A recent event in Phnom Penh, Cambodia discussed key issues regarding access to finance for small- and medium-sized enterprises (SMEs) in Cambodia. Key international speakers presented on access to finance for exports, capacity building for local financial institutions and SMEs and facilitating lending to SMEs, an outline for a Commodity Fund (under the form of a Credit Guarantee Fund) sponsored by donors, as well as a feasibility study for an export/import bank in Cambodia.

The Cambodian Ministry of Commerce has adopted a sector-wide approach for Cambodia's trade sector (“Trade SWAp”) and has invited its development partners, including UNDP, to embrace this effort. The main aim of this integrated approach to policy development, capacity building, institutional reform, improved governance and accountability is to consolidate ongoing trade and trade-related reforms and thus contribute to job creation, investment promotion, supply capacity enhancement and economic growth. In this respect, the project contributes to the achievement of the overall National Strategic Development Plan (NSDP) and therefore to the socio-economic development of Cambodia.

Creating favorable conditions for flourishing trade is one of the Royal Government of Cambodia’s main concerns since trade has multiplier effects on all sectors of the economy, with impact on production capacity and poverty reduction. Indeed, under the right conditions, trade can provide a formidable impetus for accelerating progress towards the Cambodian MDGs.

The Cambodia Trade Development Strategy (DTIS 2007) serves as the reference for the formulation of the Trade SWAp and for the Government in identifying the conditions and strategies that are conducive to human development in Cambodia. The Senior Minister of Commerce, as chairman of the Sub Steering Committee on Trade Development and Trade-Related Investment has proposed to formulate the Trade SWAp program around three pillars:

-          Reforms and cross-cutting issues for trade development

-          Product and services sectors export development

-          Capacity-building for trade development and for management of trade development

UNDP's assistance to the Ministry of Commerce focuses on developing national capacities to optimize the benefits that Cambodia can draw from being a member of the World Trade Organization. Moreover, UNDP facilitates Cambodia’s integration into global and regional markets by helping to identify strategies that will promote exports most promising for revenue, export diversification and employment generation. In this respect, UNDP has therefore launched the Trade Related Assistance for Development and Equity Project with the aim of  a) providing the analytical foundation for policy recommendations, b) facilitating the coordination of trade-related technical assistance (TRTA) and c) strengthening national policy development, implementation and monitoring capacity that reinforces the linkages between trade and human development.

Access to Finance in Cambodia

At the Third Cambodia Economic Forum in 2009, development partners warned Cambodia would not escape being affected by the global economic crisis and urged the Cambodian Government to pursue efforts to reposition the country for the post-crisis period. UNDP indicated that Cambodia’s largely untapped markets have the potential to grow and be part of the solution to this crisis while the World Bank advocated a strategy to seize future opportunities through acceleration in trade and investment reforms.

One of the key priorities issues for strengthening supply capacity is the access to finance for small- and medium-sized enterprises (SMEs). SMEs play a considerate role in the Cambodian economy and provide around 65 percent of GDP and employ 85 percent of the whole workforce. Therefore, trade officials and local economists are urging the government to give priority to SMEs and support their development in order to boost the economy during the global downturn. In this respect, banking activities in rural areas, although not fully developed, are improving with microfinance initiatives (MFIs) providing most of the formal financial services, mostly in the form of credit. While the microfinance sub-sector is expanding rapidly and has seen positive progress, a large part of the country still does not have access to formal finance. Moreover, small- and medium-sized producers as well as large producers do not actively cultivate export markets, especially in large and sophisticated export markets, as they simply cannot afford and/or have limited access to formal financial services to generate additional demand and receive modern technical requirement due to their limited cash flows and technical standards.

As a result of this, UNDP Cambodia is partnering with the International Trade Center (ITC) and the Agence Française de Développement (AFD) in order to identify and define specific solutions for improving and facilitating access to finance as well as to provide adequate capacity building for Cambodian financial institutions and SMEs. This initiative, co-led by the Cambodian Ministry of Commerce, the Cambodian Ministry of Economy & Finance and the National Bank of Cambodia, is particularly ambitious as it targets two objectives: Access to finance for SMEs in the agriculture and agribusiness sector and determining the feasibility of setting up an export/import bank in Cambodia to act as the key financial institution for enabling the government to seriously boost and diversify the export base.

For more information, please contact Natharoun Ngo, Private Sector Programme Analyst, UNDP Cambodia.