CGCC

Give Non-Collateral a chance! Credit Guarantee Mechanisms and Benefits for Banks, MFIs and Businesses

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Lack of collateral is the main challenge for businesses in Cambodia to get loans. The Royal Government of Cambodia established the Credit Guarantee Corporation of Cambodia (CGCC) to address this challenge. With credit guarantees, borrowing without collateral is no longer impossible. For CGCC to yield the benefits requires a good understanding from relevant stakeholders about how it works.

Simply put, CGCC provides credit guarantees to share the credit risk with the banks on loans made to businesses. In other words, the banks can claim from CGCC if the guaranteed loan defaults. There are two main types of credit guarantee – individual guarantee whereby the guarantee covers individual loans and portfolio guarantee whereby the guarantee covers a portfolio consisting of multiple loans. Since CGCC itself is not a lending institution, it currently collaborates with banks and micro-finance institutions (MFIs) that are the participating financial institutions (PFIs) to provide guaranteed loans to businesses. As a government-backed institution with adequate capital in its account, CGCC is set to provide a wide range of guarantees on loans disbursed to Cambodian-owned businesses across the country.

 

Why should the lender need the credit guarantee?

Give Non-Collateral a chance! Credit Guarantee Mechanisms and Benefits for Banks, MFIs and Businesses
Give Non-Collateral a chance! Credit Guarantee Mechanisms and Benefits for Banks, MFIs and Businesses

When lending, banks normally protect themselves by requiring collateral from the borrowers. When the borrower cannot repay the loan, the banks liquidate the collaterals to cover the loss. If the required collateral is not sufficient, the bank is unlikely to lend. The collateral requirement becomes more stringent, especially during times of uncertainty such as the COVID-19 Pandemic, because businesses are perceived to be riskier, and banks become more risk-averse. Now with CGCC, the banks can protect themselves with the credit guarantee instead of the collaterals. Currently, CGCC provides credit guarantees up to 80% of the outstanding loan principal which means that the bank bears the remaining 20% of the loss if the loan defaults. The credit guarantee empowers banks to remain competitive in the market and to lend out more to underserved borrowers who lack collaterals, what is referred to as “credit additionality.”

 

Why should the borrower need the credit guarantee?

Give Non-Collateral a chance! Credit Guarantee Mechanisms and Benefits for Banks, MFIs and Businesses
Give Non-Collateral a chance! Credit Guarantee Mechanisms and Benefits for Banks, MFIs and Businesses

Credit guarantees increase the borrowing capacity. CGCC provides guarantees that act as collateral on the borrower’s behalf. Needless to say, CGCC cannot be beneficial for every business. By all means, if the business has sufficient collateral and the ability to repay the loan, the chance is that such a business does not need a credit guarantee, and the bank would also be happy to lend even without CGCC’s guarantee. However, it is common that a potential business with the ability to repay the loan is unable to borrow because of insufficient collateral. Businesses simply cannot pledge the collateral on every loan they wish to borrow. The collateral is limited. This is a huge loss to the business and the economy as a whole. With the required loan, the business could have generated more income, employed more workers, and produced goods or services that contribute to the economic growth of the country. When CGCC provides guarantees to the banks, the borrowers now have easier access to loans from the banks because the banks are willing to lend more with less collateral requirement.

Credit guarantees are used by many countries as a policy tool to improve access to finance and financial inclusion. However, never before has a credit guarantee corporation been incorporated in Cambodia. According to the World Bank, “Public credit guarantee schemes (CGSs) are a common form of government intervention to unlock finance for small and medium enterprises (SMEs). More than half of all countries in the world have a CGS for SMEs and the number is growing.” While many credit guarantee schemes have proved successful in supporting the SMEs, many have also failed.

It is still early to assess how far and how fast CGCC can support the businesses. CGCC must continue to strengthen credibility, efficiency, and transparency and adhere to the best practices including the World Bank’s principles for public credit guarantee schemes for SMEs to gain trust and support from all relevant stakeholders. What is also important at this stage is that all the players understand and start to utilize the credit guarantees for the right purposes.

CGCC supports the accelerating SMEs’ Financial Literacy through the “I’m Financially Literate Program” second cohort

“I’m Financially Literate Program” was successfully launched by Sathapana Bank, in partnership with Khmer Enterprise, Manulife Cambodia, and Credit Guarantee Corporation of Cambodia (CGCC). The second cohort of this program was organized on 08 & 09 and 15 & 16 October 2022 to provide non-financial services to SMEs and MSMEs and especially women in business.

