Financial Institutions Archives

Understanding Market Structure

Posted on February 4, 2025 by Sorn Chhorvyvatey

What products or services are your business offering? Who else in the market is offering similar products or services? What is your business strategy to stay ahead of the competition? The answers to these questions relate to the market structure in which your business operates. Market structure refers to the characteristics of a market, including the number of firms, the nature of products and services, freedom of entry and exit, and so on. Market structure plays a pivotal role in the strategic decision-making of a business – how to operate and compete.

Perfect Competition

In Phnom Penh, if you wish to purchase a pure drinking water bottle to satisfy your thirst on a hot day, you have many options like Vital, Angkor Puro, Dasani, Oral, Hi-Tech, Aruna, Cambodia, etc. Despite the different branding, these products share a very similar taste and are generally priced at approximately 0.25 cents per bottle, representing the equilibrium price in this market. If sold at the same place and in the same setting, any products priced above this equilibrium price will eventually be out of the market. The customer is indifferent to switching between these products for the lowest cost. This market of pure drinking water can be a close example of perfect competition.

Perfect competition is a market structure where numerous firms offer identical products or services, and no single firm has the power to set the price. Buyers have complete information about the products and services, and the price is determined by supply and demand. Entry and exit into this market are extremely easy. The key to competing in this market is to set the price equal to the marginal cost, an additional cost for an additional output.

It is indeed rare, if not impossible, to find perfect competition in real life. The conditions for perfect competition, where many firms offer the same products or services, buyers have all the information, and entry and exit are easy, are seldom met. However, perfect competition serves as a theoretical benchmark that helps us understand the dynamics of real-life markets.

Monopoly

When I rejoined the Ministry of Economy and Finance in 2010, I was involved in the first-ever Initial Public Offering (IPO) on the Cambodia Securities Exchange. As the first IPO in Cambodia, the listing process of Phnom Penh Water Supply (PPWSA) was challenging and time-consuming. PPSWA was eventually listed successfully in April 2012, raising around USD 20 million. Equity investment in PPWSA is considered safe because PPSWA is the only licensed water supply operator in Phnom Penh and Ta Khmao. PPWSA offers an indispensable service (clean water supply) and has no competitors in its authorized areas. PPWSA can set the price without worrying about losing customers. In other words, PPSWA is a monopoly.

Monopoly is the opposite of perfect competition. In a monopoly, there is only one seller of a particular product and many buyers. There are barriers to entry. A monopoly maximizes profit by producing outputs when the marginal revenue (an additional earning from selling one extra unit) equals the marginal cost, and by charging the maximum price consumers are willing to pay for that output. However, the pricing strategy of monopolies is usually under strict government regulation to ensure social welfare. Other firms operating in Cambodia that can be considered monopolies include Electricity of Cambodia (EDC), NagaCorp, CINTRI, and the company I am serving, Credit Guarantee Corporation of Cambodia (CGCC).

Oligopoly

If you ask Cambodian people which mobile network service they are subscribed to, chances are they are using either Cellcard, Smart, or Metfone. These are the three leading players in this industry, holding more than 90% of the market share. Cellcard, Smart, and Metfone fiercely compete with one another on all fronts—price, product innovation, and advertising. Several mobile network companies have tried entering the Cambodian market to compete with these players. Most of them withdrew, such as Beelines and QB. The mobile network industry is an oligopoly.

An oligopoly is a market in which a small number of firms dominate and compete. This industry is highly competitive, and entering it is extremely difficult. The strategy of one firm can influence the strategies of other firms. Because there are only a few players, they often cooperate to limit output and charge higher prices to maximize their shared profits. This behavior is called collusion, which refers to the cooperation among firms in an oligopoly to make joint decisions and act as if they were a monopoly.

Other oligopoly industries include grocery store chains (Lucky Supermarket, AEON Supermarket, and CHIP MONG Supermarket), the retailed petroleum industry (TOTAL, TELA, and CALTEX), and movie cinemas (Legends and Major Cineplex).

Firms operating in different market structures require different strategies to compete and operate. So, which market structure is the best? It depends. Each market structure has its pros and cons depending on the industry and the Government’s policy toward the industry.

