BATTAMBANG provincial entrepreneur Sar Ratha’s business hinges on credit. Dealing in agriculture, he owns a rice mill and farms cattle, fish and anything else where he sees a chance to turn a profit.
Banking is still new to Sar Ratha, but he said that in the past few years he has moved from storing money under the mattress to making extensive use of bridging loans during harvest season. He borrows some US$300,000 annually to buy unprocessed rice. He then mills it and sells it to the highest bidder.
“Time is very important in my business,” he said. “If I can get money fast, everything goes smoothly.”
Banks are responding to increased demand for their services in rural areas, Canadia Bank deputy general manager Charles Vann said. Branches are extending to far-flung corners of the Kingdom, and mobile-phone banking has the potential to push service even further.
For the first time, there were more than 1 million deposit accounts in the Kingdom’s commercial banks and microfinance institutions at the end of last year. Total outstanding loans at commercial banks reached US$3.69 billion at the end of May, according to National Bank of Cambodia statistics.
Agricultural credit has been steadily increasing as a share of overall outstanding loans, making up 6.7 percent of loans in 2009, nearly double the 3.4 percent share from five years earlier.
Improvements in agriculture were reducing risk and fostering credit growth, said ACLEDA Bank President In Channy, who cited irrigation projects in Battambang as a measure that reduced the fluctuation in farming yields.
“Traditionally, people saved under the mattress, or stored their value in livestock,” he said. “But if you get sick and need 20,000 riels for medicine, you could be forced to sell your 300,000-riel pig. You can’t just cut off one pig foot and sell it.”
But convincing the unbanked to enter the formal finance system was still a challenge.
With many of its customers unable to read and write, ACLEDA employed novel methods of educating customers about banking, In Channy said. The firm has recorded more than 100 songs and music videos, teaching viewers – such as those riding many of the Kingdom’s buses – how to use an ATM or mobile-phone banking.
The financial demands of rural communities are also evolving.
Tong Viden, owner of a rice mill in Moang village, Battambang, opened his first bank account five years ago. Milling 1,300 tonnes of rice per year, he deals with about 13 separate rice buyers each month who make payments of up to $5,000, and earning him an average of $100,000 annually.
Originally attracted to banking because of increased security compared to storing money at home, he said convenience and cost-cutting drove his choice of banks.
It was rumoured that a Canadia Bank branch would launch in the village, he said, and he looked forward to comparing the services offered.
“I will use the bank that is easier and cheaper,” he said.
Speed was also reportedly a factor for rural entrepreneurs when choosing financial services.
Battambang entrepreneur Sar Ratha deals primarily in cash. His buyers usually pay him through his bank account, or through an informal network of agents to transfer money, or send cash to him via a taxi driver.
Flexibility in loans during harvest season was a major driver for his business, he said. Rigid repayment schedules had turned him away from a previous loan arrangement with the Association of Rice Millers.
Borrowing approximately $300,000 each year, he paid the association an interest rate of about 0.5 percent, while his present bank, ACLEDA, pegged his rate at 1.5 percent.
However, the association forced repayment on a specific schedule, even if he had enough cash on hand to pay the entire principle.
“I could not pay back the Millers’ Association until a set amount of time, even if I had the money,” he said.
His local bank branch now approves his loans instantly, he said, whereas other banks required a waiting period of 15 to 30 days.
But some lenders in Battambang said they may have to scale back credit as the local economy sours.
Sathapana Limited microfinance institution’s Battambang branch manager Prum Vibol said Cambodia’s second-largest city appears to be headed for a slowdown, as farmers expected a poor harvest and tourism receipts from big-spending Westerners declined.
He said the branch may have to cut back on the amount of loans.
Over the last year, the branch had taken around 100 new clients, and 929 individuals were borrowing from his branch, he said, and although Sathapana may not always be able to match the low interest rates of large commercial banks, but personal meetings could convince clients that it was the right institution for a loan.
“Meeting directly with clients is the most effective advertisement,” he said.
Traditionally, rural villagers have borrowed from friends and family, he said, but more and more were turning to banking institutions to borrow. Loan sizes range from $50 to $5,000, with an average of $1,040.
The largest hindrance to extending more loans to applicants has been a lack of collateral, a familiar problem among many of Cambodia’s would-be borrowers, he said.
Sitting at the base of Phnom Sampeu, a well-known Battambang province tourist attraction and the site of the so-called “Killing Caves”, Victory Mini Restaurant owner Nguy Mech said he dreamed of building a larger restaurant in the French colonial style.
National Road 57 was refurbished seven months ago, opening up the route and creating a business opportunity to provide tour bus parking and a modern eatery at the site’s base.
He estimated the cost of the project could climb to $70,000, and said that with only $5,000 in savings and little possible collateral beyond his home, banks consistently turned down his application for a loan.
“I’m worried if I don’t build such a restaurant, somebody else will,” he said.