It is easy enough for even the most impoverished Cambodian to borrow, say, $10,000, in the event of an emergency such as an arrest that requires bail, a fire that damages a house or shop, or a medical issue.
Paying back the loan is another thing altogether. And not paying, well. . .
The parallels to the vigorish that the underworld charges in the West are inescapable. I don’t really know what the criminally avaricious charge elsewhere, but here it is 5-10 per cent a month, usually for no longer than five months.
Borrow $10,000 from a Cambodian, and you’ll be committed to paying the lender $500-1,000 a month in interest alone. At the end of, say, five months, the principal will be due. So the loan could run you up to $5,000 for the use of $10,000 for less than half a year. You don’t need me to do the math.
If you don’t have the money, just sell off everything you own or have it confiscated by the lender, everything that allows you to scrape together a living — a cow, your moto, your land. (Or otherwise face consequences that I outline below.)
Mortgage loans are regulated and cost far less, but the fact is that most ordinary Cambodians don’t obtain them. Steep downpayments are the rule along with short terms and rates significantly below percentages in the developed world. They also can take an almost prohibitively long time to be issued.
Financing is so profitable that the owner of a store selling motorcycles once boasted to me how much he loves selling them on credit to Cambodians, who tend to worry less about their cost or the amount of the interest rate than how much will be due monthly; that payment is how they calculate how much of a bike they can afford.
The motorcycle merchant told me how he borrows as a privileged bank customer at very low rates and then lends very much higher. If a customer falls behind, the store repossesses the motorcycle, which already turned a profit, and sells it again. And lends again. And profits twice over.
In a sense, his motorcycle business is just a vehicle for being in the more lucrative lending financing business.
I learned the other day about a man who makes a living transporting riders on his motorcycle, highly popular work in which Cambodians engage full time or opportunistically. He had taken out a $2,500 bank loan eight months ago to purchase the vehicle, couldn’t make the most recent $100 monthly payment, had the thing repossessed, will receive only a small portion of what the motodop has given to the institution, and fell into a depression until a foreigner just purchased a new moto for him.
Repossession is hardly as bad as what befalls the individuals who borrow from private lenders at usurious rates. Violence against deadbeats is common, destruction of their property is frequent and the lenders deal death in a not insignificant number of cases, based on what I read in the newspapers.
Knees are less likely to be broken than heads, which tend to suffer their fate while the thugs who administer the blows usually do so with impunity.
The only conceivably good news is that there exists a small stratum of society that doesn’t need those loans. Many Cambodians prefer to hide their reserves under mattresses rather than in bank accounts.
Although their savings aren’t working for them, at least the money inhibits dangerous borrowing. Whether it also inhibits the risk of robbery is another matter altogether.