When Sor Songheng, a manager for an accountancy firm, wanted to replace his cheap Nokia phone a few months ago, he set his heart on a top-of-the-line iPhone 5S worth $780—nearly his entire monthly salary of $800.
But instead of scrimping and saving for months to be able to afford the iPhone, as he might have done in the past, he simply drove to Bayon Phone Shop on Sihanouk Boulevard, filled out an application for a loan from Aeon Microfinance, and walked away with the phone less than 24 hours later.
“Before when I would meet friends and businessmen with my old phone, I felt out of date, so I felt compelled to get a new, modern phone as soon as possible,” he said. The fact that he would have to pay an extra $100 in accrued interest did not bother him.
“The interest is higher than the bank’s if I calculate it, but Aeon’s service is quicker and easier.”
Aeon Microfinance entered the Cambodian market just two years ago, but its square purple-and-orange logo is already ubiquitous in retail storefronts, with more than 1,000 Aeon-affiliated merchants offering on-the-spot microloans to buy household appliances, electronics and motorcycles. Unlike traditional microfinance institutions (MFIs), which provide credit to help people in impoverished areas kick-start small businesses, Aeon is unapologetically consumer-oriented, and rapidly moving the microfinance sector away from its roots.
During the first four months of this year, Aeon disbursed $6.5 million in new consumer loans, a 195 percent increase compared with the same period in 2013. The firm’s loan disbursements rocketed from $3.1 million in 2012 to $14.7 million last year, according to Daisuke Maeda, managing director of Aeon Microfinance.
These numbers are set to grow even more this year, as Aeon Microfinance’s parent company is opening a $205-million shopping center on Sothearos Boulevard next month. The 68,000-square-meter Aeon Mall will feature an ice rink, a cinema, 190 shops and an Aeon Microfinance office where customers can take out microloans to buy anything from refrigerators to rice cookers.
“AEON Mall itself is attractive and powerful enough to [succeed] without microfinance,” Mr. Maeda said via email. “But we hope to be a…function to increase the sales of AEON Mall and its tenants.”
“Especially, there are a lot of tenants who will open their first shop in Cambodia. We hope to be their good partner to support their sales growth,” Mr. Maeda added.
One of those tenants is Malaysian bedding company Eadeco. David Tan, general manager of the Cambodian arm of the company, said the Aeon brand had helped lure Eadeco to Phnom Penh, since the easy availability of microloans in the mall would make customers less likely to balk at the thought of paying up to $500 for one of the company’s bedding sets.
“Having Aeon Microfinance in the mall will help people enjoy it by allowing them to buy what they want,” he said.
“How can an 18-year-old fresh grad afford to buy an iPhone? Microfinance. It has enabled people to own something they like even if it’s maybe a little high in price. This desperation to own something—everyone has it.”
Not only are Aeon outlets easy to find, but the approval process for a loan is relatively relaxed compared with other MFIs and banks. To apply for a loan from Aeon, a customer must provide an ID card, a certificate from their employer showing a reliable monthly income and a certificate of residence. The approval process takes only 24 hours. In contrast, most commercial banks demand collateral from potential borrowers, while MFIs do a background check and may require paperwork explaining how the loan will be used to generate income.
“Finance institutions in Cambodia are still conservative about giving a loan to consumers with consideration of its risk,” said Mr. Maeda. “But we take a risk to serve more people with a convenient scheme.”
And the risk is proving fruitful. In exchange for its ease of service, Aeon’s interest rates are about 2.3 to three percent higher per month than loans from commercial banks. According to Mr. Maeda, the rate of non-performing loans is about two percent—on par with the industry average.
The proliferation of easy consumer credit has also been a boon to retailers partnered with Aeon, who take on none of the risk in the loans being used to buy their products.
Heng Sreng, owner of the Heng Ly motorcycle shop, said since he became an Aeon merchant in early 2012, his sales have steadily increased. In 2013, he was selling about 80 units per month, 30 percent of which were financed by credit. This year, he is selling closer to 120 units per month, 50 percent on credit.
For electronics and household appliance chain K-Four, sales using Aeon loans have steadily increased since early 2012, with a nearly 20 percent increase in sales on Aeon credit in the last quarter of 2013, according to K4’s retail managing executive, Roniel Dionco.
“People, especially families, are buying higher value items [like TVs and refrigerators] and paying for them over six months. Customers can now buy a product they’ve dreamed about but couldn’t afford before,” he said.
However, Michel Chossudovsky, an economist and director of the Canada-based Center for Research on Globalization, cautioned that promoting financial products that encourage people to use their wages on expensive consumer goods can be risky.
“The problem is people making payments on a motorbike or cell phone, which they may eventually lose, have little money left to pay for necessary consumption, let alone food,” he said. “So it can impoverish people because they don’t have the ability to spend.”
But for Mr. Songheng, the extra risk was worth it now that he has his iPhone 5S in hand.
“If I bought the phone with cash, I would not have money to spend on business purposes,” he said last week after having paid the final installment of his $780 loan. “This is a great system.”
(Additional reporting by Hul Reaksmey and Kang Sothear)
