Unveiling a unique credit guarantee concept in Kingdom

‘Many business owners of SMEs need financing to help them, and this is where the government is trying to spread the wealth around the country and not just to the people who are doing well. Fundamentally, we want to be able to make changes for the people like those in the provinces to help improve their livelihoods’

Officially given the green light in August 2020 by Prime Minister Hun Sen as part of the government’s recovery plan under the Ministry of Economy and Finance, the establishment of the state-owned company, Credit Guarantee Corporation of Cambodia (CGCC), introduced a new concept in Cambodia business finance which has been tried and tested elsewhere.

Credit Guarantee, which the CGCC offers is designed to help businesses that have good potential to receive a bank loan even if they don’t have the collateral usually required to back it up. It provides them with a merit-based opportunity that is often lacking in Cambodia for SMEs and Micro Small Medium Enterprises (MSMEs).

“Credit guarantee is new in Cambodia but not in the region, as any country that wants to develop SMEs needs to have a credit guarantee organisation to help them continue to borrow,” Wong Keet Loong, CEO, CGCC, told Khmer Times in an exclusive interview.

Originally from Malaysia, Wong arrived in Phnom Penh during the Covid months of 2020 to run the company and help the ministry stimulate the growth of SMEs and MSMEs which account for 70 percent of the workforce in Cambodia and 58 percent of the country’s GDP, as well as offering loan guarantees for larger-firms.

He’s satisfied with the progress the CGCC has made under his guard.

“We launched our first scheme, Business Recovery Guarantee Scheme (BRGS), on 29 March last year. It was part of the government’s Covid assistance, and to date, we’ve done about 275 guarantees, totalling around $28 million. I can say around 275 businesses have benefitted from the guarantees, so I would say it’s moving along nicely,” he said.

He explained how people who wanted to avail themselves of a CGCC loan guarantee for their business could request it from a partnered bank that would assess their application before sharing it with the CGCC, who would then decide whether to issue the guarantee.

On the CGCC’s website, there is an impressive amount of statistics and information available, showing the company’s activities and performance, with informative monthly factsheets, the latest newsletter, and explaining to visitors how to apply for a credit guarantee for their business. SMEs have been by far the largest recipient of guarantees, making up 90 percent of them in terms of numbers, with the smaller amounts of below $50,000 and as small as $1,000, comprising the majority of loans granted guarantees by the CGCC.

“Many business owners of SMEs need financing to help them, and this is where the government is trying to spread the wealth around the country and not just to the people who are doing well. Fundamentally, we want to be able to make changes for the people like those in the provinces to help improve their livelihoods,” Wong said, who has been able to examine data of businesses who applied for loan guarantees, collected by its Participating Financial Institutions (PFIs), the banks and micro-financing institutions, who the CGCC partners with to grant the loans. He noted, however, that the work doesn’t come without challenges.

“Since credit guarantee is new in Cambodia some bank staff and business owners don’t understand yet how it can be beneficial to them, because traditionally when banks want to lend money here the first thing that they ask is what collateral they have. You have to educate both bank staff and customers,” he said. While explaining the process, he said, “When we talk to the CEOs and top managers of the banks, they understand, but I find the dissemination of information to the ground, to the branch managers and salespeople, the ones that face the customers, is still lacking.”

Another issue that Wong encounters is the age-old fear permeating the banking community here, of people milking the system.

“Bankers are also concerned that if the customers know that the CGCC is government-owned, then they might be less committed to repaying their loans. I can understand this fear based on reported abuses of the system in the past,” he said.

The work includes giving non-secured loans, which make up almost 80 percent of the loans guaranteed by the CGCC.

“Banks are not doing unsecured lending in a big way because they are concerned about people not being responsible or honest. But as the country matures, and as the borrowers mature, unsecured lending will arrive, even if it takes a bit of time,” he said.

As for the SME owners applying for loans, Wong notices that the level of financial literacy among them generally needs to improve too: “I look at some of the loan applications and the way they manage their finances, as in what are their expenses versus their costs. Your business expenses and your personal expenses are two different things, but most of the time, you hear the business and the individual being the same. When you run your business, you’ve got to make sure they are separate.”

While he acknowledged the NBC for its educational “Let’s talk money” campaign to increase financial inclusion through education, Wong had a novel suggestion for how the Banks could play a critical role through the increased digitalisation of their services.

“Hopefully, instead of just using the apps to make transactions, the FI’s can put education in their apps. I’m sure the digital experts they have are creative, so they could make it into something also engaging that will help people use their app more by providing this value-added material,” said Wong.

In addition to the expected growth for SMEs in the digital sector in the coming years, Wong sees the potential in processing the vast agricultural production in Cambodia, something neighbouring Vietnam has profited well from already.

“There are not enough downstream industries in Cambodia. For example, a lot of cassava and rice is grown here, where they are planted, grown and then just exported. Whereas in Vietnam or China, they process these products, creating other industries as well. There’s a chain,” Wong said, but added that he was “optimistic because now that the economy has opened up, it gives the opportunity for businesses to strive and grow.”

Credit to: Khmer Times, March 10, 2022