The National Bank of Cambodia (NBC) announced on Friday that local banks and microfinance institutions (MFIs) can now issue corporate bonds or list equity securities on the nascent Cambodian stock market, a move industry insiders claim will help financial institutions raise capital and be less reliant on foreign borrowing.

According to the central bank’s new prakas, signed by Governor Chea Chanto on September 27 and posted on NBC’s website late Friday night, financial institutions can issue equity securities at a maximum of 20 percent of the company’s voting share and can issue debt securities at a rate that does not exceed 20 percent of total assets.

“This prakas is targeted to enable financial institutions to raise funds for business expansion in order to contribute to Cambodia’s economic growth,” the NBC statement said.

The central bank noted that in order for financial institutions to issue equity and debt securities they first need permission from the NBC and must have their total amount of equity be valued at approximately $15 million, or 60 billion riel. The financial institutions also need to prove they have strong fiscal performance and good governance.

Sean Thornnin, an economics lecturer at the University of Cambodia in Phnom Penh, said the prakas gives clarification on how financial institutions can issue corporate bonds, which could help close the gap between the demand and supply of funds.

He noted that with the top seven MFIs owing about $1.09 billion to overseas lenders, local commercial banks flush with cash now have a financial tool to provide lending to the MFI sector.

“When MFIs can raise funds through issuing bonds or issuing equity, banks that have a surplus can buy bonds or equity to help reduce the mismatch in funding,” he said. “With NBC permission, many major MFIs will have new sources for funds so that they are not as reliant on foreign borrowing.”

Hout Ieng Tong, chairman of the Cambodia Microfinance Association and CEO of Hattha Kaksekar Limited (HKL), said the NBC’s prakas will allow financial institutions to receive funds at lower costs.

“For HKL, we are more interested in issuing a bond, as we think that it is a good financial tool that provides us more options,” he said, adding that the firm was not interested in selling equity.

Seng Chan Thoeun, head of corporate finance at SBI Royal Securities, said that the central bank’s regulations were in line with its Financial Sector Development Strategy 2016-2025 which encourages financial institutions to issue equity and debt securities.

He added that this was a positive development in establishing a vibrant capital market in Cambodia that does not rely on short-term customer deposits, but allows for larger long-term funding that can be mobilised to accelerate financial sector growth.

“When a corporate bond is available as a financing option in Cambodia, it can become a great solution for institutions, mainly MFIs, to secure capital,” he said.

However, Thornnin said that a bond market would take time to take off and would rely on strengthening public awareness and trust.

“But still I think this is a good start and I hope it will bring long-term benefits,” he said.

In August, the Securities and Exchange Commission of Cambodia announced that it had identified three different types of corporate bonds it would issue, including a secured bond, guaranteed bond and a plain bond, providing an international credit rating agency can give them a value.