ADB Releases Report on Its Cambodian Inclusive Financial Sector Development Program
The Asian Development Bank released a report on its Cambodian Inclusive Financial Sector Development Program on February 25, 2025, which concluded that there have been “effective and flexible ways of converting complex policy objectives into implementable policy actions”.
According to the ADB, the Government of Cambodia requested continuing ADB support to the finance sector through a policy-based loan and the Inclusive Financial Sector Development Program had a total value of US $120 million from the Asian Development Fund (ADF) between 2016 to 2022 through three subprograms and associated technical assistance.
The program aimed to create a more inclusive and stable financial sector and the program's impact was to enhance the banking and finance sectors, fostering a sound, efficient, diversified, and inclusive financial system.
This comprised three subprograms which addressed:
- Limited financial inclusion
- Lack of a functional financial stability framework
- Weaknesses in key financial infrastructure relative to international standards.
The ADB reported that these “directly supported reforms outlined in the government's National Strategic Development Plan, 2019–2023, the Financial Sector Development Strategy, 2016–2025, and Cambodia's commitment to implement the Association of Southeast Asian Nations (ASEAN) special declaration on coronavirus disease (COVID-19).”
What Changes Were Implemented?
All policy actions across the three subprograms were achieved according to the ADB report, and loan covenants were complied with. The ADB had a varied role, including actively engaging and implementing agencies in policy dialogue and providing advisory and technical assistance regarding capital markets development, financial inclusion, credit guarantees, consumer protection, and deposit protection.
Reforms from the Inclusive Financial Sector Development Program focused on expanding financial services to underserved populations, particularly in rural areas, enhancing financial stability through improved regulation and supervision, and upgrading financial infrastructure, including payment systems.
Financial inclusion was considered as one pathway that can reduce households’ vulnerability to falling into poverty. In 2011, only 59% of the adult population had access to formal finance made up of 68% in urban areas and 55% in rural areas.
Addressing the financial inclusion issue provided the foundation for the government’s “financial inclusion and financial stability initiatives, including drafting a gender-sensitive financial inclusion strategy, undertaking financial literacy campaigns, and developing of a framework for cross-sector supervision.”
The expected outcome or effect of the reform for financial inclusion “was a growing, resilient, inclusive, and efficient financial system with expanded coverage,” said the report.
To help address the lack of a functional financial stability framework, the Agricultural and Rural Development Bank (ARDB) was added as an implementing agency and a program was supervised by a financial sector steering committee chaired by the governor of NBC with representatives from the implementing agencies as members - ultimately the capacities of NBC and the implementing agencies were improved.
The Cambodian government also implemented measures to improve liquidity in the interbank market, a financial stability technical group comprising coordinated finance sector supervision and crisis management, and the government started preparing to issue debt by amending its debt strategy.
In terms of the weaknesses in key financial infrastructure relative to international standards, the National Financial Stability Committee was established to protect the financial system against internal and external shocks and “to strengthen management, control, and development of the non-bank financial industry.” In addition, the NBC issued regulations for Bakong to facilitate cashless transactions between retail customers of local banks and payment service providers.
A post-program partnership framework (PPPF) was also established to sustain the reforms and a contributing factor in helping Cambodia get removed from the Financial Action Task Force "grey list".
What Were The Key Lessons - Cambodian Inclusive Financial Sector Development Program
The ADB report claims there were four key lessons identified:
- Financial sector development is a long process that requires correct sequencing and foundational changes of the banking subsector must be implemented before undertaking more difficult reforms in the nonbank sector.
- A national sector strategy is required to identify progress and near-term and future reforms needed to grow the sector.
- Financial services play a key role in supporting the expansion of the real economy while fostering inclusive finance, a thorough reform strategy backed by technical assistance is needed to make the finance sector more inclusive. Combined with strong development partner coordination - these are deemed crucial to ensure that financial resources are strategically allocated and prevent the duplication or overcrowding of resources in particular areas at the expense of others.
- Long-term engagement establishes understanding and trust which are essential for the success of any reform program.
In 2024 alone, Cambodia and the ADB signed 6 projects worth US $403 million.