Summary of Market Structure

Read and Download in PDF: Understanding Market Structure

CMA and CGCC Partner to Enhance Financial Inclusion and Promote Green Financing in Cambodia

Posted on January 30, 2025 by Sorn Chhorvyvatey

Cambodia Investment Review

The Cambodia Microfinance Association (CMA) and the Credit Guarantee Corporation of Cambodia (CGCC) have signed a Memorandum of Understanding (MoU) to advance financial inclusion and sustainability across Cambodia. The partnership, formalized during the CGCC Annual Seminar on “Innovation of Credit Guarantee to Promote Green Financing,” presided over by H.E. Ros Seilava, Secretary of State of the Ministry of Economy and Finance and Chairman of CGCC, aims to drive financial literacy, promote digital finance, and foster green financing initiatives.

Strategic Focus on Capacity Building and Green Finance

Under the three-year agreement, CMA and CGCC will collaborate on a range of initiatives to strengthen the capacity of micro, small, and medium enterprises (MSMEs), banking and financial institutions (BFIs), and stakeholders. Key areas of cooperation include:

Capacity Development: Joint training programs and workshops for BFIs, MSMEs, and stakeholders to enhance skills and knowledge.
Financial Literacy: Increasing awareness and accessibility of financial services among Cambodians.
Digital Financial Services: Promoting innovative solutions to improve financial inclusion.
Green Sector Initiatives: Encouraging sustainable practices in the financial sector to support environmental objectives.

“This partnership marks a significant step toward advancing financial inclusion in Cambodia. By combining our expertise and resources, we can create a more robust financial ecosystem that supports the growth of MSMEs and contributes to the country’s sustainable development,” said Oknha Hout Ieng Tong, CMA representative.

Enhancing Access to Underserved Businesses

The partnership will leverage CGCC’s credit guarantees to expand access to financing for underserved businesses, supporting their growth and integration into Cambodia’s financial system.

“We are excited to collaborate with CMA to enhance financial literacy and provide better access to financial services. This MoU is a testament to our shared commitment to fostering economic growth and sustainability in Cambodia,” said Mr. No Lida, Chief Executive Officer of CGCC.

By focusing on financial literacy and green financing, the partnership aligns with Cambodia’s broader economic development goals. Both organizations have committed to ensuring the confidentiality of shared information and the effective execution of initiatives outlined in the MoU.

Credit to: Cambodia Investment Review, Published on 24 January 2025

MAFF, CGCC ink pact to Develop Modern Farming Community

Posted on September 23, 2024October 7, 2024 by Sorn Chhorvyvatey

Ministry of Agriculture, Forestry and Fisheries (MAFF) and Credit Guarantee Corporation of Cambodia (CGCC) Tuesday signed a Memorandum of Understanding (MoU) to promote the development of the modern farming community.

The MoU signing ceremony was presided over by Dith Tina, Minister of Agriculture, Forestry and Fisheries (MAFF) and Ros Seilava, Secretary of State of the Ministry of Economy and Finance and Chairman of the Board of Credit Guarantee Corporation of Cambodia (CGCC) at the Ministry of Agriculture.

Underlining the essence of the MoU, Tina said the new cooperation will have a production based on market demand, good quality, reduce production cost and economic efficiency.

Tina further said that developing the modern farming community is the priority of the Royal Government of Cambodia.

“Modern farming community plays an important role and acts as a strong shield in helping farmers who lack technology, face climate change challenges, lack credit and face market risks. Farmers who volunteer to become members of the modern farming community will receive sufficient investment and capital for potential agricultural products such as rice, cassava and cashews,” the minister said.

Applauding the Credit Guarantee Corporation of Cambodia (CGCC), Tina said CGCC is a good partner in evaluating and providing key inputs to the business plan for the modern farming community to become a reality and be successful.

CGCC is a state-owned enterprise under the financial and technical guidance of the Ministry of Economy and Finance with a main mission to provide credit guarantees to improve financial inclusion and support the development of small and medium enterprises.

Khim Finan, Undersecretary of State and spokesman for the MAFF wrote on his social media on Tuesday that the MoU between the Ministry of Agriculture and the CGCC will open the way for modern farming communities to have capital to cover their operating expenses and as well as receive lower interest rates than other general loans.

