Sok Kha doesn’t trust banks.
They want too much collateral, offer too little interest and—most importantly—they can close, leaving depositors without their savings, she said.
“If we want to deposit at the bank for interest we must have a bunch of money. And we do not have such large amounts of money,” Sok Kha, who runs a stall selling eggs at a local market, said.
Instead, when she needs a loan, or wants to earn high interest rates, she joins what Cambodians call a tong tin, a de facto lending institution that is only as good as its members, but when run properly can offer large monthly interest payments.
The tong tin is just one way people avoid the banks.
After decades of war, the faith in the banking system just isn’t there, leading small-time entrepreneurs to find other ways to keep their businesses afloat. Some people might horde gold, others keep jewelry or cash. Other farmers will buy and raise livestock, upgrading from chickens to pigs to cows to earn a better return on their invested money.
Tong tin has existed in Cambodia for many years as a way to help members who are short on money, said Chea Vannath, president for the Center for Social Development.
The tong tin, a phrase borrowed from a similar Italian system of loans called “tontine,” is comprised of a group of people with one “president” who oversees all transactions.
Deposits, loans, and interest payments are made in cycles, usually once or twice a month.
For example, a tong tin of 10 people decide they will have monthly cycles of loan distributions. Each month, the members will give $100 to the president, who acts as the banker.
With $1,000 in the “bank,” the members all meet at a scheduled time to prepare secret bids for the amount of “interest” each person is willing to pay that month for the loan.
But rather than the 2 percent to 2.5 percent annual interest rates offered by banks the tong tin rates can be much higher and paid monthly.
After every tong tin member writes their interest bid on a piece of paper and folds it up, the bids are given to the banker. Whoever bids the highest for the month takes the pot, immediately paying the remaining members the interest they bid.
“I deposited $100, and last month the interest was $10.50,” said one tong tin member at Olympic Market who asked not to be identified.
Those who bid lower, or zero if they don’t want to bid at all, collect only the interest payment from the winner. However, the winner is not allowed to borrow again until the tong tin has run its full cycle.
By the end of 10 months, each member will have had a chance to bid on the pot, and everyone will be repaid in full, plus any interest they earned from previous bidders.
While women like Sok Kha swear by the tong tin practice, it is not without hazards.
If depositors put their faith in the wrong banker, they could find themselves broke after the banker runs away with the deposits.
Some unscrupulous bankers will gather a tong tin that only has five actual members. The banker then invents the five additional ghost members who appear to offer higher bids than the other members of the tong tin.
The banker then collects for the first five cycles on behalf of the ghost bidders—and then disappears with the money.
“Both the members and the collector must know each other and trust each other,” Sok Kha said.
Trust aside, money is still safer in banks, and people with little money can still find ways to finance small businesses, said So Sophonnary, director of marketing for the Association of Cambodia Local Economic Development Agencies, a micro-finance institution.
“Some of them cry from losing their money because other members run away. I think the bank is safer, even if it gives lower interest,” he said.