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Gov’t CGC scheme to boost business loans

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Minister of Economy and Finance Aun Pornmoniroth (left) told a ministerial meeting that the initiative aims to enhance control over the pandemic’s impact on key economic sectors and help revive the economy post-Covid-19. FINANCE MINISTRY

Gov’t CGC scheme to boost business loans

The government plans to establish a Credit Guarantee in Cambodia (CGC) scheme to serve as a risk-sharing tool for financial institutions to disburse more loans to businesses impacted by Covid-19.

Minister of Economy and Finance Aun Pornmoniroth told a ministerial meeting on Tuesday that the initiative aims to enhance control over the pandemic’s impact on key economic sectors and help revive the economy post-Covid-19.

The ministry said in a statement: “The CSG is to provide loans to companies and businesses in the priority sectors severely affected by Covid-19 to build their financial resilience.

“The loans will serve as working capital for them to ensure sustainability,” it said, noting that a timeframe will be determined soon.

Ministry spokesman Meas Soksensan told The Post that the CGC 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), 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.

Prasac Microfinance Institution Ltd senior vice-president Say Sony lauded the new initiative, noting its significant role in fuelling the economy.

“It’s splendid that we have this safety net now, but as a priority, financial institutions must ensure that clients are able to repay bearing in mind that we work with all kinds of clients and businesses.

“If these schemes target micro, small and medium-sized enterprises it would help microfinance institutions and their clients,” he said.

In the first half of this year, Prasac’s gross loans grew 6.6 per cent from $2.501 billion to $2.665 billion and deposits grew about eight per cent from $1.788 billion to 1.931 billion, respectively. Total assets increased to $3.383 billion by the end of last month, Sony said.

The National Bank of Cambodia noted in its Semi-Annual Report 2020 that the tourism sector, which has been hardest hit by coronavirus saw revenue drop 55 per cent.

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

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