“Due to the robustness of the business plan and the clear marketing contracts in advance, CGCC is prepared to provide a credit guarantee service on behalf of the community, which will allow the community to have enough resources to run its operations with no need for each member to have bank debt. This is another important step for our modern community,” said Finan.

Speaking at the ‘7th Cambodia Rice Forum 2024’ under the theme ‘Transforming the Cambodia Rice Supply Chain to be Resilient, Inclusive and Sustainable’, Prime Minister Hun Manet lauded the efforts and achievements of modern farming communities and called for more such farming communities across the country.

He added that so far, the development has taken place with 8 modern farming communities covering almost 2,000 hectares in the first phase, and he called on keep continuing to do so to grow even more.

Credit to: Khmer Times, Published on 19 September 2024

Understanding Financing Options for Businesses

Posted on August 18, 2024September 18, 2024 by Sorn Chhorvyvatey

What are the available financing options for your business? In today’s dynamic business environment, securing the right financing is the key to propelling businesses towards success. Whether it’s borrowing from family members or raising funds from the public through an initial public offering (IPO), each avenue has its own unique characteristics suitable for businesses in different circumstances. Exploring financing options is a strategic approach to building a strong and sustainable financial foundation for the business.

1. Debt Financing

Debt financing is a method for businesses to raise funds by borrowing from lenders such as family, friends, financial institutions, or investors. The borrower is required to repay the loan principal plus interest during the debt’s maturity. Debt financing is a common and straightforward way to secure funds for business operations.

A loan from family or friends is the most appealing option for start-ups and small businesses. These loans and loans from other unregulated and unlicensed lenders are considered informal loans. This financing typically does not require a business track record, comes with loose terms and minimal paperwork, and is quick and easily accessible. However, informal loans have many drawbacks. For example, the borrowers’ creditworthiness is not properly assessed, which often results in a high loan default rate and the borrower’s high indebtedness. Furthermore, there is no standard loan restructuring to help the borrowers who face financial difficulty, and the recovery of the informal loan can be very harsh, leading to relationship breakdown. This risk underscores the need for caution and careful consideration when opting for this type of financing.

Another type of debt financing option is bank loans. Understanding and demonstrating the 5Cs—character, capital, collateral, capacity, and condition—is crucial when considering formal bank financing. Formal bank loans provide a better loan handling process. Bank loans are strictly regulated, and the banking regulations are designed to protect consumers and banking stability. CGCC has supported businesses in access to formal banks loans by providing credit guarantees which act as collateral for the borrowers.

Once a business matures, generally after 3 years or more of successful operation, it can consider raising funds through bond issuance. A bond is a fixed-income debt instrument, an alternative to a bank loan. Lenders lend money to the borrowers by purchasing the bonds issued by the borrowers who promise to pay back the principal plus interest during the maturity of the bond. Compared to a bank loan, a bond offers more flexibility in structure, size, maturity, and interest payment. The comparison between bank loans and bonds is explained in CGCC’s Newsletter Issue 9. CGCC launched the Bond Guarantee Scheme in January 2024 to support corporations issuing bonds in Cambodia.

2. Equity Financing

Equity financing is a method of raising capital by selling a portion of business ownership to investors. When investing in a company’s equity, the investors become shareholders of the business and may be able to influence critical company decisions. While equity investors are not entitled to fixed interest payments from the business, they share the profit and loss of the business. Equity financing can be raised through a private offering from angel investors and venture capital or a public offering from public investors.

An angel investment is an equity investment by angel investors (wealthy individuals with business experience) who purchase ownership of a business, usually a start-up, that they find attractive and have the potential to grow and generate high profits. To raise funds from angel investors, the business owners should have a solid business plan that can convince the angel investors to invest. Unlike angel investors, who invest their own money in the business, venture capitalists use a pool of funds from individual and institutional investors. Venture capital conducts stricter due diligence on the businesses before deciding to invest and can provide technical assistance and managerial experience to improve the operation of the company.

Another financing option is an initial public offering (IPO), a process of selling company shares to public investors for the first time. Since the funds are raised from the public, a publicly listed company is required to go through rigorous due diligence and comply with strict disclosure requirements. Therefore, IPO can increase the company’s publicity, credibility, and greater access to financing for long-term future growth. The process of IPO is regulated by the Securities and Exchange Regulator of Cambodia.

