How We Run a Micro-Lending Business in Cambodia

MicroMoney co-founder and CEO Anton Dzyatkovsky on attracting new customers, recruitment issues and risks in greenfield countries.

Business is increasingly globalized and decentralized, and we live in challenging times.

A couple of years ago I thought I needed a new challenge in my life, and some time later we packed and moved to Southeast Asia to turn a new page and become pioneers in the payday loan industry. We saw it as an opportunity to enable global inclusion for unbanked people, so in our venture my wife and I chose Cambodia for our home base.

Now that we’ve opened new offices in Myanmar, Thailand and Sri-Lanka, our decision to start with Cambodia can be seen as a definitive step which enabled us to embrace the largest community of unbanked people in the region, bringing the advantages of Blockchain as the key technology for global financial inclusion.

Cambodia is all about banks

For us as Europeans, the first surprise was the population’s absolute trust in local banks.

“There are 36 banks per 1.5 mln urban residents in Pnom-Penh, Cambodia. No bank has ever failed or had its license withdrawn. Fraud is literally unheard of.”

The US dollar is as used in Cambodia as the local currency is, and the exchange rate has remained stable for over 20 years. State regulators do not exercise particular pressure on the financial industry, and by the time we stepped into the game, 50 organizations had been involved in the consumer loan industry, each with an average capital of $1.5 mln and an ARPU of $5,000.

With such a lax attitude to banking and loaning, the local banks and microfinance organizations wouldn’t lend a cent without collateral 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.

It works: 30-day overdue loans in Cambodia account for only 0.9 percent of the total, so the PAR ratio (portfolio at risk) is quite profitable (according to the local Central Bank).

We decided to pursue a goal of eliminating obstacles on the way to global inclusion, and put trust in Blockchain: the technology offered an opportunity to get rid of numerous papers and jump over banks’ legacy approach to fully digitized and secured customer data.

Our Cambodian lessons

Having developed a real business in Cambodia, we developed a simple checklist to score a country and find out whether it might work to run operations there. Some might find it useful, especially when looking towards promising Southeast Asian countries:

  • A growing share of the middle class due to the growth of GDP. For instance, Cambodian GDP grew six percent in 2016.
  • A market capable of generating cheap leads. We discovered all Cambodians belonging to the target audience have at least one active Facebook account, and for them Facebook often equals Internet in general: every national mobile operator provides free access to Facebook.
  • Dormant or non-existent competition. in Cambodia there were no paperless lending services without an escrow of land or real estate property.
  • Eager audience in need of a product. when we were checking out the market, we found only five percent of the population had a credit record. According to McKinsey, the number of ‘unbanked’ people in Asian region overall ranges from 65 to 80 percent of the adult population.
  • Collaboration at the local level. It helped us understand local customers and comply with local regulations (in this case you must be ready to assign 51 percent of your newly established company to a local partner).

Be open: local partners are essential to your success

“In the turbulent waters of Asian business realities, we understood that a well-established local partner is what can fuel your business ambition.”

When launching our operations, we considered about thirty local organizations and eventually found excellent partners. Tetsuji Nagata, one of our co-owners, brought along a Japanese venture fund, East Wing ASA Capital, with capital of about $100 mln, and became our co-founder with a share of 50 percent.

A local businessman with a Khmer background (Oknha Sorn Sokna), counselor for economic affairs of the Prime Minister of Cambodia, Hun Sen, and CEO of Sonatra, one of the largest development companies in the country, provided us with an office space and full legal support in Cambodia.

Look at who you hire – they are a reflection of your average customer

We have learned the hard way how it is to find local employees, which led us to a number of cultural discoveries. This was a way to learn our potential customers and get a deep-dive into their peculiarities and psychology.

  • They are not kings of planning and forward-thinking. This explains loan services’ popularity over long-term deposits or projects: the key goal for a person is to get some money for immediate purpose – right here, right now.
  • Patriarchal society and strong nepotism contribute to employees’ motivation. When hiring, we had to persuade our employees that our company is their family and the manager is a patriarch, in order to motivate them.
  • Teamwork matters. The Cambodians, as many people in South-East Asia, tend to be very social and they work more effectively in teams rather than individually, which presents a striking contrast to European or American individualism.
  • Money is not the key driver and motivator. Earning is not the main reason why Cambodians go to work. An employee can quit anytime they feel they are treated badly, and nothing can hold them – they are likely to leave the very second they feel their work is not appreciated or valued. This helped us to understand why a lot of our borrowers change their jobs quite a lot and adapt the scoring system accordingly.
  • Single-tasking beats multi-tasking. Cambodian employees are not great multitaskers. They are not capable of working efficiently when burdened by several KPIs simultaneously.
  • As a foreign company, you have to earn the locals’ trust. Foreign companies are not trusted a lot, so to improve corporate image as a good employer, you need to put forward some advantages of having a working relationship with you.

