The growth of consumer finance in Cambodia

Photo by: TRACEY SHELTON
An ANZ Royal Bank teller serves a customer at a branch in Phnom Penh.

The Phnom Penh Post

Written by David Marshall
Monday, 16 February 2009

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By DAVID MARSHALL

THE phenomenal economic gains made in Cambodia over the last few years has seen a growing appetite for financial services which has led to an exponential increase in the growth of the banking and insurance sectors. In response, Cambodian banks have delivered to the market a range of financial services for consumers to choose from.

On the consumer financing side, options now include funding for car purchases, household items, emergency cash, housing, financing overseas education and small businesses. On the deposit and investment side, consumers are offered choices which include premier banking, children's savings accounts, ATM coverage, internet banking, insurance and expanded branch networks.

Credit cards are a convenient way to make purchases for almost any product or service and enable payments via the internet. Most banks in Cambodia issue credit cards that have varying features, benefits and reward programs. Some of the features include annual fees, grace period on interest charges and reward programs on premium credit cards.

Housing loans or mortgages enable families to secure a home and provide stability to family. These loans have terms up to 15 years and typically lower interest rates than normal consumer loans. Repayments are monthly and composed of principal and interest. Home loans can help individuals or families who have saved enough for a down payment (typically 50 percent of the value of the house) but who want to move into a home to accommodate their personal circumstances.

Offering piece of mind to the consumer, insurance products are a great way for individuals and households to minimize the risk of having to make large payments due to unforeseen circumstances. Insurance can be bought to provide protection against things like a fire in your house, risk of getting sick, accidents with your car or moto, and protection for your employees or family.

Although there is a range of products for the consumer, the market size for consumer financing is a fraction of that for business financing, and changing people's attitudes towards borrowing will be the key to growing this sector. In Cambodia, there is a set of cultural norms around borrowing that have delineated borrowing purposes into two categories: investment and consumption.

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Changing people's attitudes towards borrowing will be the key to growing this sector
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Borrowing for consumption, such as to purchase items like furniture, TVs and other consumer durables is often seen in a negative light, whilst borrowing to invest in houses, property and businesses is viewed as being more responsible. Although there has been a small shift in recent years in attitudes towards borrowing, particularly for purchasing vehicles, it appears to be simply evidence of improving one's social status. Further shifts in norms towards borrowing for other purposes will likely change over time as newer generations have expressed interest in borrowing for items such as motos and household goods.

One of the biggest shifts that needs to take place for an expanded consumer finance sector is the banks having greater confidence in the enforcement of loan contracts. The government has moved positively in this direction and has ratified the secured transaction law, which allows banks and other financial institutions to take registered security over moveable assets such as cars. Nevertheless, it will likely take some more time before banks fully embrace this alternative security structure and have confidence that courts will enforce security arrangements.

From an investment perspective, there have been few offerings to the market as a suitable alternative to property. This is primarily due to the generous returns property has provided over the last few years and lack of market-based instruments such as shares. With the planned stock market, this will enable investors an alternative to property, but investing in stocks does come with higher risks.

The consumer finance sector has seen good growth over the last few years, and as financial literacy improves and banks expand their products, the consumer will ultimately benefit from the range of services they can choose from.
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David Marshall is head of retail lending,
ANZ Royal Cambodia. Should you wish to
contact David, please send an email to david.marshall@anz.com.