CGCC and Bridge Bank Signed on Credit Guarantee Agreement to Support Businesses in Access to Guaranteed Loans

Posted on February 7, 2024 by Sorn Chhorvyvatey

On 07 February 2024, Credit Guarantee Corporation of Cambodia (CGCC) and Bridge Bank officially announced the partnership in the signing ceremony on the Credit Guarantee Agreement to provide support to micro, small, and medium enterprises (MSMEs) and large enterprises, in easier access to bank’s loans with CGCC’s Guarantee for business development.

The partnership between CGCC, a state-owned enterprise, under the financial and technical guidance of the Ministry of Economy and Finance, and Bridge Bank, a commercial bank with a commitment to support the local MSMEs, will enable Bridge Bank to expand the opportunity to be confident in providing the loans to financially viable businesses but lack of collaterals, by using credit guarantees of CGCC.

Mr. Wong Keet Loong, Chief Executive Officer of CGCC said: “This partnership with Bridge Bank opens up a new channel for us to reach out to support the Bank’s SMEs in getting loans when they lack collateral. Our participating FIs will evaluate the eligibility of SMEs for guaranteed loans as they know the financial needs and repayment capability of the borrowers. Our guarantees are vital to ensure the continuous supply of credit into the market to support more economic activities.”

Mr. Richard Liew, CEO of Bridge Bank said: “SMEs are one of the backbones of Cambodia’s economy, contributing significantly to the country’s GDP growth as well as providing employment opportunities to all Cambodians. However, some of these businesses often face challenges in accessing financing to support their growth. That is where this partnership between Bridge Bank and CGCC comes in. Through this MoU, we hope to provide MSMEs with easier access to loans by leveraging CGCC’s expertise in credit guarantee services. This will help to mitigate the risk of default and enable us to offer more competitive loan rates, thus increasing the affordability of credit for MSMEs.”

Through this agreement, Bridge Bank has now become one of the 28 Participating Financial Institutions (PFIs) of CGCC, committing to assisting business entities in line with the Government’s direction to support MSMEs. CGCC and Bridge Bank strongly believe that this partnership will be one of the key instrumental in addressing the financing gap faced by many MSMEs and will contribute to the growth and development of the country’s economy.

About CGCC

CGCC is the only credit guarantee corporation in Cambodia, established by the decision of Samdech Akka Moha Sena Padei Techo Hun Sen, as a state-owned enterprise under the technical and financial guidance of the Ministry of Economy and Finance. The primary mission of CGCC is to provide credit guarantees to improve financial inclusion and support the growth of SMEs in Cambodia. Visit CGCC’s website for more information: www.cgcc.com.kh

About Bridge Bank

Bridge Bank provides a comprehensive range of banking products, such as loan services including home, automotive, personal, and business loans, as well as deposit services, payroll and remittance services.

Bridge Bank’s vision and mission are “to be your preferred financial partner of today and generations to come,” and “to provide financial services you can trust through our global service standards, making banking simple and secure.”

Please visit us for more details via www.bridgebank.com.kh

Signing of a $3 million Portfolio Guarantee Agreement for Women Entrepreneurs Between CGCC and Prince Bank

Posted on July 14, 2023July 18, 2023 by Sorn Chhorvyvatey

On 13 July 2023 at Prince Tower, CGCC and Prince Bank signed a $3 million Portfolio Guarantee Agreement for women entrepreneurs. The Agreement is signed by Mr. Wong Keet Loong, Chief Executive Officer of CGCC, and Mr. Honn Sorachna, Managing Director and CEO of Prince Bank, with a participation of Lork Chum Teav Oknha Keo Mom, President of Cambodia Women Entrepreneurs Association (CWEA).

The Portfolio Guarantee Scheme (PGS) for Women Entrepreneurs of CGCC and Prince Bank is effective from 01 August 2023 which will enables Prince Bank to disbursed guaranteed loans to women entrepreneurs without having to get CGCC’s guarantee approval on each loan prior to loan disbursement. This PGS for Women Entrepreneurs will support quicker, easier, and more CGCC’s guaranteed loan disbursements through Prince Bank to women entrepreneurs who lack of collateral.

