Lending Tradition Needs Regulating, Some Say

Trust in commercial banks has in­creased in recent years, and in 2005 about 20 percent of GDP flowed through financial institutions. But banks are still viewed with suspicion by many Cambo­di­ans, who prefer instead to seek out the traditional, unregulated savings-and-loan scheme: Tong tin.

Economists and officials are trying to learn more about the role of tong tin in the Cambodian economy and are debating whether the in­formal scheme, which leaves mil­lions of players open to fraud, should be regulated.

“Trust in each other is the key rule of tong tin,” said Sea Huoy, 37, a mother of three who has been play­ing tong tin for 12 years. Des­pite once losing about $10,000 to four players who fled with the tong tin pot, Sea Huoy said she will continue to try her luck.

“I don’t like to go to the bank, I don’t know the banking system. I just save money and raise money in our traditional way,” she said.

While there are variations, most tong tin games share a basic structure: At the head is a trusted bank­er who organizes the payments from each player, neither taking out loans nor earning interest. In some groups, the banker earns han­dling fees.

In a very common version of tong tin played in Phnom Penh, the number of people involved de­ter­mines the number of months the game runs. Five people partici­pa­ting means that there will be five months of play.

In the first month, the five players give a set amount each—say, $50—to the banker. At the beginning of the second month, the play­ers secretly bid for the right to take the pot by offering an interest rate to the others. The person offering the highest interest rate withdraws the entire pot, and the interest that was offered is given back to the other players.

The result of this system is that early takers of the pot typically lose some money in terms of interest paid, but get a collateral-free loan. Those who hold out until the end earn interest.

Compared to loans from banks, the interest rate is difficult to calculate and is variable. But players in Phnom Penh insist that tong tin is the only way to go.

“I never think about borrowing money from a bank; it is slow, they ask for collateral,” said market vendor Sor Chanavy.

“If I need my money in a hurry, I can get my savings from the tong tin,” she said.

Sor Chanavy said she is lucky in that she has never been part of a tong tin that collapsed after a player took the money and ran. But, she said, she takes great precautions bef­ore investing in a tong tin.

“I think a lot, I have to find out if the banker is a good person, has a big house or if her husband is a high-ranking official,” she said. “If any­one breaks the trust, members lose.”

But prosecuting tong tin cheats is a major problem, she said.

“We can’t complain to the authorities because we agreed to play without informing the authorities,” she said, adding that vendors in the mar­ket play tong tin at $50 to $200 per month between 10 and 40 players.

For financial experts, the question is whether regulation will hurt a practice that gets credit into communities where commercial banks do not venture, or whether a lack of reg­ulations is leaving players ex­posed.

Finance Ministry Secretary-Gen­eral Hang Chuon Naron said that be­cause about 15 percent of Cam­bodians are estimated to be involved in at least one tong tin game at any given time, an article should be added to the civil code to protect players.

“In the 1960s, tong tin was ad­dressed in the civil law…such regulation can insure players if the head bank­er runs away,” Hang Chuon Nar­on said.

He added that the government does not plan to control tong tin other than by setting out ways tong tin players can sue fellow players to recover money. Currently, tong tin players can file criminal complaints if they are defrauded and have witnesses.

Huot Pum, a professor of banking and finance at the Royal University of Law and Economics, said tong tin should be formalized with set rules of play.

“We should allow tong tin activities to be practiced among poor people, but turn it into a formal type of microcredit with set rules of play,” he said.

“The newspapers are filled with re­ports of people who hang themselves because of tong tin,” he added.

Professor Douglas Arner, a financial law expert based in Hong Kong, said that as Cambodia grows richer it may wish to regulate tong tin.

“In China we have seen tong tin syn­dicates develop with millions of dollars at stake and there have been some problems with fraud,” he said.

He noted that tong tin has been a fixture in Asia for hundreds of years, though no country has moved to regulate the industry.

Kang Chandararot, the head of the Cambodia Institute of Study, said that regulating tong tin could burden the system with official and un­official fees.

“If we put tong tin under a law, I be­lieve it will be a negative result,” he said. “[Tong tin] solves a lot of so­cial problems.”

Tal Nay Im, director-general of the National Bank of Cambodia, con­firmed that the bank has no plans to seek a special law or regulation of tong tin. She said the civil code can be used to charge people who defraud tong tin players.

Proponents of the emerging mic­rofinance sector say that tong tin is far too insecure to sustain Cam­bo­dia’s economic development and is an overly risky proposition for the poor.

“Tong tin is traditional microcredit but it cannot compete with microcredit because tong tin is not secure,” said In Channy, general manager of Acleda Bank.

But for players like Sing Serey­rith, a resident of Phnom Penh’s Stung Meanchey district, it is corruption and inefficiency in all Cam­bodian institutions that keeps her playing the Cambodian money game.

“In the 1960s…if anyone ran away [with tong tin money] the commune authorities went to their home and started to auction property,” he said, adding that now things are different.

“Even if there is a law, I don’t trust the court; I have more trust in my friends,” he said.



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