Sok Rasmey (not his real name) works for an NGO in Phnom Penh with a salary of $350 a month. This is usually enough to cover his modest living costs, but when urgent expenses arise, he often looks to borrow to cover his costs. Ashamed to keep borrowing from his friends, he recently stumbled upon another option – an online lending platform called InteanGroup.
“I saw it on Facebook, a service that dispenses loans quickly,” he said. “So I called them, and after that they sent money to me.”
Rasmey has used the service six times, initially for loans of $30 and most recently for a $100 loan. He said that, despite the high interest rate, the fast and easy loan service had made his life easier, allowing him to attend events and celebrations he might otherwise miss.
“It’s good when I am short of money and need money to join a wedding or when I am broke and can borrow from them,” he said. “The process is quick – you call them and they ask a few questions, then they immediately transfer the money to you.”
Anton Dzyatkovskiy, the Russian behind the online lending site, said his new peer-to-peer (P2P) loan platform was all about connecting investors who wish to provide loans to those who are short of money and wished to borrow. InteanGroup, through its network of lenders, provides micro-loans to customers without collateral provided they are at least 22 years old, have an identity card and can provide family and work contact numbers.
To borrow money, clients enter their name and telephone number on one of the company’s website or Facebook page. A company representative contacts them within 30 minutes to collect more details. If approved, the client receives money minutes later via a money transfer service. Dzyatkovskiy says his company currently uses e-Money or SmartLuy to transfer funds, and has entered negotiations with Wing.
According to Dzyatkovskiy, the company’s mission focuses on providing short-term loans to middle-income earners with salaries ranging from $200 to $300 per month, and who are in urgent need of money for wedding receptions, school fees, medical expenses and so on.
The maximum loan term is one month and loan sizes range from $30 to $100.
On average, his clients borrow $44 and pay off their loan in 12 to 14 days, he said.
Dzyatkovskiy said his pioneering venture here was based on international P2P lending platforms such as Lending Club in the US, Zopa in the UK and Vdolg in Russia. Together, these sites are part of one of the hottest trends in the global financial industry.
In China, the largest P2P lending market in the world, similar platforms issued over $150 billion in loans last year.
“In Cambodia, this is a very new business,” Dzyatkovskiy said “Cambodia is a small market, but we’ve already found many good and honest customers.”
He insisted his company does not issue loans – it only facilitates them by connecting borrowers to lenders, and charging lenders a flat 5 per cent commission on the clients it brings. He said 10 investors were distributing loans through the site, but the door was open for more to join.
More than half a million people visited the company’s site during its first two months of operations, of which 4,000 applied for loans. However, only 400 loans were granted because the others were “not qualified”.
Dzyatkovskiy said the caution was because the site’s lenders were carrying all the risk, though clients might be wary of defaulting on their small loans because it would “cost them reputation”. He added that the company planned to register as a member of the Credit Bureau of Cambodia (CBC), which would give it access to consumer credit reports before providing loans, while clients who failed to repay their loans could be put on the CBC’s blacklist.
InteanGroup makes no illusions about the high interest rate on its short-term loans. At 2 per cent a day, it works out to a staggering 732 per cent a year – far higher than any other financial institution.
Yet borrowers seem unperturbed. Rasmey explained that while he was aware of the high interest rate, he only borrowed small amounts for two to five days.
“I know the longer I go without paying it back, the higher the cost of borrowing will be,” he said. “So I don’t borrow money for unnecessary things. And as soon as I get money from other sources, I pay off the loan immediately.”
Yet Um Vuthdara, an economics professor at Pannasastra University, said the informal nature of the P2P lending model amplified risks for both lenders and borrowers. He explained that lenders must charge high interest rates to counter the risk of offering quick, unsecured loans, while borrowers must not only pay more to borrow but could also face legal action if they could not repay their loan.
“They shouldn’t be allowed to run such a business because both lenders and borrowers are at risk,” he said. “In a [stable free market] economic regime, businesses like a tong tin (a traditional informal savings and lending group) or informal loans are undesirable.”
The National Bank of Cambodia (NBC), which oversees the Kingdom’s financial sector, has campaigned to shut down unlicensed lenders that it claims are gouging consumers with high rates and driving people deeper into poverty.
NBC director-general Chea Serey said she could not comment on the InteanGroup site’s legality as the P2P lending model has so far come under the radar.
“We are not aware about this service and we will investigate accordingly,” she said. “We don’t know about the exact business model of this site, and thus I don’t want to make any specific comment about it.”
Serey added, however, that any intermediary of a financial service is required to be registered or licensed by the NBC. She urged caution in dealing with unregulated entities.
Dzyatkovskiy countered that his company was registered at the Ministry of Commerce, and as it did not actually provide loans, but only connected lenders to borrowers, it was not subject to any NBC regulation.