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Micro Credit
From the Stock Market to the Village Market, Cambodians Make a Modern Concept Khmer

By Antonio Graceffo

It’s a busy trading day in New York City. Stockbrokers who would normally be juggling orders and numbers on their telephones are glued not to the telerate machine, but to the TV, where they anxiously await the live broadcast from Washington, which will determine if the federal government will raise or lower the prime lending rate. One broker seems more anxious than the others. Before coming into the meeting room he used $20,000,000 worth of his client’s money to buy $100,000,000 worth of bonds. If the rate goes up, he will sell the bonds at a profit, before he is even asked to pay for them. His corporate client, a fast rising star in the dry cleaning industry, will use the proceeds to purchase controlling interest in a competitor’s company. If the rate goes south, his client will sell at a loss, and be forced to make up the difference in cash.

In Phnom Penh, a woman sits in the small market near Stan Mien Jay, trying to think of some way to augment her family’s meager income. With her husband earning only $1.25 per day, it is hard to feed her four children. And paying school fees seems an impossible task. After months of hands-on research, seeing which products people were willing to buy, and which ones they weren’t, she determined that she could make a business of purchasing used handbags and reselling them at a profit.

She locates a wholesaler who is willing to give her the bags for only 2,000 Riels each (about fifty cents). And she believes she could easily sell them for 3,000 or even 3,500. At that rate, she would need to sell less than five bags per day to double her family’s income. The only catch is that the wholesaler requires a minimum order of $20.

In her entire universe of friends and relations no one is in a position to loan her such a princely sum of money. Just as she has given up all hope of ever getting her business off the ground, a young man from Phnom Penh, wearing a suit and riding a bicycle, stops by her tiny home to tell her about the micro credit program at Acleda Bank.

She had never borrowed money before. She couldn’t read or write, had never had a bank account, and only traveled to the city center about twice a year. But something about the young man made her trust his judgment. After signing the necessary papers she was handed the twenty dollars, which she used to start her new life as an entrepreneur. The handbags sold well, and she meticulously made her loan payments. The nice young loan officer came by frequently to see how she was doing and to give her encouragement. Eventually he advised he to take a larger loan, and expand her business. It was easier the second time. And it began a pattern of borrowing again and again, ever increasing sums of money to expand her business.

The woman’s name is Sosarum, and the tiny handbag business she started only a few years ago now provides her family with a profit of $200 per month. Her most recent loan was for seven million Real, which she used to develop her latest business. She used the money to refurbish some abandoned houses, and create low-cost living quarters for garment workers in the nearby factories. With ten units, and a capacity of four workers in each unit, she stands to increase the family income by another $600 per month.

When we think of credit based business we think of modern, leveraged corporations, using someone else’s capital to earn large sums of money. But the idea behind micro credit is to give poor people the opportunity to take advantage of bank loans. For the desperate poor, earning as little as seventy-five cents per day, starting a business may be the only way out of poverty. And only micro credit lenders are willing to deal in sums of money small enough to work in this market.

In the west, poor people are often denied credit, because it is believed that they will squander the money, and be unable to repay. But the proponents of micro credit believe that poor people are credit worthy. They feel that the lack of access to cash instills in poor people a respect for money, a precious commodity which they would never waste.

“It is also inherent in our Buddhism.” Explained Suos Ousuphea, Loan Chief of District Credit Office of Acleda bank. “If we cannot repay the money we borrow from the bank or from friends, after we die we will be punished. All people in rural areas are Buddhist, so they are more honest than city people”

That answer was just the first in a series of facts which demonstrated how the Khmers had taken a modern concept, such as business banking, and integrated it into their own culture. Micro banking fit so well into the lives of the children of Ankor, you would have thought it had been there for centuries.

According to Suos Ousuphea, the two most serious problems facing poor people were lack of communication and lack of capital. “The people can produce products, but they cannot sell them. They have no marketing. Some have an idea for a business but no idea how to go about getting started.”

Both of these problems, communication and capital were addressed by Acleda Bank’s micro business initiatives. By employing Western Union and wire transfers to solve the communication problem, much was revealed about Khmer culture.

“Many Khmers receive money from friends or relatives abroad. Most transfers are only $100 or $200, but that means a lot to most families. The other reason for money transfers is that many Khmers come to work in Phnom Penh, particularly during the rainy season, when there is no farming work to be done. They earn what they can, and send money home to their family in the provinces.”

Although it is called micro business, it is still staggering for someone from the west to hear how small these wire transfers are. People I interviewed who were picking up trash on the streets were sending money home to their families back in the provinces. Even beggars often told me they were sending money back to the provinces. Sometimes they sent as little as 5,000 Riels ($1.25 USD).

