides in preserving financial stability and improving crisis management amid the Covid-19 pandemic,” Ainabe said.
The ADB said “access to financial products and services for the poor” in the Kingdom “is limited and financial literacy is low”.
“Only 21.7 per cent of the country’s adult population have a bank account and MSMEs struggle to access financing and micro insurance.
“Businesses are often hampered by limited access to long-term finance because of a lack of collateral, the absence of government support such as guarantees, and financial illiteracy. Only 18 per cent of Cambodians are considered financially literate.
“The pandemic, real estate lending, and faster credit growth have heightened risks to Cambodia’s financial stability. The country’s financial infrastructure is underdeveloped, further restricting access to finance and market development.
“The new subprogramme supports government efforts to help MSMEs recover from the pandemic by expanding access to credit. It also helps finance reforms to enhance financial stability, including streamlining cross-sector institutional supervision, strengthening credit risk management, and introducing innovative payment systems,” the bank said.
In April 2020, the Ministry of Economy and Finance launched the Small and Medium Enterprise Bank of Cambodia Plc (SME Bank) with initial capital of $100 million to provide financing for SMEs.
The ministry also rolled out its “SME co-financing” scheme – a joint venture between SME Bank and 23 commercial banks, two specialised banks, seven microfinance institutions – five of which are licensed to accept deposits, it said in a press release.
SMEs can borrow $200,000 for working capital and $300,000 for investment capital, at a seven per cent annual interest rate and a four-year period of payment.
And in August 2021, the SME Bank launched “SME Co-Financing Scheme Phase II” to prop up the business activities of local SMEs and abate economic Covid-19 woes.
The second phase was introduced after the first iteration achieved positive results, with participating financial institutions providing lifelines for SMEs in need of financing to keep from going under, and promoting economic recovery, the SME Bank noted in an August 16 statement.
The project aims to provide low-interest loans to promote the development of SMEs in priority sectors such as industry, services and commerce, it said.