emt client led assessment -...

EMT CLIENT LED ASSESSMENT

By Lamya BenkiraneMay 2003

Funded by CRS Cordaid Microfinance Alliance Fund Technical Assistance Component.

AcknowledgementsThis study would not have been possible without the active participation of several partners. Firstand foremost EMT, of course, who, on all levels, welcomed me fully as a member of their team,introduced me to its field agents, and created a dynamic of participation. The availability of themanagers at headquarters and the time they devoted to answering my questions were of immeas-urable help. Mr Him Seila, in particular, contributed greatly to this study. He was my partner for ayear and helped me understand and come to appreciate the culture of his country. At my side in thefield, he was able to create a climate of trust and a good relationship with the villagers.

I would also like to thank all the families that gave us their valuable time, took us into their homesfor the long weeks of the study, and were willing to disrupt their schedules to answer our-some-times quite indiscreet-questions.

Finally, I would like to thank GRET's technical assistants in Cambodia (Frédéric Chastenet,Matthieu Cognac, Pascale Le Roy, Jean-François Kibler), Philippe Lavigne Delville, GRET'sScientific Director, Pierre Daubert, Chairman of EMT's Board of Directors, and Christian Klébertfor their availability and advice.

Table of ContentsPART I: INTRODUCTION TO THE STUDY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1. Why this Study? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2. How and By Whom Was the Study Conducted? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

3. The Scope of the Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

4. Methodological Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

5. Approach Taken in Disseminating the Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

6. What this Document Does Not Contain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

PART II: HOUSEHOLD FINANCES IN RURAL MILIEUS . . . . . . . . . . . . . 5

I. GENERAL BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

1. Cambodia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

2. Microfinance in Cambodia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

3. EMT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

II. VILLAGE SURVEYS AND TYPOLOGY OF FARMING HOUSEHOLDS . . . . . . . . 6

1. The Selection of Villages to Be Surveyed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2. The Typology of Rural Households . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

III. FINANCING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

1. Indicative Data on the Farming Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

2. Income-Generating Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

3. Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

4. Cash Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

5. Financing Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

6. Financing Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

7. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

IV. THE CREDIT SUPPLY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

1. Informal Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

2. Formal Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

3. Credit Modalities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

4. The Respective ‘Market Shares’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

5. Distribution of Borrowings Throughout the Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

6. Loan Use (for the informal sector) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

7. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

PART III: CREDIT IMPACT, CLIENT EXITS AND SATISFACTION RATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

I. FINANCIAL IMPACT OF EMT CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

1. EMT’s Clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

2. Financial Impact of Solidarity Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

3. Financial Impact of Individual Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

4. Clients’ Perception of Financial Impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

II. ANALYSIS OF COLLECTIVE MECHANISMS WITHIN THE VILLAGES . . . . . . 34

1. Solidarity Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

2. The Credit Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

3. The Regulatory Role of the Credit Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

4. One Must Also Ensure the Reliability of the Credit Agents . . . . . . . . . . . . . . . . . . . . . 37

5. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

III. CLIENT ATTRITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

1. Closure of Village Associations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

2. Client Dropouts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

3. Number of Loans Obtained before Client Dropout . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

4. Who Makes the Decision to Stop Borrowing? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

5. Reasons Behind the Decision to Stop Borrowing from EMT . . . . . . . . . . . . . . . . . . . . 40

6. Correlation Between the Number of Loans and Reasons for Attrition . . . . . . . . . . . . . 41

7. Link Between Activity Financed and Attrition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

8. Former Solidarity Credit Clients’ Reasons for Satisfaction and/or Dissatisfaction . . . . 42

9. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

IV. SATISFACTION SURVEY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

1. General Knowledge of EMT, its Products, and its Credit Rules . . . . . . . . . . . . . . . . . . 45

2. Perceived Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

3. Strengths and Weaknesses of Each Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

4. Clients’, Former Clients’, and Potential Clients’ Requests . . . . . . . . . . . . . . . . . . . . . . 50

5. Summary of Sources of Satisfaction and Dissatisfaction for Clients . . . . . . . . . . . . . . 51

EMT Client Led Assessment 1

1. Why this Study?In 1995 and again in 1996, EMT—still a GRET project atthe time—had undertaken two impact assessments. Thegoal was to better understand and measure the financialimpact of credit and analyse the pertinence of EMT’s creditfor its clients. The results of these two studies were consol-idated and published in 1997 in The Micro-EconomicImpact of Rural Credit in Cambodia1 .

Five years later, we wanted to take stock of the situation inorder to:

• ensure that the results of EMT’s action in the field ade-quately matches its mission; and

• support the marketing department in its work, and in par-ticular strengthen its ability to analyse the pertinence ofexisting products.

