How to do business in Cambodia
Co-founder of MicroMoney Payday Loan Services in Southeast Asia, Anton Dzyatkovsky, talks about attracting customers, recruitment issues and risks.
Two years ago, my wife and I thought that it was too difficult to do something interesting and new on the financial market in Russia. The market has already been occupied entirely by serious market players and automation technologies in the microfinance sector were already developed by strong competitors. So I thought: “Why not to become a pioneer of payday loans lending in a total greenfield country?”
We chose Southeast Asia, and almost immediately we found that bringing our automation capabilities there was like sending a computer to the Middle Ages. The vast majority of microfinance companies in Asia keep all their records in Excel or even on paper ledgers. This extremely low level of automatization is compensated by the huge number of affordable employees.
The country that loves banks
The market in Southeast Asia is completely different to the European and the US markets . The first surprising thing is that local people trust the banks completely. There are 36 banks per 1.5 million urban residents (I mean Phnom Penh city) now in Cambodia. Not a single bank in the country’s history has failed, and none of them has had its license withdrawn . No financial bubble or fraud schemes have set in. It is very convenient for business that the US dollar has formal circulation in Cambodia. The rate of the country’s official currency (the Riel) has not changed against the dollar in the last twenty years. Cambodia still has the image of a postwar country with aid demands, and thus inflation is compensated for. During the civil war of 1975–1980, the currency units were abolished: the “Khmer Rouge” blew up the National bank and placed a fertilizer warehouse in its stores.
At the same time, the country takes seventh place in the world for money laundering. I talked to ABA-Bank managers (Top-3 Cambodian bank) and they told me that banking transactions up to $500 thousand are not a subject of state financial monitoring. Banks do not ask questions even if the money comes from Afghanistan or Syria. An amount that exceeds this sum is investigated more seriously — sometimes banks can ask for a contract.
In general, state regulation on the market is in a ‘lite’ version: the government does not have enough resources to control many industries and, for example, consumer cooperation is still not properly regulated. About fifty companies are involved in consumer lending, each with capital of $1.5 million average and $5000 of ARPU.
Local banks and microfinance organizations are frightened by any idea of lending money without collaterals and papers. Usually, people give real estate or land property security and have to bring at least five certificates, passports and a person ready to vouch for the borrower.
Moreover, it works. In fact, credit overdue for more than thirty days here is only 0.9%, according to the local Central Bank, so the PAR ratio (portfolio at risk) is quite profitable.
How to start a financial business in an Asian country
We tried some different Asian markets and made a simple list to check if the country is open and full of opportunities.
- Consumption is on its way on the market: the middle class and Gross Domestic Product are growing. In Cambodia, GDP showed +6% per year in 2016. For comparison, in Russia, there was a decrease of 3% in 2015.
- The market has cheap leads generation capabilities: in our situation, almost all users live on Facebook, literally, and sometimes have several Facebook accounts. Cambodian people understand the Internet as Facebook; do not use Google or something, and every mobile network provides a free access to this social network.
- There are simple options for money transactions. For example, in Cambodia, any SIM card owner simultaneously owns an e-wallet and can withdraw cash or make a deposit to his or her account anywhere.
- Low competition or lack of competition: e.g. in Cambodia there are no paperless lending services without a security of land or real estate property.
- There is your target audience: in our case, only 5% of the population has a credit history. However, all of the Asia region is in the same situation: according to McKinsey, the number of ‘unbanked’ people ranges from 65 to 80% of the adult population.
- It is possible to find a local partner. We highly recommend this in order to understand the local customers and to follow local regulations (sometimes the company’s share of 51% should belong to a local person).
We explored about thirty local organizations and found excellent partners eventually. The first was the Japanese venture fund East Wing ASA Capital with capital of about $ 100 million dollars and its member, Mr. Tetsuji Nagata — CEO of Sonatra, one of the largest development companies in the country. He became our co-founder with a share of 50%. The second was the local fund’s partner — Khmer Oknha Sorn Sokna, who provided us with an office space and a full legal support. By the way, “Oknha” in his name is a title, the highest for Cambodian citizens, and similar to Sir in the United Kingdom.
