Agriculture is a key sector in supporting the national economic growth. Rice market also plays an important role in promoting agriculture. Chhun Thom Rice Mill was established in 1997, initially as a family business. After years of operation, customers know the brand and begin to trust our products. I have seen opportunities to expand this business, especially on technologies such as the purchase of additional rice mills and the expansion of the location of the mill.
I was introduced by ABA Bank staff about the loan guaranteed by CGCC which can provide me additional capital even without collateral. Thanks to the credit guarantee from CGCC, I was able to get more capital to expand my rice mill business.
I strongly believe that the CGCC’s credit guarantee really support my business, as well as other potential SMEs that lack collateral to get necessary capital from banks or microfinance institutions for their business expansion.
1. What is ACLEDA Bank’s perspective towards the credit guarantee schemes and why does your bank partner with CGCC?
Credit guarantee schemes of Credit Guarantee Corporation of Cambodia “CGCC” are good and essential schemes contributing to the development of the country’s national economy by providing credit guarantees to Small-sized and Medium-sized Enterprises (SMEs), and Large Enterprises which are financially viable but with insufficient or no collateral to enable them to get official loans from ACLEDA Bank as well as other PFIs. Through the credit guarantee from CGCC, the Bank could expand credit market, promote financial inclusion and manage credit risks effectively.
ACLEDA Bank has joined and become one of the participating financial institutions (PFIs) for the following main reasons:
Participate with the Royal Government’s initiatives and schemes to support the country’s socio-economic development.
Support and encourage SMEs and Large Firms to obtain formal loans from the licensed financial institutions for both working capital and business expansion.
Contribute to creating employment opportunities for people through the growth of businesses obtaining the formal loans under CGCC’s credit guarantee.
2. How do the credit guarantee schemes benefit ACLEDA Bank and your customers?
The credit guarantee schemes offer many benefits to both ACLEDA Bank and the customers as follows:
For ACLEDA Bank:
Diversify the credit products in line with the Bank’s strategic plan.
Manage credit risks effectively.
Maintain the existing customers and attract new potential ones.
For the customers:
Offer choices to the customers and be able to get formal loans for the expansion of their business activities.
Improve their living conditions through the growth of businesses.
Have a chance to create employment opportunities for their communities and promote innovation in their products and services.
3. So far, which type of loans does ACLEDA Bank use the credit guarantees to support SMEs?
So far, ACLEDA Bank uses the credit guarantees to provide business loans, revolving facility, and overdraft facility to our customers as SMEs and Large Enterprises in both priority and non-priority sectors to meet their business needs.
4. How should the borrowers prepare themselves to get guaranteed loans from ACLEDA Bank?
To obtain the guaranteed loans from ACLEDA Bank, the borrowers both individuals and legal entities shall meet the following criteria:
Business activities operate in Cambodia and majority Cambodian-owned businesses (shareholding of more than 50%)
Business registration issued by the appropriate government authorities
Financially viable businesses and accurate financial statements
Have owner equity and specific business plan
Loan utilization in accordance with the purposes as mentioned in the credit proposal
Willingness to comply with the loan obligations etc.
5. What is the ACLEDA Bank’s strategy/plan to further expand the disbursement of guaranteed loans in 2024?
ACLEDA Bank still continues to stimulate the disbursement of guaranteed loans in 2024 through promoting credit guarantees to both existing and new customers who need financing as well asproviding the trainings and refresher courses on the knowledge of credit guarantees to all the credit-related staffs of all branches nationwide, providing technical support for credit guarantees, especially having a good collaboration with CGCC to support and enhance the growth of guaranteed loans in a sustainable manner.
