The government will make the Credit Guarantee Scheme (CGS) operational by October or November, according to a senior official at the Ministry of Economy and Finance (MEF).
Minister of Economy and Finance Aun Pornmoniroth in July approved in principle the concept of a strategic framework for establishing the Credit Guarantee Corp Cambodia CGCC).
The initiative of the establishing corporation is to align with the government’s response mechanism for the fourth-round measures to mitigate the impact of COVID-19 on businesses and workers in Cambodia during the health crisis and to promote economic growth and help businesses rebound.
CGCC will play a role in providing a credit CGS to companies and businesses in prioritised sectors that are severely affected by COVID-19 in order to enable them to increase the possibility of accessing finance for their working capital, ensuring a sustainable business and aligning with a new context for the business after the Coronavirus is beaten.
Secretary of State at the MEF Ros Seilava said the government will ensure the CGS makes is operational in October or November this year. He said the government has a reserve budget of $500 million of which $200 million is for the CGS and $300 million to allocate to the SME Bank of Cambodia through the SME CO-Financing Scheme (SCFS). “The government will own 100 percent of the shares in the credit guarantee scheme because the government is working to establish the Credit Guarantee Corp Cambodia, which will be a state-owned company,” he said.
“We have to work on some tasks to make the Credit Guarantee Corporation Cambodia operational soon because we are setting up the head of the entity, its legal framework, sub-decrees and the Credit Guarantee Scheme policy. We will think of how to make it operational soon,” Seilava said. He added the CGS will be based on three business models. First, the government will assure the loan and the 33 participating financial institutions (PFIs) on the SME CO-Financing Scheme that are partners will give loans to small and medium enterprise customers and the priority sectors.
“When the PFIs receive a loan request application, they will ask the Credit Guarantee Corporation Cambodia to ensure that loan is given even in cases when the customer does not have collateral,” he added.
Seilava added that the ability to assess risk must be carried out thoroughly first to ensure the loan can be repaid. He added that Cambodia has never had any credit guarantee scheme in Cambodia, so there is no skill in the sector. “Therefore, we have to develop more expertise for this scheme. For the additional $300 million, it is dependent on the SME Bank of Cambodia and Agriculture and Rural Development Bank (ARDB). If there is demand from the SME Bank and the ARDB, we will allocate more money. Agriculture needs an emergency boost so mostly a government emergency loan will go to agriculture. During the COVID-19 pandemic, the agriculture sector has been growing as demand rises, so I hope the agriculture will absorb more loans. SMEs (small and medium enterprises) need time, We will establish the structure of the guarantee policy. We are working on this policy – how much percent we should make
the guarantee, based on non-performance loans and risk will be embedded in the guarantee. We think a 30 percent share should be borne by PFIs and 70 percent government or half and half risking-sharing. The PFIs will also pay us a fee for the guarantee,” he added.
PRASAC Executive Vice-President and Chief Marketing Officer Say Sony said it would be a great initiative to help clients and financial institutions as well as enabling total economic recovery. He said financial institutions can diversify their lending methodology and qualifying clients can access finance more easily. “We still don’t know the requirement and procedure of this guarantee scheme yet but for sure financial institutions and clients will have joint responsibility for loans,” he added. With the SCFS, PRASAC has disbursed $5 million among 18 loan applicants so far.
As of July 28, SME Bank of Cambodia has approved around $22 million in loans under the SCFS to 175 clients. About 20 participating financial institutions (PFIs) submitted applications for drawdowns by that date. In terms of loan disbursements, 168 applications totalling $19.75 million were made and another seven applications totalling $1.69 million are pending disbursement.
Because of COVID-19, the government gave funds to the ARDB to give loans to SME owners in the fields of agriculture, livestock raising, aquafarms, vegetable producers and SMEs that are processing agriculture products and exporting them. So far ARDB has provided loans of $10 million to 100 applicants. There are still 450 applicants seeking $45 million in total that have not yet been approved.
“We will continue working on assessing all loans until the end of 2020,” he added.
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