Mr. Sorn Sokna is the counselor for economic affairs of the Prime Minister of Cambodia Hun Sen (in fact, he is the head of the country). Okna Sorn Sokna is a council member of ASEAN with a number of royal orders and awards in acknowledgement of his contribution to the Cambodia development.
As a result, we were actually involved with their friendly family. In 2016, we visited the ASEAN forum in the delegation team. Moreover, we even became famous within the country — The Phnom Penh Post, in the main newspaper of the capital, published an article devoted to our company. Thanks to this publication we became acquainted with the Head of the Central Bank of Cambodia.
“Your loan costs exactly one cup of coffee per day”
We became the very first service in the country to complete, to process and to approve loan applications online without any collateral required. All we need is an access to a customer’s mobile phone data. In Cambodia, people, in fact skipped the PC era and began to use smartphones at once. To start a scoring process a customer just has to download the MicroMoney’s mobile application, complete some fields and to sign a personal data processing agreement with just one click. It is an Android application, by the way — because the majority of devices people use in Cambodia are Android-based.
SMART is the cheapest mobile provider and mobile phones vendor with a price of 30–50 dollars per a phone. The system of customer data track based on AI technologies and self-learning neural networks. All the data is stored within the system with the help of blockchain technology. As a result, the process of approval of a payday loan application takes less than five minutes, and that way MicroMoney became the microfinance company with the fastest approval, with no collateral or people to vouchsafe for the client.
We approve payday loans before the customer’s salary date, and this is a rule. The rate, as well as the loan amount, are small for the first time — 2% per day. We show this rate to clients as a comparison: “Your loan costs exactly one cup of coffee per day.” The majority of the customers are satisfied with this because an average loan is $60, so the overpayment is just a dollar per day. This is a price for a cup of coffee or a plate of rice.
We transfer the approved loan to local plastic cards. A person can apply for it only with a passport, and in this way we solve the problem of customer identification.
Right from the very beginning, we used a long list of cross checks to approve a loan.For example, we asked for the colour and the number of floors of the office building a person worked, and then checked the answer; asked parents in a person’s contact list for a customer’s date of birth, inquired with a person’s relatives about his or her home address. Eventually, we found that such inspections were redundant, made the approval procedure tricky and caused stress to borrowers. We realized that a thorough scoring is suitable only for mature credit markets. The ‘virgin’ markets are not full of scammers, so fewer questions means more approvals. As a result, now we check only the place of work, the boss, the family and the contact details. Our goal is to distribute at least $10 to everyone who applies.
It wouldn’t be possible without a simple CRM system. Firstly, we processed all the clients in Excel — but then we reached 10 thousand customers and we gave up. Now an operation analyst task is just to read the text from the screen with expression and CRM do the other things.
A good reason: a friend’s wedding
Asia is like another universe. There are super-technological countries such as Singapore, Thailand, Malaysia, and emerging markets with a lot of poor people — Myanmar, Vietnam, Cambodia.
90% of borrowers take their very first loan ever. The majority (88%) are male, and 75% of customers have the average income of $200 per month. The basic reasons for payday loans: 15% need some food, 35% apply for a loan because of an invitation to a friend’s wedding! There are also the following popular reasons (10%): school expenses, children and medical care, the Chinese New Year celebration, gas, and motorcycle repairs.
Here are some reasons a payday loan wasn’t approved: 23% people had no work, 20% refused to provide their contacts, and 7% simply gave false information.
We approve a loan for every sixth client on average. Our expenses per loan include $6 per application process and scoring procedure, and operating costs (wages + rent), $10 in total. The average loan amount is $60 and the average period is 12 days.
Each signed-up customer takes 4.5 loans on average. We can see that clients get payday loans because the conversion from the first to the second and further loans is quite high — 73%. 34% people take five or more loans, and 7% take ten and more. The gold pool in our audience is 4% of clients who borrowed money fifteen or more times.
The good, the bad, and the ugly
We have a very simple scheme — a good, a bad, and an ugly police officer. For the first month of overdue date, we are not bill collectors but financial consultants helping people to plan their assets and payments. After 30–90 days of delay, we remind a person politely and persistently about the debt and call all his or her contact persons. We use SMS-mailings service and calls for that. After 90 or more days of delay, we use all the possible channels, including social networks, to remind them about the debt. In Cambodia, this is the only thing that can help in the case of serious delay.