Never before in the last fifteen years has the banking sector in Cambodia experienced a high non-performance loan (NPL) ratio. At the end of 2023, the NPL ratio stood at 5.4% and 6.5% in the banking and microfinance sectors, respectively, compared to an average NPL ratio of 2.18% between 2009 and 2022 (Chart 1). At the same time, as of February 2024, 133 of 2,070 accounts guaranteed by CGCC have become NPL, amounting to USD 9.76 million. The percentage of cumulative non-performing guaranteed amount over the guaranteed amount is 8.02%. Despite the challenging environment, NPL is manageable, and Cambodia’s banking sector remains resilient. Understanding NPL is critical to mitigating adverse impacts on borrowers, lenders, and the economy.
What is a Non-Performing Loan?
A non-performing loan occurs when the borrowers cannot fulfill their repayment obligations due to financial difficulty, i.e, late payments of more than 30 days for short-term loans, or more than 89 days for long-term loans. The criteria for classifying loan status are different from country to country. In Cambodia, the NBC classifies loans into five categories based on the number of days past due, as shown in Table 1 below. Loans under Normal and Special Mention are performing, while loans that fall under the Substandard or worse are considered non-performing.
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.”
On 06 December 2023, CGCC, led by Mr. Wong Keet Loong, CEO of CGCC, met with the Asian Development Bank (ADB), and the Global Green Growth Institute (GGGI) to discuss on GGGI’s Switch Garment Project to promote sustainable energy practices in the Garment Sector in Cambodia.
The meeting also aimed to explore collaboration opportunities between CGCC, ADB, and GGGI to implement the Sustainable Green Financing Facility (SGFF), a blended financing facility comprising of credit guarantee, and technical assistance elements, to support sustainable development goal (SDG).
On 01 December 2023 in Bangkok, Thailand, CGCC’s delegation, led H.E. Dr. Mey Vann, Secretary of State of the Ministry of Economy and Finance and Chairman of the Board’s Risk Management Committee of CGCC, paid a courtesy visit to the Kasikornbank (KBank) Public Company Limited based in Thailand, highly represented by Mr. Suwat Techawatanawana, Executive Vice President of KBank in Thailand, at the KBank’s Building in Bangkok, Thailand, with the participation from the management of KBank in Thailand and Phnom Penh Branch, which in one of CGCC’s PFI.
Courtesy Visit by CGCC to Kasikornbank in Thailand
H.E. Dr. Secretary of State expressed his appreciation for the warm welcome of the management of KBank Thailand, and also exchanged views about the economic situation in Cambodia and Thailand, and H.E. raised on the collaboration between CGCC and the Branch of Kasikornbank (Phnom Penh), which recently became one of CGCC’s PFIs in 2023.
In response, Mr. Executive Vice President of KBank Thailand expressed gratitude and appreciation for the courtesy visit of CGCC’s delegation, and especially shared with CGCC the progress of KBank as well as the experience of providing loans guaranteed by Thai Credit Guarantee Corporation in Thailand.
This courtesy visit provided such a great opportunity for both CGCC and KBank for a mutual understanding of the current economic situation in both countries, especially for strengthening the collaboration between both institutions for the like-minded vision in supporting MSMEs.
Courtesy Visit by CGCC to Kasikornbank in ThailandCourtesy Visit by CGCC to Kasikornbank in Thailand
From 11 September to 14 September 2023, CGCC team led by Mr. Hor Saopiseth, Manager of Centralized Operations of CGCC, visited provincial branches of selected participating financial institutions (PFIs) to discuss with the management and staff of the selected PFIs the implementation of CGCC’s credit guarantee schemes. The selected PFIs in 4 provinces including:
– Kampong Chnang province: ABA Bank and Chamroeun Microfinance
– Pursat province: Prince Bank, Canadia Bank and Chamroeun Microfinance.
– Battambang Province: Prince Bank, FTB Bank, and Maybank
– Pailin Province: LOLC Microfinance, Phillip Bank and ABA Bank.
The discussions with CGCC PFIs’ provincial branches in these 4 potential provinces provided opportunities for both CGCC and PFIs to enhance mutual understanding of credit guarantees and opportunities for PFIs to increase lending to borrowers that lack collateral when requesting loans.