Signing of a $3 million Portfolio Guarantee Agreement for Women Entrepreneurs Between CGCC and Prince Bank

Mr. Wong Keet Loong, CEO of CGCC said “This USD3mil portfolio guarantee scheme (PGS) with Prince Bank was structured specifically to support women entrepreneurs in providing guaranteed loans. We hope that with the bank’s strong network, we can increase our guarantees to women-owned businesses. As at todate, CGCC has guaranteed 40% of its total guarantees of USD130mil to women-owned MSMEs ie. USD50mil.”

He added that “The woman scheme comes with lower interest rates and guarantee fees for the 1st year. These favorable terms will enable women MSMEs to obtain lower cost of financing.”

Mr. Honn Sorachna, Managing Director and CEO of Prince Bank Plc. stated “We are honored and excited to join the force with CGCC to boost the local economy by supporting the MSMEs segments, especially women MSMEs. Women are the cornerstone of a strong family foundation and in their community. Their involvement and contribution to commerce and the economy at large are very significant and very much lauded. women entrepreneurs with unique abilities and determination are admirable and should be emulated. They deserve the support and encouragement to grow from strength to strength. Under the Portfolio Guarantee Scheme (PGS), we aim to provide better liquidity with special conditions to women-owned micro, small, and medium enterprises to give them extra support for their working capital to invest and sustain their businesses. It’s always our top priority to support Cambodian individuals and businesses for their financial needs; we are trying harder to enhance our products and services and make them conveniently accessible to our Cambodians.”

Prince Bank has become CGCC’s Participating Financial Institutions (PFI) since 2021 and has actively utilized CGCC’s credit guarantees to address the MSMEs’ challenge of lacking collaterals by providing guaranteed loans. CGCC and Prince Bank hope that this PGS for Women Entrepreneurs will support Cambodian women entrepreneurs that are mainly MSMEs, the backbone of the economy.

About CGCC

CGCC is the first-ever credit guarantee corporation in Cambodia, established by the decision of Samdech Akka Moha Sena Padei Techo Hun Sen, Prime Minister as a state-owned enterprise under the technical and financial guidance of the Ministry of Economy and Finance. CGCC’s main mission is to provide credit guarantees to lenders on loans made to businesses based on international standards to share the risk with lenders and to improve financial inclusion.

About Prince Bank Plc.

Prince Bank Plc. started its business operations in 2015 as a private microfinance institution under the former name “Prince Finance Plc.” and was transformed into a commercial bank with license No. B 46 was granted by the National Bank of Cambodia on 18 July 2018. With a strong capital base, robust technological capabilities, solid expertise, and extensive knowledge of the local market, the bank aspires to become the industry leader by offering differentiated financial solutions through a mix of channels with great convenience to our customers. We are keen on contributing to the development of small and medium enterprises that constitute a key segment of our target customers. Currently, Prince Bank Plc. has 34 branches and 82 ATM locations nationwide.

Press Release – Prakas on Credit Risk for Capital Adequacy Ratios in Deposit-Taking Banks and Financial Institutions of National Bank of Cambodia

Posted on July 4, 2023June 27, 2024 by Sorn Chhorvyvatey

Credit Guarantee Corporation of Cambodia (CGCC) is pleased to inform the Participating Financial Institutions (PFIs) that on 29^th June 2023 the National Bank of Cambodia (NBC) announced the implementation of “Prakas on Credit Risk for Capital Adequacy Ratios in Deposit-Taking Banks and Financial Institutions”. In the press release issued on the same day about this Prakas on Credit Risk for Capital Adequacy Ratios in Deposit-Taking Banks and Financial Institutions, NBC stated the purpose of this Prakas is to develop a comprehensive credit risk weight, which varies according to the type of credit, borrowers, or counterparties and reflect the level of risk that the institution may actually face in order to strengthen the effectiveness of risk management.

The press release of NBC also mentioned the implementation of prudent and well-balanced measures and careful consideration to promoting the development of the banking and financial sector and national economic growth, as well as to support the Royal Government of Cambodia in implementing relevant policies, including special attention to “Support credit guarantee mechanisms established by the Royal Government of Cambodia, such as the Credit Guarantee Corporation of Cambodia (CGCC), with a zero percent risk weight on the part of the exposure that is guaranteed in order to facilitate Micro, Small and Medium Enterprises in access to more sources of fund”.