“Having understood the correlation between local employees and local customers, we decided to evaluate solvency/trustworthiness just the way we designed: we scored candidates the way we scored borrowers. Having interviewed over 400 applicants, we found the 20 best-performers.”

You are a helper rather than a conqueror

There was a reason why we decided to choose Cambodia and Southeast Asia to build our new business.

We took on a great mission to help two bln unbanked people become part of a global financial ecosystem. Due to the rigid conditions under which Cambodian banks are ready to lend, the majority of people prefer to stay aside.

When we designed a solution to eliminate this obstacle, we had seen tens of thousand of customers try our app. About 90 percent of our borrowers take their very first loan ever, and 75 percent of customers have an average income of $200 per month.

For 15 percent of borrowers, payday loans became a means of covering their daily needs (this applies not only to end users, but to small businesses as well – think street food providers who buy groceries in the morning and earn the money necessary to return the loan by end of day).

“For 35 percent of borrowers, a loan was needed to cover the costs of a wedding present, which is of great significance in the country.”

Our scoring system evaluates the number of parameters it gets from the user questionnaire, approving one per each six applications. We reject an application in 23 percebt of cases, due to the absence of regular work, in 20 percent of cases due to refusal to provide contacts, and in seven percent of cases due to false information.

The conversion from the first to the second and further loans is quite high, and amounts up to 73 percent. Thirty-four per cent of clients take five or more loans, and seven percent of users take ten and more. The sweet spot of our audience is four percent of clients who borrowed money fifteen or more times.

Take on Facebook for an efficient promo

Our website and Facebook account are our major promo tools in Cambodia.

Having placed a loan calculator and lending conditions on the website, we have seen a sincere reaction from the clients via Facebook – which is the key web resource that people visit daily, thanks to mobile service providers.

Our fan base grew up to 500,000 legitimate fans, all of them ready to relate their experience with us – nothing we have ever seen anywhere else. Cambodians are a very sincere people.

The market is ready to technology advancements

Technology proved to be our greatest asset and an indisputable advantage for our customers.

We based our scoring system on a neural network, and when our application provides access to their social media profile data, customers feed an infinite pool of unstructured data to the neural network engine and help it learn more correlations, and assess the credit score more accurately.

“Cambodians are unwilling to provide a pile of papers to the bank in order to get a loan worth $30, and they favoured an opportunity to tick a couple of boxes and get their money in a matter of minutes.”

Some of them are ready to provide more data to the neural network, which essentially makes them available for offers from other banks, telecom providers and retailers. When it happens, we consider our mission accomplished, since we were able to provide a person with an initial credit record and make them entitled to further interactions with the market.

We are on the way towards developing the first Blockchain-based credit bureau, which will enable us to store credit records in a secure, decentralized and accessible manner.

Cambodia: aftermath

Cambodia was a start of a long road. Having established operations in Cambodia, we moved on to use the same working model to launch operations in Myanmar, Sri-Lanka, Indonesia and Thailand, thus growing our business and learning more and more from the lessons of Cambodia.

Southeast Asia is an exciting market: people are up for new challenges for a better quality of life, and this presents a promising audience for many good ventures, due to the fast return of investments.

It’s also a real challenge to work in a country which is so excitingly different, and our Cambodian lessons helped us to take on new goals and opportunities in the region.  

Anton Dzyatkovsky is a serial entrepreneur, diplomatic negotiator, and creative expert in marketing. He is a passionate and hardworking business leader with more than 13 years of experience in different positions within FinTech, Retail and E-Commerce industries. Since 2016, Anton uncorked opportunities to participate in international business development, focusing on Asia. Anton sees his key challenge in opening new markets from scratch. Currently, Anton is CEO and co-owner of MicroMoney, a lending services provider based in Southeast Asia.