The Asian Development Bank (AfDB) has approved a $ 40 million loan to help Cambodia’s micro, small and medium enterprises (MSMEs) gain easier access to credit. The money will also support the government’s efforts to introduce reforms aimed at strengthening financial stability and modernizing the financial sector infrastructure.
This is the third phase of the Inclusive Financial Sector Development Program. The previous two sub-programs were implemented between 2016 and 2019 to help Cambodia develop an efficient and stable financial sector by improving financial inclusion and stability.
“The Cambodian government has made significant progress in preserving financial stability and improving crisis management in the context of the COVID-19 pandemic,” said Benita Ainabe, AfDB financial sector specialist. “Under the new sub-program, the government adopted key legislation supporting a national financial inclusion strategy and launched several initiatives to increase access to finance, including the first-ever public credit guarantee program for small and medium enterprises of Cambodia.
Access to financial products and services for the poor is limited in Cambodia and financial literacy is low, according to the AfDB. Less than 22% of the country’s adult population has a bank account and MSMEs struggle to access finance and microinsurance. Companies find it difficult to obtain long-term financing because they lack collateral. According to the bank, only 18% of Cambodians are considered to be financially literate.
The AfDB said risks to financial stability have increased due to the coronavirus pandemic, home loans and faster credit growth. He called the country’s financial infrastructure “underdeveloped,” restricting access to finance and market development.
The new sub-program will help MSMEs recover from the pandemic by expanding access to credit. It also aims to accelerate the pace of financial reforms, in particular by streamlining cross-sector institutional supervision, strengthening credit risk management and introducing innovative payment systems to improve financial stability.
The Cambodian government has included the reforms in its national strategic development plan 2019-2023 and the financial sector development strategy 2016-2025. The new sub-program follows the AfDB Country Partnership Strategy for Cambodia 2019-2023, which supports financial sector development to boost economic competitiveness and diversification.