Financing The Cambodian Economy

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An increase in access to finance and the introduction of finance companies has helped Cambodia’s economy grow, experts claim.

In the last year, the Kingdom has seen a rise in the number of institutional investors taking stakes in micro finance institutes (MFIs) and banks as well as the arrival of organisations providing lending options for items such as agricultural equipment, iPads and computers.

These steps have helped boost the country’s economy and inspire international confidence in the market. “This is a good development because until now institutional investors were a little afraid of Cambodia,” Christophe Forsinetti, CEO of private equity and investment consultancy company Devenco, says.

“The arrival of new financial institutions is a great development for the country because it provides access to finance for the people.”

The introduction of the lending companies, which operate in the same way that finance is accessed in developed countries, have handed an extra tool to those wanting to set up business by providing them with a way to invest in items necessary to set up a business.

Applicants need to be able to prove their income and address and a credit check is also carried out. “This is new and it’s growing pretty fast,” Forsinetti says. He adds that the development has been stronger in Phnom Penh and urban areas. “It’s not penetrated very deep into the country where 80% of the population is,” he says.

Micro Finance Institutions (MFI) are a popular investment option for those living under the poverty line and earn less than $1.25 a day. “Some MFIs have been around for 20 years and their first customers are now SMEs,” Forsinetti says. “There’s a very strong micro finance sector here and you need money to develop business.”

Informal lending is another regularly used option in the country where those with capital will lend money to others with an added interest rate. Forsinetti remarks that not all of these are loan sharks, who charge 5% or more interest per month. However, he says high interest come hand in hand with a high risk investment.

“There is the risk perception meaning if it is a country where there is a poor legal framework, the risk of corruption or political risk, institutional lenders don’t come. There’s a demand and no offer for those services so you have a lot of opportunistic actors who come in and say they’re taking a high risk so they want a high return.”

With default rates in Cambodia being low, sitting at less than 1% for MFIs, lending, which is usually collatorised with land titles, is common across the country. And with the introduction of new lending organisations, the market looks set to continue to grow.

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