ADB, Cambodia Continue Financial Sector Reforms to Spur Growth, Cut Poverty

The FINANCIAL -- The Asian Development Bank (ADB) Board of Directors on December 2 approved a loan and grant of $15 million equivalent to the Government of Cambodia to promote the development of a sound, market-based financial sector.

According to ADB, the loan and grant will finance the final subprogram of the Second Financial Sector Cluster Program, which incorporates reform actions designed to improve public confidence and financial intermediation, strengthen sector resilience, promote good governance, and enhance system efficiency.

Key actions of the program include steps to improve check clearance and settlement amongst commercial banks and the government, regulations to guide interbank transactions, the promotion of deposit-taking by microfinance institutions in compliance with new prudential requirements, and improved prudential supervision of banks and microfinance institutions. It also promotes greater transparency in the insurance industry, measures to combat money laundering, and a new integrated accounting system at the National Bank of Cambodia.

"Finance sector development helps reduce poverty by cutting transaction costs for economic activities and expanding the reach of the formal finance sector to lower income groups, including rural microenterprises," said Samiuela Tukuafu, Principal Financial Sector Specialist in ADB's Southeast Asia Department.

The immediate gains generated by the program, which began in 2007, include new and increased loans of $1.52 billion, the creation of over 12,000 jobs, and the opening of over 980 new branches of banks and microfinance institutions throughout Cambodia.

The loan of $10 million equivalent from ADB's concessional Asian Development Fund has a 24-year term, including an 8-year grace period with an interest rate of 1% during the grace period and 1.5% for the balance of the term. The grant of $5 million also comes from the Asian Development Fund. The National Bank of Cambodia is the executing agency for the overall program, with the Ministry of Economy and Finance and Ministry of Commerce the implementing agencies.