CGCC visits PFIs provincial branches in Kampong Chnang, Pursat, Battambang & Pailin to Enhance Collaboration on the Credit GuaranteeCGCC visits PFIs provincial branches in Kampong Chnang, Pursat, Battambang & Pailin to Enhance Collaboration on the Credit GuaranteeCGCC visits PFIs provincial branches in Kampong Chnang, Pursat, Battambang & Pailin to Enhance Collaboration on the Credit GuaranteeCGCC visits PFIs provincial branches in Kampong Chnang, Pursat, Battambang & Pailin to Enhance Collaboration on the Credit GuaranteeCGCC visits PFIs provincial branches in Kampong Chnang, Pursat, Battambang & Pailin to Enhance Collaboration on the Credit GuaranteeCGCC visits PFIs provincial branches in Kampong Chnang, Pursat, Battambang & Pailin to Enhance Collaboration on the Credit Guarantee
Seeing that the financial awareness of Cambodian people is still limited, and their use and management of finances are not very effective, my husband and I started this company RithyPul in 2012 to spread the knowledge and share financial advice. Until 2020, our business was affected by the COVID-19, however we can still get through it until today. The most difficult factor at that time was the lack of working capital to support day-to-day business operations. At that time, we used our property as collateral to apply for a loan, but we still could not get enough capital as needed. The best solution at that time was to have a CGCC’s Participating Financial Institution, CAMMA Microfinance, advising us to apply for a CGCC guaranteed loan for our business, which would allow us to obtain a loan without collateral to use as working capital.
After obtaining guaranteed loans from Participating Financial Institution of CGGC, we are also able to address several key issues such as marketing, advertising, and overall business operation costs. We have expanded our business with more staff, and customers becoming more aware and acquainted with the use of our services has increased steadily. On the other hand, we also have more time to think about new strategies without having to worry about capital issues.
The success of a business depends on many factors, including having enough working capital, that is the most important factor for every business. We would like to thank the Government for establishing CGCC to support our business and other MSMEs on access to finance, as well as to improve financial inclusion in the country.
Adverse selection and moral hazard are the problems arising from information asymmetry that can lead to market failure. Information asymmetry occurs when parties of a transaction do not have equal relevant information to execute a fair transaction. For instance, when buying a second-hand car, the buyer does not know its defects as much as the owner does. The owner would know an underlying price for his car, while the buyer may not have equal information to negotiate down to a fair price that best matches the car’s true value. In this case, the information asymmetry can lead to second-hand car market failure by preventing the buying-selling transaction from happening because the buyer believes whatever price the seller agrees to sell would be more advantageous to the seller. Information asymmetry is the term coined by Nobel Prize winner economist George Akerlof in 1970.
Information asymmetry can be observed in different types of transaction. In bank loans, borrowers generally know better about their own repayment capacity than the bank from which they seek the loans, making it difficult for the banks to determine a fair price (i.e., interest rate) that best suits the borrower’s creditworthiness. In a credit guarantee, information asymmetry is when a lending institution that seeks guarantees on loans has more information about the loans and the borrowers than the credit guarantor. Information asymmetry can lead to two problems – adverse selection and moral hazard.
When there is an information asymmetry, the banks might be unable to distinguish between bad and good borrowers. Facing this risk, the banks may set an interest rate that is too high for good borrowers. Good borrowers will then leave the market; only bad borrowers remain to seek loans. This is called adverse selection. As such, one way to increase credit market efficiency is to narrow the information gap between lenders and borrowers. That is why banks usually require as much information as possible from the borrowers before lending to reduce the risk of adverse selection. Adequate, reliable, and timely information about the borrowers would help the banks to narrow information gaps and offer fair loan conditions that can make both parties better off. Similarly, an adverse selection in credit guarantee is the risk that the lending institution, having better information about the borrowers and loans, only selects the bad loans for guarantees from a credit guarantee institution.