Suos Ousuphea confirmed that nearly seventy percent of micro credit borrowers were women.

“The main reason for that is that women tend to do the entrepreneurial businesses.” He explained. “Men look for regular jobs, wage labor. But women will make small businesses, selling fruit or eggs, or sometimes silks.”

Many of those who come to Phnom Penh, to earn money were women, who came to sell goods in the city’s many markets. So, it was no wonder that women were also frequent customers of the wire transfer services, sending their earnings to their husband and children. With few phones and internet lines in many provincial villages, and with much of the country being completely inaccessible during the lengthy rainy season, Western Union was the only means many women had of keeping in touch with their families.

“Women can manage loans better than men.” Said Suos Ousuphea. “We did a survey in rural areas, and found that when women borrow money they worry about the business and if they can repay or not.”

Most people in the West receive their consumer education through advertisements on television or in newspapers. So, how does a bank get the word out to a rural population who is unreachable, and who has a high incidence of illiteracy?

The answer is, you go door-to-door.

“Our credit officers go out and teach the people.” Said Suos Ousuphea. “Many cannot read or write. So we teach them how to use money and how to use a bank.”

The effectiveness of the loan officer’s teaching can be seen in the loan default rate, which is nearly non-existent.

“In rural areas it is only 1 %.” Said Suos Ousuphea.

Part of the reason for this low loss rate is because of the strict loan eligibility rules. But in the end, every road led back to the loan officer.

“We maintain close relationship between customer and bank. The credit officer plays a main role in maintaining that relationship.” Explained Suos Ousuphea. “I believe that without the credit officers we could not do business well.”

To a former stockbroker, used to dealing with sums in the millions, the question came to mind, just what sort of business could one start with $20 to $50?

“Some customers borrow to buy a bicycle. They make a business moving goods from the distributor to the market, and from the market to the village.” answered Suos Ousuphea.

Bicycles cost $45-$50 USD.

“Later, with more money, they can buy a motor-tractor which could transport up to ten, or even fifteen people. This is a good business in the provinces, and a very important means of transportation.”

“They also borrow to make handcrafts and silk, which they sell along the road.”

One of the most interesting business ideas was the bicycle generator.

“On Rd # 5 near Tela, you can see bicycle generators bought with micro credit. People light their homes with rechargeable batteries, and use the bicycle generator to recharge the batteries. Before when you went to most villages at night they were dark. Now they have light.”

Once again, as with any business, the credit officer played the vital role of advisor in this transaction.

“Fore example if a man wanted to borrow money to buy his own bicycle generator, then the credit officer would go there, and see how far away the nearest generator was. If the man lived close to someone with a generator the officer would advise him not to purchase his own generator, but to pay his neighbor for a recharge instead.”

When I asked if I could go out to the field with a credit officer, I was told that this was problematic, as Khmer people were very shy about letting anyone know that they had borrowed money.

Luckily, one brave woman, named Engen Nee, agreed to see me. Her micro business was handcrafting clay pigs, which she sold at market for 2,000 Riels.

Engen Nee informed me that before, she had borrowed money from the local informal community bank, at an exorbitant rate of interest.

“But then the loan officers came around on bicycles and told us about the bank.” She said. Ever since then Engen Nee has been borrowing from Acleda.”

“No security was required for the first loan.” Explained the loan officer. “But I had come to see her house, and to study about her business.” He assured me.

Once again. The loan was a success.

“She repaid the loan in only six months.” Said the credit Officer.

It was obvious that the relationship between the loan officers and the borrowers was extremely close. In fact on this day, the loan officer had brought gifts for the whole family. These people were more than salesmen they were like advisors to the families, helping them, not only with their businesses, but also helping them to make a better life for their children.

In a country, where jobs, in the western concept of the word are nearly nonexistent, small entrepreneurship is important to maintain a decent standard of living. With the income from her husband and two of her children working, combined with the money from the clay pigs, Engen Nee was able to maintain a large and beautiful house, and keep two children in school. Plus the work with the pigs kept her close to home, and to her neighbors who were part of her extended family.
The loan officers were like favorite uncles who came for holidays and Sunday dinners. In the same way that the traditional Cambodian community fit together with every member from the monks, who resolved conflicts, to the egg vendors who went door to door, to the moto drivers who transported people and things around, to the families with bicycle generators who provide their neighbors with light, the micro credit officer had become a part of the community, fulfilling an important role and fitting in, in a very Khmer way.

Copyright © Antonio Graceffo 2005