More than 30 Entrepreneurs and business owners attended the second cohort, and shared their experiences as well as related financial issues, and they also had the opportunity to learn more about entrepreneurship, prepare financial statements for Business, understand loans with banks and choose the right loan for their businesses.

This training program is specifically designed to provide practical skills and experience related to financial literacy and business management skills, as well as access to business networks that can drive business growth for entrepreneurs, especially women entrepreneurs. 

CGCC supports the accelerating SMEs’ Financial Literacy through the “I’m Financially Literate Program” second cohort
CGCC supports the accelerating SMEs’ Financial Literacy through the “I’m Financially Literate Program” second cohort

CGCC and Maybank Co-organized the “SME Building Capacity and Capability (BCC) Programme”

On 17 September 2022, CGCC and Maybank Cambodia co-organized the “SME Building Capacity and Capability (BCC) Programme” at Maybank Tower, participated by more than 50 SME entrepreneurs to provide business support instruments and technical advisory based on international best practices to support SME growth, productivity and innovation, as well as enhance competitiveness for SMEs.

Mr. No Lida, Deputy CEO of CGCC, remarks on the importance of this program for SMEs beyond the cooperation between CGCC and Maybank Cambodia, and Mr. Duk Sarak, Head of Community Financial Services of Maybank Cambodia, relayed the opening remark for the event. SME participants had the opportunity to learn about the topic of “Business Registration in Cambodia” from SokSiphana & Associates, “The Importance of Financial Discipline for SMEs” from Acclime Cambodia, “Access to Finance and Guarantee Scheme” from Maybank Cambodia.

CGCC and Maybank Co-organized the “SME Building Capacity and Capability (BCC) Programme”
CGCC and Maybank Co-organized the “SME Building Capacity and Capability (BCC) Programme”

Upon the collaboration on providing loans with credit guarantee, on November 2021, CGCC and Maybank Cambodia also co-organized the Business Forum on “Supporting SME Businesses in Cambodia” to discuss more details about the possibility of collaboration on how to support SMEs for greater access to finance despite collateral issue and the support of SME’s capacity Building and long-term growth.

CGCC and Maybank Co-organized the “SME Building Capacity and Capability (BCC) Programme”
CGCC and Maybank Co-organized the “SME Building Capacity and Capability (BCC) Programme”
CGCC and Maybank Co-organized the “SME Building Capacity and Capability (BCC) Programme”
CGCC and Maybank Co-organized the “SME Building Capacity and Capability (BCC) Programme”
CGCC and Maybank Co-organized the “SME Building Capacity and Capability (BCC) Programme”
CGCC and Maybank Co-organized the “SME Building Capacity and Capability (BCC) Programme”

CGCC supports the accelerating SMEs’ Financial Literacy through the “I’m Financially Literate Program” first cohort

“I’m Financially Literate Program” was successfully launched by Sathapana Bank, Co-sponsored by Khmer Enterprise, Manulife Cambodia, and Credit Guarantee Corporation of Cambodia (CGCC). The first cohort of this program was organized on 03 & 04 and 10 & 11 September 2022 to provide non-financial services to SMEs and MSMEs and especially women in business.

More than 30 Entrepreneurs and business owners attended the first cohort, and shared their experiences as well as related financial issues, and they also had the opportunity to learn more about entrepreneurship, prepare financial statements for Business, understand loans with banks and choose the right loan for their businesses.

This training program is specifically designed to provide practical skills and experience related to financial literacy and business management skills, as well as access to business networks that can drive business growth for entrepreneurs, especially women entrepreneurs. 

CGCC supports the accelerating SMEs’ Financial Literacy through the “I’m Financially Literate Program” first cohort
CGCC supports the accelerating SMEs’ Financial Literacy through the “I’m Financially Literate Program” first cohort
CGCC supports the accelerating SMEs’ Financial Literacy through the “I’m Financially Literate Program” first cohort
CGCC supports the accelerating SMEs’ Financial Literacy through the “I’m Financially Literate Program” first cohort

Click here to read more about: CGCC supports the accelerating SMEs’ Financial Literacy through the “I’m Financially Literate Program” second cohort

Dissemination Seminar on “Guaranteed Loans to support SMEs Development in Tourism Sector”

On 01 September 2022, Ministry of Economy and Finance and CGCC organized a Dissemination Seminar on “Guaranteed Loans to support SMEs Development in Tourism Sector” in Kampot Province, in collaboration with the Ministry of Tourism, through the provincial department of tourism, and SME bank, which was  participated by more than 50 business owners in the tourism sector.

