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Gov’t approves credit guarantee unit to boost business loans in key sectors

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The CGCC would be under the Ministry of Economy and Finance and is set to be launched with $200 million in registered capital from the government. Heng Chivoan

Gov’t approves credit guarantee unit to boost business loans in key sectors

The government has approved the establishment of the Credit Guarantee Corporation of Cambodia (CGCC) in a bid to provide more funds and salvage businesses in key priority sectors.

According to a sub-decree that was signed by Prime Minister Hun Sen on September 1 and released to the public on Saturday, the CGCC will provide loans “in a professional manner” to tackle challenges in the lending market and promote financial inclusion.

“The CGCC will be tasked with providing credit services, evaluating and managing risks, cooperating with banks and financial institutions and development partners that also provide credit services, et cetera,” read the sub-decree.

It noted that the CGCC would be under the Ministry of Economy and Finance and is set to be launched with $200 million in registered capital from the government.

Ministry spokesman Meas Soksensan told The Post that the CGCC will be a vital tool in propping up businesses that seek funds from financial institutions which are guaranteed by the government through the initiative.

“The government will help bear risk-sharing with businesses to encourage the financial sector to disburse more loans,” he said.

Shin Chang-moo, the president of South Korea-owned Phnom Penh Commercial Bank Plc (PPCBank), recently told The Post that the ministry has been sharing ideas and seeking input from lending institutions on “credit guarantee” initiatives at several hearing sessions.

He said credit guarantee schemes (CGS) have been a popular means to ease funding hurdles for small and medium-sized enterprises (SMEs) in many countries.

In South Korea, the government has been running a partial 90 per cent CGS for SMEs damaged by Covid-19, he added.

“PPCBank has been also deploying a partial guarantee scheme called ‘Risk Sharing Facility’ since 2019 under the sponsorship of the [World Bank Group member] International Finance Corporation.

“The ministry’s CGS will help SMEs access credit that is limited due to a lack of collateral and mitigate risk of credit loss for lenders.

In the longer term, lenders should develop credit-assessment skills based more on business and financial feasibilities than collateral value to minimise avoidable loss from loans. Otherwise, CGSs won’t be a sustainable solution for SME financing promotion,” Shin said.

According to Shin, PPCBank’s loan portfolio grew more than five per cent from the beginning of the year and continues to disburse loans.

“I believe CGS will ease the dilemma of lenders between public and private value propositions,” he said.

The sub-decree said that additional funding for the CGCC will be provided by the government based on necessity and will come from, inter alia, the operation’s profits, development partners and the private sector, bond issuances and loans.

The tourism sector was the worst affected of all major economic sectors as international arrivals took a sharp 55 per cent plunge in the first half of this year on a yearly basis, the National Bank of Cambodia said in its Semi-Annual Report 2020 released on July 8.

The manufacturing sector also shrunk by 11 per cent year-on-year due to disruptions tightening basic raw material supply, it said.

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