Unlocking Cambodian Women’s Potential through Fiscal Space Creation

Establishing an occupational lifeline for women in Cambodia during the COVID-19 pandemic through a credit guarantee scheme

Towards a Solution

To address the above challenges, the United Nations Capital Development Fund (UNCDF) supported the Royal Government of Cambodia in establishing a national credit guarantee scheme, a first for the country, to provide low-cost and reliable financing to women-owned Micro, Small and Medium-sized Enterprises (MSMEs) as a response to the economic impacts of COVID-19. Cambodia embarked on a far-reaching policy response that included the rapid extension of social security and also looked at the economic sectors in terms of the retention of production capacity through firm-level survival. As a part of this concept, the Ministry of Economy and Finance (MEF) reached out to the UN and UNCDF to support the establishment of the Credit Guarantee Corporation of Cambodia (CGCC). 

The project is designed to maximize the participation and benefits of women-owned MSMEs, contributing to SDG 5 (Gender equality). Businesses that are more labour intensive or require lower skilled labour, including for economic migrants, will also be targeted to ensure the investments have the maximum effect in reducing poverty and increasing employment, contributing to SDGs 10 (Reduced Inequalities) and 1 (No Poverty). In addition, the project will primarily address the Istanbul Programme of Action (IPoA) through Priority Areas 6 (Multiple crises and other emerging challenges) and 7 (Mobilizing financial resources for development and capacity-building) while also contributing to Priority Areas 1, 3 and 8 at the national level. 

Building on the initial work of Asian Development Bank (ADB), UNCDF and the UN Resident Coordination Office (RCO) in Cambodia initiated with the MEF an international deep-dive policy consultation that brought in South-South expertise from the Bangladesh Bank, Thai Credit Guarantee Corporation and Moody’s Analytics (Singapore and Hong Kong of the People's Republic of China) to provide advisory services for the establishment of a credit guarantee facility in an emerging and graduating economy. Supported by an underpinning knowledge of all participants about the common challenges being faced by Southern countries regarding the far-reaching socio-economic impacts of the pandemic, a coalition of like-minded institutions and individuals was formed based on mutual understandings and similar socio-economic backdrops created by the pandemic. 

As traction was gained from these early South-South exchanges between the MEF and counterparts from government, central banks, and the private sector, it became evident that the near neighbourhood experiences of credit guarantees provided a more suitable vehicle to assist the RGC to expedite their decision-making process. 

The deep dive dialogues fully supported the RGC to finalize the policy framework and pass relevant legislation to establish the CGCC as an independent government agency some two months after the initial dialogues with a public sector capitalization of $200 million. UNCDF’s support includes the development of a legal framework and articles of association to establish the CGCC, a risk management solution for CGCC in partnership with Moody’s Analytics, legal processes and due diligence of CGCC clients, and technical training for CGCC staff through placement with Thai Credit Guarantee Corporation. 

Underpinned by the “leave no-one behind” principle, the objective of the UNCDF credit guarantee scheme in Cambodia is to provide low-cost sustainable financing to women-owned MSMEs, predominantly operating in the informal sector, to support their recovery from the COVID-19 and to serve as the driving force accelerating Cambodia’s recovery from COVID-19 and SDG achievement.  

With the proactive support of the RCO and Multi-Partner Trust Fund Office, UNCDF, UNDP and IOM through continued South-South partnerships have assisted the CGCC to operationalize, partnering with seven financial institutions to become operational. As of June 2021, the CGCC has issued 53 guarantees supporting 53 commercial loans, ranging from $10,000 to $1 million with an average size of $137,464. The total value of loans is $7.1 million, and the value of guarantees is $5.1 million. The average loan to guarantee ratio is 72 per cent. A total value of $669,600 of guarantees were issued to women owned businesses (13 per cent of total by volume) and a total loan value of $929,000 has been unlocked for women businesses to date. 

This innovative financial model (government-supported credit guarantees) is quickly becoming a leading COVID-19 recovery policy trend in the region. With deepened South-South cooperation and dialogue, the inclusive and sustainable credit guarantee schemes that are fully financed and able to offer in excess of 70 per cent loan coverage to participants can be further introduced by LDCs as a proven COVID-19 recovery instrument.