A senior official of the Cambodia central bank said moving into digitalisation has been one of the key drivers for sustainable small and medium enterprises (SMEs).
Speaking at the Global SME Finance Forum 2020 on moving into the future, the role of digitalisation in promoting SMEs’ access to finance, Chea Serey, director-general of the National Bank of Cambodia (NBC), said SMEs are considered to be a crucial sector for the economy not only in developing and emerging businesses but also in advancing the economy as a whole.
She added that in the emerging economy, SMEs absorb seven out of 10 jobs created. Despite the significance of SMEs, they are facing the same challenges all over the world, including human resource constraints, increased competition, access to market and access to finance, just to name some of them, she added.
Serey stated: “Without financing, a great idea will only stay just an idea.”
She added that informality is one of the biggest obstacles for SMEs to access formal finance services because without a proper legal identity, borrowing money is done under the name of the owner backed by personal tangible assets, so the ability to access loans is limited by the personal ability of the owner and information given to a bank credit officer.
She added that banks are an intermediary, taking deposits from the general public and transforming the credit into a productive project in the economy. However, if the project is not credit-worthy according to an assessment based on the available information, then it is very likely the bank will not loan cash for it because of fears of a non-performing loan.
It is understandable because the NBC is the banking regulator and financial stability is its main mandate and priority, she said. “I believe these two objectives can be achieved by leveraging digitalisation,” Serey added.
The NBC’s director-general added that registration of businesses is often tedious and time-consuming for SMEs. In this regard, simplifying online registration would greatly facilitate business registration with advanced technology and artificial intelligence. The multiple data points in Know Your Customer (KYC) capability registration and verification process could be done in a matter of seconds. Serey added that tax incentives and other forms of government assistance are not there so some don’t bother? But by using this information to help SMEs gain access to finance could be enough incentive for registration.
However, although moving into digitalisation could create some challenges.
Notably, there are three challenges that are difficult to address in the short term.
Serey said the first challenge is the fact digital literacy among SMEs remains low, preventing them from taking advantage of digitalisation.
This requires support from the public sector as well as a change of mindset from the SMEs themselves. Lack of trust and digital payment platforms are also one of the reasons why ecommerce payment is made on delivery instead of online.
Second, the lack of trust has also expanded to the bankers themselves.
Bankers may not trust a decision made by big data and analytics. For example, some of them cannot easily accept that the credit underwriting process that could take weeks in an analogue world could be carried out in a few minutes digitally. Changing this mindset is a challenge particular for developing countries such as Cambodia, although there has been some rapid movement in this respect.
Third, digitalisation requires the digital infrastructure to be in place. Without accessible
and affordable electricity and internet connections, digitalisation can only be a concept.
“The three challenges raise what I believe are a need to change the mindsets and attitudes toward technology. That is not something that can be done overnight,” said Serey.
Sunniya Durrani-Jamal, Asian Development Bank country director for Cambodia, said earlier that, as with other countries in the region, micro, small and medium enterprises (MSMEs) are the backbone of the Kingdom’s economy. They stimulate domestic demand, create jobs, innovate and compete nationally and, potentially, regionally. Access to finance and expanded markets remain at the core of MSME growth.
“The main challenges for continued MSME development are access to finance, development of human capital and skills, market access and the adoption of the latest technology,” Durrani-Jamal said.
In the long run, the Ministry of Economy and Finance envisions a skill-development committee that would span multiple agencies, departments and stakeholders. The committee would plan strategy and coordinate efforts to build workforce skills, according to Durrani-Jamal.
This article was first published in Khmer Times. All contents and images are copyright to their respective owners and sources.