Because locally-owned SMEs in Cambodia have been stymied in their attempts to secure long-term loans for their development, MPDF commissioned a study to determine why local banks would or could not offer more extensive lending services to the SME market and how these issues might be remedied.
The study showed that compared to international levels, Cambodian banks generally had below-average rates of bank intermediation and loan portfolios, particularly so for SMEs. In 2001, only 1% of loans to SMEs were for two years or longer, while 70% were for less than one year. Moreover, SME loan rates remained higher than for general lending.
Interviews held in June 2002 with 12 Cambodian banks revealed a variety of factors inhibiting SME lending. Because of its high liquidity ratio, lenders had a majority of their funds tied up with the country’s regulatory authority, the National Bank of Cambodia (NBC), which meant deposits could not be deployed as loans. The high rate on deposits made funding costly and there was also a shortage of access to long-term capital. Other reasons involved the limited development of Cambodia’s financial systems. Lack of experience and skills in assessing and managing risk combined with the lack of reliable, transparent information (corporate records, audits, etc.) on borrowers made conducting due diligence extremely difficult and SME lending an unacceptable risk for many would-be lenders who already felt their interests were not well protected by the legal system at the time.
The recommendations put forth by MPDF addressed these and other issues. As early as six months after the fieldwork was completed, lending rates were reduced, equipment financing was made available by at least one bank, and the NBC reduced its liquidity ratio requirements by 20%.
April 2003
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