Although small and medium enterprises (SMEs) are central to the country's economic
development, a recent workshop heard they are being severely constrained by a lack
of access to loans.
Banking expert Stephen Harner told the audience that medium and long-term lending
to SMEs was "exceptionally limited". That had proven a serious disadvantage
to development of SMEs and the country.
"All lending to the SME sector is short-term, very short-term," Harner
said. "In fact 70 percent of it is [for] only one year or less ... There is
virtually no lending in the market place for SMEs over two years."
Harner researched his study on the issue in June 2002. Called Barriers to SME lending
among commercial banks in Cambodia, Harner defined an SME as any small or medium-sized
enterprise, foreign or domestic, that was not a big multinational or national company.
Harner pointed out that the general level of lending in Cambodia is very low, even
though most of what is lent goes to SMEs. He compared the country to China, the region's
economic giant, where lending runs at 100 percent of gross domestic product (GDP).
In Cambodia that rate is only 8 percent.
One of the biggest problems is the judicial and legal system, which does not protect
lenders. The lack of a law to register an interest in moveable property, such as
machinery and equipment, means banks are uncomfortable accepting such items as collateral.
Another factor is that high interest rates reduce the demand for loans. The annual
rate charged to SMEs (including service charges and monthly interest) is 23 percent,
as opposed to 19.2 percent for general one-year loans.
"At this lending rate, projects become un-economic," Harner said. "The
effect is to suppress development and demand by SMEs."
He acknowledged there were many barriers to lending money to such businesses, but
said these could be overcome. Banks, he stressed, could make money lending to SMEs
Among the recommendations of the study was a prakas or sub-decree to establish an
asset registry. That would encourage banks to accept moveable property as collateral.
However David Doran from law firm DFDL felt that would be inadequate.
"My understanding is that it is going to require amendments to the contract
law itself, as opposed to just a sub-decree," he said.
Doran also disputed Harner's recommendation that a commercial court be established
to overcome the backlog of cases and speed up the judicial process.
"I think it is premature at this stage, as premature as trying to set up a stockmarket,"
Doran said. "Most commercial cases can get to the clerk's desk very quickly.
I don't think there is actually a problem with the backlog issue."
But some of Harner's other suggestions were better-received, such as establishing
a central database so that banks could share credit information about borrowers,
which he said was currently impossible under the privacy law.
The study also recommended cutting the liquidity ratio requirement from the current
level of 80 percent. That would allow banks to access longer-term capital and promote
But In Channy, the general manager of small loans provider Acleda Bank, asked whether
the recommendations would be implemented.
"These issues [have been] raised again and again, and never followed up,"
he said. "My suggestion is ... how can we make sure the good recommendations
The workshop was held on December 17 and brought together around 100 representatives
from the private sector, government and SMEs. The report showed that loans to SMEs
accounted for $162 million of a total $190 million loaned by banks in 2001. It also
indicated the value of loans to SMEs increased to $222 million in 2002.