This study was commissioned internally by the institution.It was requested by EMT’s shareholders whose involvementin EMT is fundamentally based on a will to support thedevelopment of the country. Beyond the strong health of theinstitution, the shareholders feel it is necessary to regularlyensure that their commitment is validated by the impact inthe field.

The study will also interest EMT’s partners, privilegeddonors, and current or future lenders. For this reason, wehave decided to publish it widely in three languages(Khmer, English and French).

2. How and By Whom Was the Study Conducted? The study was entrusted to a small mixed team: one person,Lamya Benkirane, was hired from outside EMT2 for theoccasion. She spent one year in the field from July 2001 toJuly 2002. She was integrated in the marketing depart-ment’s team. She worked most closely with Mr Him Seilaand in close connection with the head of the marketingdepartment, Mr Hout Sokha.

The methodology was defined by GRET and EMT. GRET3

also provided backstopping and occasional support.

Part I: Introduction to the Study

1available in Khmer, French and English2recruited by GRET for EMT3Philippe Lavigne Delville, GRET’s Scientific Director

3. The Scope of the StudyThe study covered five themes:

• analysis of the credit supply: savings and informal creditin a village where EMT is not present, and the character-istics of the credit supply in the villages where EMT ispresent;

• impact on borrowers: financial and socio-economicimpact;

• real operation of the collective mechanisms set up with-in villages: solidarity groups and credit committees;

• client attrition; and• borrowers’ satisfaction.

Please note that impact strictly speaking represents onlypart of the study. This is why we do not refer to an impactassessment but rather to a "client monitoring study", whichwas approached in the spirit of a "client-led assessment".

4. Methodological Approach The methodology retained is the result of three influences:the study conducted in 1995-1996 and the impact assess-ments conducted by GRET in other countries; the AIMS4

approach, used notably for client attrition and client satis-faction surveys; and the methods used by EMT’s marketingdepartment.

At the time of the study, EMT reached approximately80,000 clients in nine provinces. It was therefore impossiblefor the study to faithfully and fully reflect the diversity ofsituations in which EMT operates. We chose instead tostudy a few villages in depth using a logical sample ratherthan seek to cover the full range of diversity.

Five villages were studied: four where EMT is present anda reference village without credit from EMT or any othersources of formal credit.

Other villages were surveyed in less depth, notably for thesection of the study concerning client attrition: these werevillages where EMT is no longer present, and several ex-clients in several villages.

4Assessing the Impact of Micro-enterprise Services; Learning from Clients,Assessment Tools for Micro-Finance Practitioners, submitted by the SEEP network.

EMT Client Led Assessment

2

558 people in total were surveyed.

The study combined various approaches:

• a survey by questionnaire;• a qualitative approach based on in-depth interviews and

observations; • "opinion" surveys; and• surveys directly targeted on specific issues.

The data were treated with Sphinx plus 2000 software.

5. Approach Taken in Disseminating the Results The results of a study such as this can be given in 30 pagesor 300 pages. It all depends on the audience, on whether weaddress an informed public of microfinance connoisseurs ora non-specialist public, on whether we address readers whoknow EMT or not, and depending on the amount of detailour audience seeks.

In our case, not encumbered by scientific or demonstrativeambitions concerning methodology and aware that a docu-ment such as this is of interest mainly to microfinance spe-cialists, we opted for a highly synthetic presentation ofresults. We have not attempted to explain or justify themethods used for the study and treatment of data. We havesimply sought to communicate the results as clearly as pos-sible, usually accompanied by an informative and/or analyt-ic commentary.

Basic information concerning the context of the study isgiven in Part II. Readers interested in more informationshould consult the following documents and sources:

• emt’s Web site: www.emt.com.kh. This is the most com-plete and up-to-date source of information on EMT.

• emt’s annual reports, available on request.

• the study published in 1997 by GRET. The methodologywas in part different but this study nevertheless providesuseful elements for comparison.

• the appendixes to this study provide readers with infor-mation placing the study in context: descriptions of thevillages studied, presentation of households representa-tive of the typologies retained, etc.

• finally, the summary documents by village are availablefrom EMT. They provide greater detail and, by defini-

5See text on fungibility in Appendix 1.

tion, more context; they provide readers with more in-depth information on the subject and more subtle under-standing.

Please note, also, that this document is a summary of alonger version written in French by Lamya Benkirane.

