Lack of Finance Holding Back Enterprises: Experts

MSE meeting (Photo: CEN)

Chun Sakada, VOA Khmer
Phnom Penh Wednesday, 10 November 2010

"A lack of long-term financing can hold businesses back for years."

Owners of small and medium enterprises in Cambodia face a lack of capital and low-interest credit, which is hurting their ability to expand their businesses, a group of experts said Wednesday.

More than 300 participants gathered Wednesday for a national forum sponsored by the International Finance Corporation, the private sector arm of the World Bank, to find ways to make smaller businesses prosper.

“The challenges facing small and medium enterprises in Cambodia are lack of capital for expanding business operations, lack of access to credit with low interest rates and long-term credit, limited collateral to pledge for credit, and loans are small and service fees are as high as those of large loans,” said Te Taingpor, a co-chairman of a private-sector SME working group.

Small and medium enterprises, which play a key role in economic growth, cover sectors from agriculture to handicrafts and constitute a labor force of 1.4 million people, he said.

But the enterprises are hampered in getting loans by a lack of collateral, said Matthew Gamser, an IFC adviser for East Asia and the Pacific. A lack of long-term financing can hold businesses back for years, he said.

That means “companies are not growing fast enough to provide the jobs critically needed for Cambodia’s rapidly expanding labor force,” Gamser said. “Each year, an estimated 250,000 young Cambodians reach working age, ready to join the labor force and most of them are in rural areas.”

Ouk Maly, deputy governor of the National Bank of Cambodia, said that challenge for SMEs is a lack of trust of banking and financial establishments, reflecting a lack of information available to them.

Major Banks To Provide Loans for Smaller Enterprises

By Ros Sothea, VOA Khmer
Original report from Phnom Penh
10 June 2009

Cambodia Public Bank and ANZ Royal will provide loans to small and medium businesses, through a program with the UNDP and International Trade Center.

The loans will be available from October 2009 and will focus on 100 agricultural-related businesses. The two banks were selected from some other banks that had an interest in offering loans to small and medium enterprises, said Hin Wisal, UNDP assistant country director.

The UNDP is working with the International Trade Center to provide technical support to banks and businesses for the 18-month project. The Agence France de Development will provide credit guarantees for two partner banks.

“It is very important for SMEs to get formal loans from commercial banks to extend their growth,” Wisal told VOA Khmer. “To support policy development, we need to promote formal access to credit.”

Trade experts and economists say Cambodia’s small and medium enterprises are currently driving the economy. But these businesses lack the formal financial support they need to expand, because banking and finance in rural areas are not fully developed.

Studies show that of around 64,000 small and medium enterprises in Cambodia, only 80 percent get loans from banks. Informal loans, meanwhile, lead to financial problems down the road.

The bank-loan project will provide financial management training and guidance to enterprises. Under the project, the two banks will be able to evaluate strength and weakness of the businesses.

“More and more customers will seek a loan from a bank rather than other sources,” Stephen Higgins, chief executive officer of ANZ Royal said. “We make money, and they make money.”

Robert van Zwieten, director of capital markets and the financial sector for the Asian Development Bank, encouraged more banks to turn their eyes to small and medium businesses.

“It’s going to be far more interesting when you provide loans to SMEs, because they grow quicker, and SMEs are seen as the biggest generators of jobs,” he told VOA Khmer by phone from Singapore. “As a bank, if you have done a great service to your respective customer then you will have a long relationship for a long time to come and hopefully a profitable one. It will be beneficial for the country.”