Lunch on time: HR in Cambodia
Recently, we created the picture of a perfect employee in the Southeast Asia — local, inexpensive, a solid sales manager and a workaholic. The key word was “perfect” because we soon found that the task to find such a person was fantastical itself. If we talk about specialists and not only about processing operators this task sounds impossible.
While we were searching for employees, we faced the same questions repeatedly:
- Why does Khmer behavior operate with logic we cannot understand?
- Why are the most reliable employees older than 35 years and why are people of this age tricky to find?
We found all the answers in Cambodian history: almost forty years ago, the civil war of 1975–1980 ruined more than three million peoples’ lives. The war’s goal was population enslavement, the elimination of intellectuals , and resettlement of urban residents to the villages. The share of the urban population has fallen dramatically, and until 2015 the growth was at a low level — less than 1%.
The Khmer Rouge had a policy of evacuating urban areas and forcibly relocating their residents to the countryside. The civil war ideology was that the cities are full of evil, and a person will finally understand the true meaning of life by working hard at growing rice. All Cambodians must become peasants and the country should focus on working towards a purely agrarian society.
Teachers, doctors, intellectuals, or even those who simply wore glasses were executed without any tribunal or investigation. Writing and reading were forbidden, books were burned, six thousand schools and all universities were destroyed. The Khmer Rouge decided to get rid of all modern benefits of civilization: they broke cars with hammers and buried household appliances.
All this had a serious impact on the HR market today. It is hard to find professional or highly- motivated employees over 35 years old because these people born during the civil war or right after. Simultaneously, these are the most experienced and preferred employees, unlike Europe and USA, where companies want someone up to 30 years old. There are not so many thinking or ambitious specialists because most of them are peasants’ children. Education in Cambodia is still optional and, therefore, the illiteracy level is very high — for up to 30% of the population. This explains some the national peculiarities in the employee’s behavior:
- Planning and thinking about the future are not employee strengths. This explains the loan services popularity over long-term deposits and or projects: the main thing is to get some money today.
- Cambodian people respect their elders a lot. This is maybe not so democratic but senior people and people with a higher status have a particular importance here. Nepotism is also ever-present: we have to prove to employees that we are the family for them to work hard. In general, you don’t need to ‘manage’ people in Cambodia because the boss status (as well as the status of the housefather) is the reason for the team to do their best.
- The Khmers uphold groupthink so they better work in teams than individually.
- Salary and its level are not the reason why Khmers go to work. Employees can leave the place of work anytime if they are not satisfied by an attitude or something, and their remaining unpaid salary does not matter. That’s why a lot of our borrowers change their jobs quite a lot.
- Employees work better when are single-tasked, not multi-tasked. Therefore, the case with several KPI simultaneously is not effective.
- Foreign companies are not trusted a lot, so to improve corporate image as a good place to work in you need to put forward some other advantages.
At first, the employees’ childish behavior made us fall into despair, but now we take it more calmly with the help of soothing medications and our own methods of work. Since employees who have worked for less than two months are not profitable, in order to protect ourselves we tried the following things:
- We scored each employee the same way as a borrower was scored to check his or her trustworthiness;
- We gave wages on the 15th day of the month next to invoiced period. We did it to avoid an often situation when an employee received a salary at the end of the month and then simply disappeared.
- We even tried some fines for those who left us before the employment contract ended.
In total, we interviewed about four hundred candidates and chose just twenty loyal employees who can work without any total control. By the way, candidates have only two questions during the interviews: how long does the lunch last and how many bank holidays they will have. For you to know: Cambodia has twenty-eight official days of holidays.
We attract customers with food and girls
To promote the service, we have created a site monusluy.com in the Khmer language. The first you see there is the call to action — to apply for a loan, then an online loan calculator with odd numbers — a little trick to make the calculation more difficult. There are the following loan stages: the first loan is not more than $30–40, with each new loan a customer can apply for a $10 more payday loan.
