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​Tontine offers alternative financing, but at a gamble

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A man gives money to a tontine lender. The practice is widespread across Cambodia, where it was first introduced by Chinese Cambodians. UY NOU SEREIMONY

​Tontine offers alternative financing, but at a gamble

Employed as a garment factory nurse in the outskirts of the capital, Seng Sovatheary has amassed a fortune worth untold thousands; a large part of which are spawned by plots of land and houses in Phnom Penh, Kep, and Kampong Chhnang. With her small income, it is a wonder how she and her husband, together with their two children, have acquired such a gold mine beneath them.

This possibility is attributed to an age-old practice called tontine that is partaken by Sovatheary and many other Cambodians, predominately in the rural areas of the country where commercial banks have yet to operate.

Sovatheary has invested in many different tontine clubs over the past 15 years. “[Because] our monthly salary is too low, we cannot buy any high cost property. By practising the tontine with a small [initial] payment, we can generate more interest. If there is no particular urgency, we collect a sum of money at the end of a tontine. In the case of an urgent monetary need to buy a house or a plot of land, we just pay a higher interest for other members of the tontine.”

Without having to resort to competitive, though legitimate, loans provided by commercial banks and micro-financial institutions in the Kingdom, this widespread practice has long been an alternative source of income among many Cambodians.

“A low interest rate is provided by banks compared to tontines … Some people choose not to go to banks due to a very limited amount of loan options, and complicated processes. Also, those who need money feel embarrassed as they would then be known as a borrower,” she said.

Even though a bank-provided loan has a lower interest rate than a tontine’s, many rural workers or emigrants to the capital do not possess the personal assets needed for collateral.

Nevertheless, the tontine practice, despite being seemingly straightforward, is a high-risk gamble.

Each member of a tontine is required to pay an initial amount of money to the tontine head, and a bid is specifically scheduled for a particular length of time. A sum of money will be collected for the member who bids with the highest interest rate. Based on the annuity rules of each tontine, each investor then receives daily, weekly, or monthly dividends on the capital invested. As each investor perishes, his or her share is reallocated among the surviving investors. This procedure continues until only one investor survives.

The tontine culture originated from Europe in the 17th century and was widespread in the 18th and 19th centuries. In Cambodia, according to the book Migration and Immigration: A Global View, the practice of tontine initially flourished in the Chinese-Cambodian community.

In 2011, Sovatheary was victimised in a tontine in which there were 43 members, each investing a sum of $100. She lost nearly $2,000 after many members were unable to return the remaining money.

She suggests that people should not invest in a high-interest tontine whose boss and members are not well known. Instead, a safer method to avoid any unforeseen risks would be to invest in a tontine with employees in the same institution.

Of course, Sovatheary is not the only victim.

Ean Ten, a public officer in Tboung Khmum province, also wasted around $2,000 in a tontine he booked with almost 100 villagers in 2010.

Ten said, “I have already stopped booking with them. I’m currently investing in a tontine whose members are teachers in the same school. We are not open to ordinary villagers because it is difficult to collect money from them.”

Um Vuthdara, a lecturer at Pannasastra University of Cambodia, compared the practice of tontines to unofficial capital markets in the country that have no particular regulations to control its transactions.

Vuthdara said, “In terms of economy, it is more likely a capital market in which there is a transaction between capitalists and investors.”

Acknowledging its crucial role in Cambodian society, Vuthdara suggested there should be a specific law to control tontine practices and protect each member from risks.

According to a university research paper by Man Hau Liev, this practice of participating in tontines is deeply embedded in Cambodian society. It is a seemingly easier alternative to save or borrow money, as compared to the hassle of complex processes in banks.

“Participants in Cambodian tontines believe that the returns from tontines are higher than those available from other saving methods,” wrote Hau Liev.

“To them, a tontine is a familiar financial instrument within their ethnic communities.”

This primitive and risky method of monetary loans is apparently too widespread in the Kingdom for it to fade away anytime soon.


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