6. What this Document Does Not Contain...Let us shatter in advance the illusions of readers who hopeto find information in this document that it does not con-tain... The following issues are excluded or only briefly evoked:

• the detailed evolution of clients’ financial situation(have they become richer and, if so, by how much com-pared to non-borrowers);

• the profitability of the loans;• the availability of credit for the poorest; and• the real use of loans.

For some of these points, the first two to be specific, objec-tive methodological limits prevent us from replying. Theselimits are essentially linked to the fungibility of credit5 .These limits are inherent to microcredit and reinforced inour case by the specificity of the very small loans grantedby EMT (starting at 26 USD). Unfortunately, no impactassessment can produce rigorous information in this area.

This fungibility constraint leads us to avoid going into toomuch detail on the measurement of the financial impact ofeach loan other than for purely illustrative purposes. Weknow that more global approaches covering the evolutionsin the financial situation of households over time (and notfor each loan) have other limits. Once the gap between theincome and assets of a household in Year 0 and in Year 5 hasbeen determined, the share of responsibility for theobserved gap due to the loan (among all the other decisivefactors influencing the evolution of income and assets) stillremains to be determined. Finally, the same type of diffi-culties arise in comparing the situations of different vil-lages, with and without credit. No two villages are the same,and thus, one cannot consider that, all things being equal,the only variable at work is the credit. For this reason, morequalitative observations are generally preferred overdetailed financial surveys.


For the third point (access for the poorest), we are not ham-pered by methodological constraints but decided not tolaunch new research on this subject because we believe wehave sufficient knowledge of the situation, especially inlight of the previous study. EMT has a wide range of clientsfrom the poor to the "rich" but we do not reach the twoextremes very well: the "very poor" who in part censorthemselves because they do not have sufficient income lackconfidence in their ability to repay loans, or are unable tojoin a solidarity group; and the other extreme, the richest,who are not interested in small loans or quite simply do notneed credit.

Finally, we illustrate but do not go into detail on the use ofloans. Here too we must specify that we are starting fromthe already proven postulate according to which microcred-it is essentially a cash advance. Unlike large loans intendedto enable investment, microcredit is, in spirit, even more "anadvance against future income", the technical definition ofcredit. The source of repayment is often in no way connect-ed to what was initially financed by the loan. In this context,the direct use of a loan is of little importance, as long as the

client is able to generate the income needed to repay the loan.

This approach, called "minimalist" in microcredit literature,is the one taken by EMT. This does not in any way mark alack of interest in its clients or their activities. It is not theconsequence of a purely financial view of lending. It is aquestion of giving priority to following clients over time, tothe detriment of monitoring each loan. We trust our clients’ability to make the right decisions to turn a profit a priori.Even if their projects sometimes fail, generally speakingclients make the right choices; and, in any case, bankers arenot qualified to make those decisions for them. We thereforeinvest in explaining the rules of the game and then inaccompanying and monitoring clients throughout our rela-tionship with them. Finally, studies such as this, in additionto classic monitoring and evaluation, make it possible toensure that we are on the right track.

Our "individual credit" product for larger amounts (up to2,000 USD) destined to finance investments is much bettersuited to case-by-case examination. The use of the loans areknown and studied in depth during the loan allocation process.


4

Map of Cambodia in Southeast Asia


I. GENERAL BACKGROUND

1. CambodiaCambodia has a population of 13.5 million. 84% live inrural areas.

Cambodia’s economy depends heavily on the agriculturalsector.

Even if the recent macroeconomic evolutions in Cambodiaare satisfactory, the GDP per inhabitant remains very low at269 USD in 2002. The country is still highly dependent onforeign aid.

Inflation has been under control since 1999. The economyis highly dollarised but the riel is still the currency used inrural areas. Parity has been relatively stable over the pastthree years at 1 USD for 3,900 riels.

The rapid development—while uneven—of the countrygoes hand in hand with rapid demographic growth. Today,close to 55% of the population is less than 20 years old. Jobcreation is a major challenge.

2. Microfinance in CambodiaSince 1990, the international organisations active in thecountry have progressively multiplied the offer of smallloans in rural areas. All sorts of projects have seen the lightwith more or less success. Today, such experiments are rel-atively numerous and it is estimated that 370,000 ruralhouseholds receive credit, i.e. approximately 1,700,000people reached or approximately 15% of the rural popula-tion. EMT and Acleda (a specialised bank) represent closeto 50% of the market share.

In 2000, the National Bank of Cambodia issued a decreedefining the activities of microfinance institutions and theirprudential obligations.

EMT was the first institution to obtain an MFI license.Three others have obtained licenses since then.

The main MFIs have decided to form an MFI associationwhose purpose is to share information and contribute to bet-ter sector organisation.