Wing Bank (Cambodia) Plc, Credit Guarantee Corporation of Cambodia (CGCC), and Federation of Association for Small and Medium Enterprises of Cambodia (FASMEC) have forged an impactful strategic partnership—a visionary move aimed at boosting the growth of Small and Medium Enterprises (SMEs) in Cambodia.
Wing Bank, CGCC, and FASMEC to Offer Guaranteed Loans and Market Accessibility to SMEs
The collaboration is a strategic effort to address collateral challenges faced by SMEs when applying for bank loans and enhance financial literacy among the SMEs, exclusively for FASMEC members across the Kingdom. This will be achieved by providing financial solutions by Wing Bank on a collateral-free basis and secured with credit guarantees from the state-owned CGCC.
CEO of CGCC, Wong Keet Loong, said, “We are excited to partner with Wing Bank and FASMEC to support FASMEC’s SME members in increasing their access to loans through potential guarantees.”
Wing Bank, CGCC, and FASMEC to Offer Guaranteed Loans and Market Accessibility to SMEs
“This partnership will provide valuable resources for FASMEC, enabling their members to grow and succeed by accessing financing and improving financial literacy, aligning with our goals at CGCC,” Wong highlighted.
CGCC, the first state-owned credit guarantee institution operating under the Ministry of Economy and Finance, aims to bolster local businesses by offering timely credit support. As of July 2023, CGCC has successfully granted credit guarantees amounting to $139.5 million, benefiting 1,648 enterprises. Nearly 92 per cent of these are micro, small, and medium-sized enterprises (MSMEs). In comparison, the remaining 8 per cent are larger businesses.
“Through our innovative financial solutions and partnership with CGCC and FASMEC, we are committed to empowering SMEs with greater access to finance,” said Han Peng Kwang, CEO of Wing Bank. “By providing flexible banking services and credit support, we are enabling SMEs to seize growth opportunities, drive innovation, and contribute to the overall prosperity of Cambodia.”
SMEs who are members of FASMEC can access not only finance guaranteed by CGCC through Wing Bank but also enjoy broader opportunities to connect with potential customers, vendors, and suppliers. This is made possible through Wing’s ecosystem.
Wing Bank provides convenient retail solutions through its WingPay platform, supporting transactions within the Wing ecosystem’s B2B and B2C platforms, including Wingmarket, WingAgri, and Wingmall.
Wingmarket acts as a supply chain solution, streamlining supply chain management for SMEs and corporate businesses. WingAgri serves as a reliable agriculture e-commerce platform, connecting farmers with buyers through a virtual marketplace. Wingmall, a trusted B2C platform, is widely used by numerous restaurants in Cambodia, ensuring seamless transactions and enhancing the customer experience.
The strategic partnership between CGCC, FASMEC, and Wing Bank is poised to foster a supportive environment for financial accessibility, effectively addressing the hurdles SMEs encounter in securing loans, and expanding their market accessibility.
“We are delighted to partner with Wing Bank and CGCC, as it presents a remarkable opportunity for FASMEC members SMEs who face challenges in accessing finance due to a lack of collateral,” said Okhna Te Taing Por, President of FASMEC. “This partnership will enable them to expand their businesses and achieve substantial growth.”
According to local media reports, the Ministry of Industry, Science, Technology, and Innovation registered 43,974 small and medium enterprises (SMEs) last year. These registered SMEs provided 444,504 jobs for Cambodian individuals. SMEs comprise about 90 per cent of all enterprises, contributing to 58 per cent of the GDP and employing over 70 per cent of the workforce.
FASMEC Members can conveniently visit any Wing Bank branches to apply for a loan, where dedicated staff are ready to assist them with all their financial needs. The members can also approach Wing Bank staff during the training sessions organized by FASMEC throughout the country.
Credit to: Khmer Times, Published on 23 August 2023
