Financial lease law passed by National Assembly

On Wednesday, May 27, 2009, the National Assembly passed unanimously the draft law on financial lease that is allow banks to issue leases for equipment, machinery and vehicles to business and enterprises in the wake of the global financial crisis. This law does not apply to land or real estate.

Chea Chanto, governor of the National Bank of Cambodia, was quoted by the Phnom Penh Post as saying that “Currently, banks in Cambodia dare not grant long-term (five- or 10-year) loans to businesses because they are worried about losing their money, and this is an impediment for entrepreneurs to expand businesses and-small-and-medium enterprises (SMEs),” adding that “the draft law on financial leases will enable businesses and SMEs in Cambodia to obtain a long-term source of capital from the banking and financial system with limited collateral.”

Stephen Higgins, CEO of ANZ Royal Bank, said that the banking structure in Cambodia leaves too much risk for banks to handle a large lease portfolio, reported the Cambodia Daily.

Chea Chanto explained that financial leases refer to the leases of assets and properties over the long term, between a lessor (a licensed bank or lease company) and a lessee (a developer, manufacturer or other customer). He added that financial leases could include properties such as machinery and all kinds of equipment, but excluded land and buildings, reported the Phnom Penh Post.

Jim Swander, an independent financial consultant, said that the new leasing law will not help as many small and medium enterprises as some might think, reported the daily.

“In some ways it’s a good move, but it isn’t going to help the people it was designed to help,” said he. He added that leases can be more risky for banks because leased items can be moved or stolen, unlike real estate, which is often used as collateral in loans.

Yim Sovann, Sam Rainsy Party parliamentarian, said he supported the law. “I appreciate the government for creating this law, as the country is suffering from the global financial crunch,” he said. “It will help develop Cambodia’s SMEs, which contribute about 65 percent to GDP and employ 85 percent of the entire workforce,” reported the phnom penh post.