Unlike in more developed economies, in Cambodia you can’t just walk into an electronics store and take something home on interest-free credit, but the payback options are starting to expand

We cannot afford it all at one time, that’s why we chose to pay in phases over six months."

WALKING into an electronics store in the West usually means bombardment by interest-free credit signs on the latest televisions, computers and other home appliances.

Although free credit is in short supply in Cambodia, many shops have started offering credit to customers in a bid to compete and boost sales – and when one company starts offering such deals, others generally have to follow, despite the risks.

“Shops around mine offer customers the chance to pay in installments on the products they buy, so why shouldn’t I?” said Eang Yanith, owner of the self-named electronics shop close to Battambang’s central market. “Otherwise, I couldn’t compete.”

Eang Yanith Electronics Shop started offering credit just this year, he said.

Providing customer credit on his products – including rice cookers, refrigerators and air conditioners – is worth a try, he reasons, because of the extra customers his shop can attract. Also, there is extra profit to be made as items on credit are charged at 10 percent more than outright purchases.

“Most customers who buy products on credit at my shop are farmers,” said Eang Yanith, adding that their favoured products are televisions, audio players, loud speakers and fans.

The 10-percent credit option is offered on a three-month payback agreement “because it’s like buying without any collateral to secure debts, just a verbal agreement and mutual confidence”, he said, adding that due to careful customer selection, just 5 percent have failed to repay debts on time.

Like the banking sector, Cambodia has no centralised credit-checking system, meaning retailers have few options for checking the reliability of potential customers outside of knowing them personally. As a result, interest-free credit remains out of the question for the time being.

For the consumer, credit options greatly increase the chance for Cambodia’s low-to-middle-income consumers to buy electronics products that would usually be beyond the limits of their spending power, says Sorn Kimlong, a sales representative responsible for sales on credit at Phnom Penh’s K-four Group, one of the largest electronics retailers in the Kingdom.

Purchasing power is in short supply in Cambodia, particularly following the global economic crisis. Annual per capita GDP fell from US$2,000 in 2008 to $1,900 last year, according to estimates by the CIA World Factbook, which ranks Cambodia in 187th place worldwide. More conservative estimates, though, say that Cambodians earn less than $700 per capita each year, but with a lack of accurate data it’s been a difficult figure either way.

“This option is effective to attract more customers, and we have gained hundreds of buyers so far … on credit,” said Sorn Kimlong.

K-four customers buying on credit must live in the capital, according to the company’s list of conditions, and are required to provide an identification card or family certificate and pay a month upfront. K-four offers two payment plans, says Sorn Kimlong.

The three-month repayment plan charges 10 percent extra, while a six-month credit offer adds 20 percent on the original price.

“For the rich, this option is not that attractive because they would prefer to buy with cash in hand, but for low-income buyers, it’s very popular at the moment as the interest rate we apply is reasonable,” she said.

One customer who purchased a refrigerator on credit at K-four cited limited disposable income as the main reason for buying in installments.

“We cannot afford it all at one time; that’s why we chose to pay in phases over six months,” said Seng Sokchea.

Thai Kheang, the owner of a small electronics shop near Phnom Penh’s Central Market, said that he was unable to offer a credit alternative for his customers.

“Only large shops can offer this service because they have the necessary capital,” he said. “For a small shop like mine, we simply don’t have the finances to cope with such a service,” he added, also citing the high risk involved due to the lack of collateral.

With Cambodia still developing in terms of credit provisions and default security, buying on credit remains a new concept in the Kingdom. But given the precedents in many other countries, purchasing on credit is only likely to expand, regardless of the risks involved for both the consumer and retailer.