ADB Supports Cambodia’s Financial Sector Development with US$40 Million Loan

ADB Supports Cambodia’s Financial Sector Development with US$40 Million Loan

The Asian Development Bank (ADB) has approved a US$40 million policy-based loan to support the Government of Cambodia’s efforts to expand access to credit among micro, small, and medium-sized enterprises (MSMEs) and implement reforms to boost financial stability and upgrade financial sector infrastructure.

The third subprogramme of the Inclusive Financial Sector Development Programme follows two previous subprogrammes, which were implemented from 2016 to 2019 to help Cambodia develop an efficient and stable financial sector by bolstering financial inclusion and financial stability, pointed out an ADB’s press release made public this morning.

“The Government of Cambodia has made significant strides in preserving financial stability and improving crisis management amid the COVID-19 pandemic,” said ADB Financial Sector Specialist Benita Ainabe. “Under the new subprogramme, the government has adopted key legislation supporting a national financial inclusion strategy and launched several initiatives to increase access to finance, including Cambodia’s first-ever small and medium-sized enterprise public credit guarantee scheme.”

According to the press release, in Cambodia, access to financial products and services for the poor is limited and financial literacy is low. Only 21.7 percent of the country’s adult population have a bank account and MSMEs struggle to access financing and microinsurance. Businesses are often hampered by limited access to long-term finance because of a lack of collateral, the absence of government support such as guarantees, and financial illiteracy. Only 18 percent of Cambodians are considered financially literate.

The pandemic, real estate lending, and faster credit growth have heightened risks to Cambodia’s financial stability. The country’s financial infrastructure is underdeveloped, further restricting access to finance and market development.

The new subprogramme supports government efforts to help MSMEs recover from the pandemic by expanding access to credit. It also helps finance reforms to enhance financial stability, including streamlining cross-sector institutional supervision, strengthening credit risk management, and introducing innovative payment systems.

Those reforms were included in the government’s National Strategic Development Plan, 2019–2023 and the Financial Sector Development Strategy, 2016–2025. The new subprogramme follows ADB’s country partnership strategy for Cambodia, 2019–2023, which supports financial sector development to boost economic competitiveness and economic diversification.