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New gov’t to focus on MSME diversification: official

A view of Phnom Penh skyline from a high-rise building in July.
A view of Phnom Penh skyline from a high-rise building in July. Hong Menea

New gov’t to focus on MSME diversification: official

The new government is expected to inject more funds into micro-small and medium size enterprise (MSMEs) – more for specific sectors though.

Hem Vanndy, a secretary of state for the Ministry of Economy and Finance (MEF), said MSMEs are the backbone of a country’s economy but access to finance in the sector remains limited due to challenges.

He said this during the “Non-Sovereign Forum” on August 9 which was participated by private sectors and development partners, Asian Development Bank (ADB), International Finance Corporation (IFC) and Paris-based PROPARCO.

“If you look at where Cambodia is moving towards in the next five to 10 years with the new Prime Minister, diversification is very important. But how do we diversify?” he said.

Diversification, which is at the centre of the ministry’s effort, has resulted in the exploration of new industries and more importantly, in the transformation of MSMEs, which is a core agenda for Hun Manet.

“Of course, so far, we have been talking about MSMEs in general but now we have to be more specific and look into sub-sectors and how we can lift some of those. We can talk about agri-business in general but I think again, we need to be more specific at this time,” he said.

Stressing that general talk about transformation is no longer viable, Vanndy said there should be more focus on rice, cashew, rubber, longan, mango and fish products, which would give a big advantage for Cambodia.

“We have to take a deep approach on these by scaling it up and building up the supply chain, so that we can ensure proper financing,” he added.

At the forum, Chan Sokheang, president of Cambodia Rice Federation (CRF), appealed to the three development partners to allow direct access to finance to the rice millers who are in need of additional working capital to collect the surplus of paddy rice which “flows outside” every year.

He said the traditional way is where commercial banks require collaterals, such as land, warehouse or construction before approving loans based on the percentage of the bank’s margin.

However, to fund the working capital of rice millers, paddy could not be used as a collateral for the bank.

“To achieve one million tonnes of milled rice export, which was the first target set by Prime Minister Hun Sen, I think the rice sector needs approximately around $120 to $150 million for additional working capital.

“However, commercial banks have a strict stand on it [using paddy as collateral]. I think this is very slow and conservative,” Sokheang said.

“I propose to the three institutions [ADB, IFC & PROPARCO] to lend a hand by giving direct loans and I think it would be very encouraging [as] $120 to $150 million is not a big amount for the three institutions,” said Sokheang.

Heng Koy, general manager of the Association of Banks in Cambodia (ABC), shared during the forum that his association has been facilitating efforts for local businesses to access more funds. However, there are still some challenges in the banking sector on how to de-risk, suggesting that both the business association and ABC work together to overcome those challenges.

“If we can work together, I think there will be a lot of changes in terms of access to finance,” he said.

Meanwhile, MEF’s Vanndy said currently, Cambodia has more than 500,000 MSMEs, which make it difficult for development partners to provide loans.

There is also a need for a strong centre providing more realistic information about their businesses.

“Certainly, PROPARCO, ADB and IFC cannot target all at once but I believe that you can focus on those that would support industry development.

“So, catalyst players would be crucial at this stage. Those who have the bridge and those who already supplied a big part of the value chain would be the focus for the access to finance,” Vanndy added.

He said everyone cannot be helped in one go but opined that those which can lead everyone would be given first priority.


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