Phnom Penh, 03 July 2023

Click here for: Press Release on Prakas on Credit Risk for Capital Adequacy Ratios in Deposit-Taking Banks and Financial Institutions of National Bank of Cambodia

NBC sets new capital, risk rules for banks, financial institutions

Posted on July 4, 2023July 11, 2023 by Sorn Chhorvyvatey

The National Bank of Cambodia (NBC) yesterday released two proclamations that set new requirements for depositing-taking banks and financial institutions to strengthen the quality of their capital to increase the effectiveness of preventing main banking risks and assess credit risks at lower rates to boost the economic growth by supporting the private sector in the economy.

The two proclamations launched include regulatory capital of deposit-taking banks and financial institutions and a proclamation on credit risks for capital adequacy ratio of deposit-taking banks and financial institutions, which have been prepared in accordance with international standards.

The two documents were issued as an improved part of the capital adequacy frameworks for depositing-taking banks and financial institutions in the context, development and vision of the banking and financial systems, laws and regulations that are applicable in Cambodia, which would contribute to increasing the public confidence on the country’s banking systems.

A technical official at NBC told Khmer Times yesterday that the first proclamation sets restructuring of components and methodologies of calculation of regulatory capitals of deposit-taking banks and financial institutions to enhance both quantity and quality of the capital to cover losses in case of going-concern and settlement of debts in case of gone-concern.

“The first proclamation sets the requirements for the acknowledgement of financial instruments in different classes that would help the target banks and financial institutions strengthen their capital and resilience against risks such as credit risks, operations risks and market risks, which would be able to protect depositors, debtors, investors and institutions themselves,” the official said.

The requirements would enable the financial instruments of deposit-taking banks and financial institutions in Cambodia to be acknowledged in tier 1 capital that would enable them to cover losses in the going-concern scenario or during operations, or tier 2 capital that enables them to cover losses on the gone-concern scenario or in process of operations closures.

Article 8 stipulates the components of the regulatory capital, saying that the total regulatory capital is composed of the tier 1 capital that includes common equity tier 1 capital, which is considered the best quality capital as it would enable those banks and financial institutions to cover immediate losses on the going-concern scenario with six sub-components including retained earnings, audited accumulated other comprehensive income and disclosed reserves.

The regulatory capital is composed of tier 2 capital which is its second component, according to the proclamation. “The requirements to acknowledge the regulatory capitals are set in the proclamation, but each or some requirements are applicable dependently on sub-components. Let’s say this requirement is for these sub-components. So, it is difficult to explain,” added the official.

However, the official pointed out that deposit-taking banks and financial institutions are required to fulfill 14 requirements for their regulatory capital to be acknowledged as the common equity tier 1 capital including capital instruments that are the last settlement in case of liquidation of the institution. “It is too technical to explain to others.”

He went to add that there are eight requirements or conditions for the acknowledgement of the capital of deposit-taking banks and financial institutions as tier 2 capital such as capital instruments that have at least five years of maturity and capital that is not guaranteed by issuers or relevant institutions or under any agreement that increase privilege in legal or economic payment same as depositors and general debtors of institutions.

The second proclamation lowers the highest risk weight rules from 100 percent or over 75 percent for registered micro, small and medium enterprises, 85 percent for businesses registered in agriculture, education and health care sectors, 80 percent for green finance projects and zero percent for government bond issuance and credit guarantee schemes such as Credit Guarantee Corporation of Cambodia (CGCC).

Chea Serey, NBC Deputy Governor, said last Thursday before the issuance of the two proclamations that these documents would contribute to the development of Cambodia’s economy as they would enable banks and financial institutions to release more loans to businesses that are registered with the Ministry of Commerce (MoC), General Department of Taxation (GDT) and other relevant institutions.

“The two proclamations will help small and medium enterprises receive finance at reasonable interest rates as they set incentive mechanisms for banks and financial institutions to release loans to [businesses in different sectors] agriculture, green financing and consumers-friendly loans such as school fee payment, transportation vehicle purchase, etc., but they have to be commercially registered and have proper accounting statements,” Serey added.

Credit to: Khmer Times, Publish on 04 July 2023

Tag: Financial Institutions