This seminar was presided by Mrs. Chin Sopheakla, Deputy Director of Kampot Provincial Department of Tourism, Mr. No Lida, Deputy CEO of CGCC, and Mr. Neav Sokun, Chief Operation Officer of SME Bank.

Dissemination Seminar on “Guaranteed Loans to support SMEs Development in Tourism Sector”
Dissemination Seminar on “Guaranteed Loans to support SMEs Development in Tourism Sector”

Through this workshop, SMEs in the tourism sector, including resorts, hotels, guesthouses, restaurants, etc., were informed about the benefits of getting guaranteed loans, in response to the lack of collateral when applying for loans for the purpose of improving and recovering their business that are impacted by COVID-19 pandemic.

SMEs also learned about government’s financial supporting mechanisms on favorable loans conditions such as low-interest rate through SME Bank and guaranteed without collateral by CGCC.SMEs can request for guaranteed loans for their tourism related businesses through CGCC’s “Co-Financing Guarantee Scheme for Tourism Sector” that act as collaterals for business loans in the tourism sector through “Tourism Recovery Co-financing Scheme” of SME Bank.

Detail of “Co-Financing Guarantee Scheme for Tourism Sector”: https://cgcc.com.kh/en/co-financing-guarantee-scheme-for-tourism/

Dissemination Seminar on “Guaranteed Loans to support SMEs Development in Tourism Sector” organized by CGCC on 1 September 2022 in Kampot Province
Dissemination Seminar on “Guaranteed Loans to support SMEs Development in Tourism Sector”
Dissemination Seminar on “Guaranteed Loans to support SMEs Development in Tourism Sector” organized by CGCC on 1 September 2022 in Kampot Province
Dissemination Seminar on “Guaranteed Loans to support SMEs Development in Tourism Sector”

Government credit guarantee unit set for 2021

Phnom Penh Post: 26 November 2020

The Credit Guarantee Corporation of Cambodia (CGCC) is on track to be launched in the first half of next year, Banking Association of Cambodia (ABC) president In Channy told The Post on November 26.

The CGCC was established by Sub-Decree No 140 ANKr BK on September 1, coming under the Ministry of Economy and Finance and with $200 million in registered capital from the government.

The sub-decree said the corporation will provide loans “in a professional manner” to tackle challenges in the lending market and promote financial inclusion.

It read: “The CGCC will be tasked with providing credit services, evaluating and managing risks, cooperating with banks and financial institutions and development partners that also provide credit services, et cetera.”

The corporation sets out to increase access to financing for Covid-19-strained businesses in priority sectors and adapt to the Kingdom’s post-Covid-19 start-up landscape.

It officially registered with the Ministry of Commerce on November 13.

Channy said the CGCC will guarantee a source of capital for small- and medium-sized enterprises (SMEs) with limited collateral and provide them with collateral protection insurance.

He said the corporation would serve as a much-needed crutch for the private sector, and would particularly be able to respond to struggling SMEs’ credit needs.

“We have seen in the past that most of the SMEs that applied for loans at their banks and microfinance institutions [MFIs] did not have sufficient collateral, which made it impossible for them to fully obtain the loans that they need,” Channy said.

During a promotional programme for CGCC held at the finance ministry on November 23, senior government officials called on SMEs that have been unable to access loans during Covid-19 to apply at the corporation.

Speaking during the programme, ministry undersecretary of state Ros Seilava said the CGCC will help SMEs rehabilitate their businesses during Covid-19, and would focus chiefly on the agricultural, industrial and service sectors.

“I would like to appeal to all SMEs that have been facing difficulties in obtaining financing from commercial banks to re-apply for loans there,” he said.

He claimed that in 2021-2023, the amount that SMEs can borrow will be capped at $500,000. “Our gameplan is to help SMEs run their businesses smoothly during this health crisis,” Seilava said.

In a press release, the ministry said the CGCC will break through barriers to effective financing processes and provide new opportunities for banks and MFIs to expand their customer base.

“The CGCC will provide a substantial boon for the Cambodian economy – it will promote financial inclusion, support new growth sources and diversify the economy in line with industrial development policies, as well as offer an environment conducive to the creation of new loan products,” it said.

Through the corporation, the government will share risk with banking institutions, MFIs, as well as business owners in credit operations in order to breed credit and economic activity that would not manifest otherwise, the ministry said.

The CGCC will shield businesses from Covid-19 fallout and promote the long-term development of SMEs, it said.

According to Seilava, to rehabilitate the economy after the Covid-19 crisis, the government is seeking more funding from international financial partners, claiming that the World Bank plans to provide about $100 million in loan to the government for additional capital.

Read more: $200M credit guarantee scheme launched