Phnom Penh, December 17, 2002 — The Mekong Project Development Facility (MPDF) today organized a workshop on Constraints to SME Lending in Cambodia and Suggested Solutions. During the workshop Stephen Harner, a senior international banking expert and the principal author of the report, presented the preliminary findings of a study by MPDF on "Barriers to SME Lending among Commercial Banks in Cambodia”. Afterwards executives from Commercial Banks, senior representatives from the Government and the National Bank of Cambodia and representatives of Donor Organizations shared their insights and experiences in a discussion. The workshop recommendations are expected to provide a platform for future work in this area undertaken by MPDF and other stakeholders.
Small and Medium Enterprises are vital for economic growth
The development of Small and Medium Enterprises (SMEs) in Cambodia is vital both to promote broad-based economic growth and to reduce income inequality. SMEs are an important part of the Government's trade policies and poverty reduction strategy. And yet one the major barriers to SME development is the difficulty in securing long term funds to finance expansion.
Near Total Absence of Medium- and Long-Term Lending in Cambodia
The MPDF study found that only 1 percent of SME loans are over 2 years in tenor. It examines the reasons for this limited access to medium- and long-term funding from the perspective of bankers and relevant government officials. The study addresses two main questions: why do commercial banks in Cambodia not lend long term to SMEs and what can be done to improve the situation?
Constraints and Possible Solutions
The MPDF study identified two broad categories of barriers: barriers to general bank lending and more specific barriers to medium- and long-term lending to SMEs, particularly financing fixed asset investment. Some of the suggested solutions are related to changing regulations, including easing the required liquidity ratio for banks and providing a legal framework to enable banks to register interests in moveable property. The establishment of a commercial court could provide a solution for the difficulties faced by the current court system in processing commercial disputes. Bank due diligence capabilities could be enhanced by enabling them to share information through setting up a centralized database on bank customers’ liabilities. Another suggestion focused on training for both loan officers of the banks in credit analysis capabilities, as well as for entrepreneurs who need to be able to prepare professional business plans and project finance proposals.
These and other barriers and suggested solutions are described more in depth in the draft report that is available upon request.
According to Adam Sack, MPDF's Regional Manager for Cambodia and Lao PDR, "The study and informative discussion today provide a solid background for MPDF and other stakeholders to design and implement initiatives that will significantly improve the flow of capital necessary to fuel the growth of Cambodian SMEs".
About Mekong Project Development Facility (MPDF)
MPDF is a multi-donor initiative of the Asian Development Bank (ADB), Australia, Canada, Finland, the International Finance Corporation (IFC), Japan, Norway, Sweden, Switzerland and the United Kingdom. The initiative was set up to support the establishment and growth of the private sectors in Cambodia, Vietnam and Lao PDR. MPDF is managed by IFC, the private sector arm of the World Bank Group. MPDF's website is www.mpdf.org
