SMEs call for better loan rates

A customer does business at Prasac MFI in Phnom Penh earlier this month. Photo by: Pha Lina

THE Kingdom’s small and medium enterprises have called on commercial banks and micro-finance institutions to lower interest rates on loans, as insiders have said they hamper SMEs’ potential for growth.

Many Cambodian SMEs are concerned that the high interest rates offered by banks reduce productivity, according to Federation of Associations for Small and Medium Enterprises of Cambodia (FASMEC) chairman Te Taing Por.

As a result, the profits being made were not re-invested to grow the companies but rather to merely pay back loans, Te Taing Por said.

“We seek money from MFIs and banks, but they are making a profit on us while our business operations earn us just enough to cover their interest rates,” he said, adding that MFIs should offer rates of about 10 per cent and commercial banks should drop their rates to between seven  and eight per cent.

SMEs paid more than 20 per cent interest on loans from MFIs, and 10 to 12 per cent on credit from commercial banks, Te Taing Por said.

About 95 per cent of the Kingdom’s operating companies are SMEs, according to Te Taing Por.

He believes the boost in productivity from re-invested profits would increase domestic output and, as a result, reduce Cambodia’s reliance on imports.

Some SMEs have echoed FASMEC’s sentiments, ack-nowledging that they earned just enough profit to cover the interest on their loans. 

“If the government and the banks want to help us, they should consider lowering interest rates,” So Sopia, the owner of water distributor AC Pure Drinking Water, told the Post yesterday. 

The government said in February that it would focus on promoting the development of the industrial sector, with Prime Minister Hun Sen noting there was an “urgent need” for Cambodia to modernise its economy.

National Bank of Cambodia director-general Ngoun Sokha confirmed that the government was aware of the interest-rate situation.

“We are doing our best to facilitate SMEs, but we all know that our banking system is reliant on collateral lending,’’ he said. 

“Yet many SMEs don’t have good collateral, which is why [MFIs] charge high interest rates to avoid risk.”

Banking insiders claimed it would be almost impossible to cut rates.

“We’re unable to lower our  rates due to the high interest we have to pay for foreign-sourced funds,” Cambodian Microfinance Association chairman Chea Phalarin said.

Rates from foreign funds were more than 10 per cent for riel and between six  and seven per cent for US dollars, he said. According to PPP