We always make various experiments with advertising appeals, and at the same time teach people to spend money more wisely — not to spend all you have on entertainment and alcohol but put some aside for education or medical care, for example. The most attractive image, by the way, is a nice young lady, who holds a pretty nice bundle of money. We tried a male image for this but the statistics showed that girl’s photo attracted twice more clicks.
Other things that work are customer reviews and testimonials — I mean, real histories of borrowers with their real photos. In addition, we added quotes from great Khmer personalities — all we could find about money and loans. It was quite simple to find them, but difficult to translate into Khmer.
As I said before, Internet means Facebook for Khmers. They keep their whole life in Facebook: girlfriends and boyfriends, relatives and spouses, all their lunches, all the work and even the reason they were fired. Therefore, Facebook is a powerful tool to hire, to check borrowers and to collect debts.
We have more than 67 thousand subscribers in our social accounts and about 500,000 likes on Facebook page. We had some difficulties while searching for our target audience. At first, we sent adverts to all age categories, but later excluded young people under 24 years old — their leads were very cheap, but delivered poor quality. Then, due to the same statistics, we excluded all the people older than 37 years from our advertising audience. Finally, we looked again at ads for women: their leads are worth ten times more than male ones.
We have noticed that people reacted more actively and positively when they saw photos of real persons whose loans applications were accepted, than at clipart images. The posts that attracted the most reaction were food pictures because people often borrow money to buy something to eat. As a result, we increased the users’ involvement more than ten times, with an average reach per post from 300 to 3,000 users.
We use our Facebook account to work with debtors. For example, we publish posts with their documents and contact information and search for any new data about those who attempt to hide without payment and who do not answer their calls. Facebook helps us to understand whether a person applying for a loan provides incorrect or outdated information without any calls or cross checks.
Here’s one of example of how the process works. We had a borrower with a long overdue loan repayments. He didn’t answer our calls or other messages and all his contacts were outdated. We explored his Facebook-page and found a new photo of him with a uniform and a badge. We understood he had a new job and read the name of his employer on badge and uniform, and then found this company and its head in search engines. In such cases, you should act quickly and even aggressively, so we immediately contacted his boss. The company confirmed that the debtor worked with them, gave his current contact information, and he had a serious discussion of his behavior with the director. This tool allows our team to recover up to five times more debts than average.
Now we have a large team of about 200 employees across offices in Cambodia, Myanmar, Thailand, and remote teams in Russia, England, and Israel. We found a 400 square meters office in Bangkok, and have already signed a contract with some people to join us. We hope to expand our team and to provide some space in our offices for start-ups interested in the advanced technologies, marketing, and blockchain. To ensure this I’m working fifteen hours a day daily and hope to continue the pace.
Payday loans in the Southeast Asia: audience and requirements
Our clients are honest and hardworking people who cannot get a bank loan because they have no credit story. The reason they have no this story is that no financial organization approve them a loan. This endless circle involves 2.5 billion people worldwide. Most of these people are from Asia -yet , even the USA has about 50 million potential such clients.
To get credit in developing countries, it’s necessary to bring at least five documents:
· A reference from the police
· A reference from the administration of your district/area
· A reference from the house owner
· Official work reference
· An income statement
You can also use land as your collateral if you own some. In all other cases with no credit history, no package of papers and no person to vouch for you, the bank approval for a loan application is practically impossible.
Our goal is to give these 2.5 billion peopl,e who do not have access to the old classical centralized bank economy, a way to achieve modern world benefits.
Is it worth doing business in Cambodia?
Would I recommend choosing Cambodia or another emerging Southeast Asia market? Yes and no. Yes because they are markets which are commonly called ‘developing’ — experts consider them the most profitable in terms of quick return on investments. These markets are not sufficiently controlled by their governments or the major players, so you can make the rules yourself. Moreover, it is interesting as a personal challenge. I had $30,000 of seed funding and a great desire to not only earn money but to help people. Usually, investors do not care how you do your business, they need just your project presentation, your mission, and business goal. Many investors give you money for emotional reasons.
I would have achieved nothing, if I had tried to do everything by myself, without like-minded persons and partners to help me. If you plan entering the Asian market alone, without reliable partners, without a local audience, or a knowledge of how the local culture operates — do not do it. Look for your own guide in the Asian jungles.