Japanese financial services firm Idemitsu Credit said it had started operations in its local subsidiary that will provide financing and instalment payment services to the agricultural sector in Battambang.

A company statement released yesterday said the local subsidiary, Idemitsu Saison Microfinance (Cambodia), was established last August and on acquiring a licence from the National Bank of Cambodia last week was ready to begin operations with $1 million capital.

“The Cambodian government places the highest priority on the modernisation of agriculture, which is the country’s key industry, and the improvement of farmers’ living standards,” the release said.

The company said it hopes to meet the financial needs of the agricultural producers by providing financing as well as instalment payment services for individual goods.

Senior adviser to the Supreme National Economic Council Mey Kalyan said microfinance was generally not suitable for agricultural lending, given the high interest rates and low and unreliable margins on yields.

“It is hard to expect that microfinance will meet the requirements of the agriculture sector, but specifically designed rural financing, such as Idemitsu, is needed for particular tasks in the sector,” he added.

Kalyan, who has met with Idemitsu representatives, said the firm plans to also give loans to cassava farmers and once harvested will buy back their produce and sell it for ethanol production.

“Idemitsu is not typical microfinance – it is production-based financing,” he said.

“If interest rates are low and farmers are supported, with good agricultural technology, maybe it will work if Idemitsu buys the cassava at an agreed price.”

Srey Chanthy, an independent economist specialising in agriculture, said there was a need for low-interest financing in the sector, but that the lending cycle should match the country’s agricultural harvests.

According to Chanthy, the agricultural sector needs about $1.3 billion in credit, but more than $2.82 billion if the entire agro-processing supply chain is taken into account.

Despite the Kingdom’s crowded microfinance sector, Chanthy said he did not think Idemitsu would find it hard to compete because demand far exceeds supply.

Idemitsu Credit is jointly owned by Idemitsu Kosan and Credit Saison, with total capital of $16.4 million.