ADB Extends $11.7M Support to Continue Development of Cambodia's Financial Sector
Manila, Philippines, December, 06 2007 -
The Asian Development Bank (ADB) is providing a $10 million loan and a $1.7 million grant to assist in the continued development of a sound, efficient and market-oriented financial system in Cambodia as part of efforts to sustain economic growth and eradicate poverty.
The Second Financial Sector Program Cluster comprises four subprograms estimated to cost $40 million. Under the first subprogram, the initial loan and the technical assistance grant will be used for ongoing reforms in the financial sector. Subsequent subprograms will be processed for approval by ADB annually through 2010.
“With a rapidly growing economy, Cambodia needs to develop its financial sector by mobilizing financial resources, channeling them to productive investments and managing inherent risks,” said Samiuela Tukuafu, senior financial sector specialist of ADB’s Southeast Asia Department.
The program will support the government’s continued efforts to strengthen the financial sector by promoting legal and regulatory reforms, capacity building, improved disclosure standards and financial transparency, and the establishment of key financial infrastructure.
Cambodia’s financial system is undergoing a rebuilding process following the political instability of the late 1970s and early 1980s. Before 1989, the country had no formal financial intermediation and its financial system was confined to one institution – the People’s Bank of Kampuchea. As of August 2007, the formal financial system of the country comprised the National Bank of Cambodia, 16 commercial banks, seven specialized financial institutions, and representative offices of two foreign banks. There are also 17 licensed and 26 registered microfinance institutions and six insurance companies.
The country has yet to establish bond or securities markets. The predominantly rural nature of the economy, high transaction costs, the dearth in viable investment projects, and low creditor confidence have impeded formal intermediation in the financial sector, slowed the development of non-bank financial institutions and limited financial products and services.
The program will focus on improving confidence and financial intermediation by upgrading the payments, clearance and settlement systems to support growing financial services; enhancing market confidence by improving public financial disclosures and establishing a credit information bureau; establishing a registry of tradable government securities; and improving the outreach of microfinance institutions.
To maintain stability in the financial sector, the program will revise and update the law on banking and financial institutions and related regulations to support financial activities; strengthen supervision of banks and microfinance institutions; and draft a new law on commercial contracts to enhance legal and regulatory foundations.
The program will also promote good governance by implementing international initiatives on anti-money laundering and counter-financing of terrorism; promote corporate governance and transparency in the insurance sector; establish commercial dispute resolution mechanism; and improve the capability and increase the number of qualified national accountants and auditors. The program will also computerize the management information system of the National Bank of Cambodia to enhance its efficiency.
ADB has been supporting the development of Cambodia’s financial sector since 1999. The formal financial system needs to be further developed to be more efficient and accessible to ordinary citizens.