Prime Minister Hun Sen yesterday pledged to start a new bank with an initial capital of $100 million to provide financing for small and medium enterprises (SMEs), with industry players saying its success hinged on whether concessional or low interest rates could be provided to fledgling businesses.

Speaking to garment workers in Phnom Penh yesterday – though, apparently not to the country’s financial regulators – Hun Sen said he would create a new state-owned SME bank, similar to the existing Rural Development Bank, in the hope that it would boost local processing plants and strengthen export capacity.

“Today I would want to release a message to all SME owners that the government will create a bank for SMEs with initial investment capital at $100 million,” the premier said yesterday.

However, the premier was scant on details, even suggesting that the plan was yet to be approved.

“It is not officially decided, but once the prime minister has said this, it cannot be withdrawn,” he said.

The move comes after SMEs complained of government apathy in October, saying multiple requests to open up export channels, reduce taxes and help with a lack of financing had gone unheard.

Finance Ministry spokesman Kim Sopheak said yesterday that he had heard nothing about the premier’s proposal. National Bank of Cambodia General Director Chea Serey, meanwhile, would not say whether she had been informed of the proposal beforehand, or whether an official application had been made for the bank.

“The setting up of a policy bank for SMEs is timely and line with the recent development in Cambodia and the region,” she said.

In a similarly conciliatory move, the government last year pledged to disburse $27 million from the Rural Development Bank (RDB) to rice millers, who had also complained of a lack of financing for years.

However, in the first few months of the rollout, less than $2 million had been lent to rice firms. Lending picked up this year, but mostly went to larger firms looking to build rice storage warehouses.

Industry experts yesterday questioned the necessity of a new bank targeted at SMEs, noting the proliferation of commercial banks and microfinance institutions in the country. In order for such an institution to attract borrowers, they said, the bank would need to replicate the RDB’s long-term, low-interest loans.

Lim Heng, vice president of the Cambodian Chamber of Commerce, said the loans needed to be around the 5 percent mark, potentially as low as 3 percent, to attract small businesses. Keo Mom, director of food processing SME Ly Ly Food Industry, also pegged the maximum interest rate SMEs could swallow at 5 percent.

“I hope the new state-owned bank will also help to eliminate some complicated [loan] requirements and collateral requirements,” Heng added.

Ngeth Chou, senior consultant at Emerging Markets Consulting, said cheap financing for SMEs was always welcome, but rather than create an entirely new bank the existing, and underutilised, RDB could be used.

“Using the existing state-owned bank, the Rural Development Bank, to support this project is more efficient and saves cost,” he said.