Both parties ink agreements to drive financial inclusion and facilitate SME growth.
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PPCBank and World Bank Group’s International Finance Corporation (IFC) have partnered to respectively absorb 50 percent of the risk emanating from small and medium enterprise (SME) loan defaults. The entities signed two agreements last Friday to offer SMEs risk-sharing facility and banking advisory services.
“Under the facility, PPCBank and IFC will each cover 50 percent of the risk on an eligible SME portfolio of up to $30 million,” both the entities say in a joint statement.
They vow to provide funds and expand financial options for small businesses including very small enterprises, and women-owned SMEs.
Through the initiative, PPCBank expects to extend about 5,500 loans worth $520 million to this business segment over the next five years.
The two agreements aim to raise financial inclusion, facilitate growth and create more than 40,000 jobs.
PPCBank and IFC say that in the past 20 years, Cambodia has undergone a significant transition, sustaining an average growth rate of 7.7 percent between 1995 and 2018.
While micro SMEs (MSMEs) including women-owned ones have played a significant role in the economy, around 66 percent of them identify access to finance as a major obstacle.
According to the IFC MSME Finance Gap Report 2017, the unmet financing demand of MSMEs in Cambodia is estimated to be $3.7 billion.
PPCBank president Shin Chang Moo says that the bank has been working on several projects to develop products and services for SMEs and women SMEs in Cambodia.
Thus, partnering with IFC in a risk-sharing facility and banking advisory for SMEs allows it to scale up lending to the underserved part of Cambodian population on better terms.
The risk-sharing facility is a risk-mitigation tool under IFC’s small loan guarantee program, designed to raise financial institutions’ appetite to finance SMEs.
“We are optimistic that this initiative would drive economic growth and development in the Kingdom. It is a major step forward for the various SMEs,” he adds.
The right financial and funding solutions could definitely empower SMEs, he says, adding that issues such as collaterals and unsecured loans would be duly addressed.
The increase in financial inclusion and opportunities for small businesses is expected to help people prosper. Businesses can be built, resulting in financial security and stable lives.
IFC regional director for East Asia and the Pacific Vivek Pathak says SMEs struggle with obtaining financing due to their size and limited experience.
Development institution IFC focuses on the private sector in emerging markets where it uses its capital, expertise and influence to create markets and opportunities in difficult locations in the world. It has worked with over 2,000 businesses worldwide.
In fiscal year 2018, IFC provided $23 billion in long-term financing for developing countries, leveraging on the private sector strength to end hardcore poverty and boost shared prosperity.
“SMEs drive growth and employment in lower income economies. The risk-sharing facility will help PPCBank serve the needs of SMEs which is critical to Cambodia’s economy,” Vivek says.
He adds that IFC’s participation as advisor demonstrates the SME segment’s bankability.
Cambodia Women Entrepreneurs Association president Dr Eng Lykuong is pleased that the agreements would benefit female entrepreneurs who continue to face challenges.
“Women face difficulty accessing loans because they don’t have adequate collaterals for funds,” Lykuong explains.
Meanwhile, Shin says PPCBank would work with fintech company BanhJi Pte Ltd to secure international funds for female entrepreneurs, in particular.
BanhJi is a localised accounting platform catering to industry-specific needs of Asean SMEs.