Part II: Household Finances inRural Milieus

3. EMTGRET launched a microfinance project in 1991. The projectopted to apply a high interest rate (5% per month), imple-ment the peer lending guarantee principle, and target a ruralclientele exclusively.

First present in the provinces of Prey Veng, Kandal andKompong Speu, EMT has progressively extended its out-reach and is now operating in nine provinces. At the end of2002, EMT was present in 937 villages and had 85,000clients.

EMT became self sufficient in 1998. Its legal transforma-tion into a private limited company dates from June 2000.Previously project practitioner, GRET became the majorityshareholder in the institution; the other shareholders areSIDI, La Fayette Participations, and PROPARCO.

EMT defines its vision and mission as follows: "to con-tribute to rural development in order to improve the livingstandards of the population" and "to provide financial serv-ices that are suitable for the needs of most of the rural pop-ulation while ensuring EMT’s long-term sustainability".

EMT provides three products: small ‘solidarity credit’ loansthat make up 93% of its loan portfolio; "individual credit"loans; and savings products, specifically deposit certificates.

EMT’s intervention mode is as follows: Solidarity creditclients are obligatorily members of a solidarity group (5people). The solidarity groups elect a credit committee.These entities are formed within each village. EMT usuallydoes not group several villages together, unless their sizerequires it. These groups are referred to as village "associa-tions" although, in reality, they are not formal entities anddo not operate as associations do. They are informal entitiescreated by EMT and do not exist outside their ties to EMT.

The credit committees simplify the work of EMT’s creditagents, acting somewhat as an interface between the creditagents and clients. They validate the creation of solidaritygroups and help ensure on time repayment. Their membersreceive a small payment for their services.

All transactions take place in the villages. EMT travels to itsclients.


6

The smallest loan amount possible for the solidarity creditproduct is 26 USD in the first cycle, with a ceiling of 130USD and an average loan amount of 46 USD. The loanduration is from 6 to 12 months; the term is set by the vil-lage association and the maturity date is the same for allborrowers. Interest is paid monthly; the total outstandingbalance of loan principal is repaid in fine, the sine qua nonefor the delivery of new loans whose amounts can increase inthe following cycles.

In 2002, of ‘individual credit’ loan amounts ranged from300,000 KHR to 2.5 million KHR (USD 75 to USD 625),with a maximum duration of 24 months.

The interest rate applied for both credit products was 4%per month at the time this study was conducted. Since 1January 2003, it has fallen to 3.5%.

The deposit certificate has a minimum duration of threemonths and offers a remuneration rate from 9 to 12% annu-ally in function of the duration of the deposit.

II. VILLAGE SURVEYS AND TYPOLOGYOF FARMING HOUSEHOLDS

1. The Selection of Villages to Be SurveyedAs mentioned, the villages were selected to take into

account the diversity of situations. They are not "typical" or"average" villages. The selection criteria were the following:

a. diversity in activities and production systems;

b. isolated villages with few financial outlets and closedeconomies, and inversely open villages with greater out-lets and diversified activities;

c. the age of the village association: very old to fairly recent(we nevertheless considered 4 credit cycles to be theminimum necessary);

d. at least one village that encountered difficulties in recentcredit cycles: we selected one village (the "disaster" vil-lage) that had been subjected to heavy flooding andrepetitive drought;

e. at least one village with a large number of 'individualcredit' loans;

f. small villages with 100 to 200 households so we wouldbe able to survey all households; and

g. at least one village that had been surveyed during the pre-vious study.

The table on this facing page summarises the main charac-teristics of the villages selected. A narrative description ofeach village can be found in Appendix 2.

EMT Operations area

Areas selected for the study


6 % of households that have received credit at least once since the village branch was opened

Village Bang Ta Prum Samrong Khpos Ang Svay Toul Phiry

Province Sihanoukville Kg Speu Prey Veng Kandal

CREDIT

Number of Cycles 4 cycles 8 cycles 13 cycles 11 cycles

Historical Penetration Rate6 65.2% 84.5% 67.2% 70.2%

Current Penetration Rate 65.2% 69% 51.7% 40.4%

Retention Rate 82% 93% 88% 88%

Individual Credit 15.3% of clients 1 client none none

Repayment no problem no problem problems no problem

Competition (other MFIs present in the village) Acleda none Acleda Acleda

Position in the credit cycle at the time of the study end/beginning middle middle end

ECONOMY

Activities fishing & non-rice rice, watermelon, rice, rice alcohol rice, trade, sugar farming activities baskets palm, small shops

Market highly developed not very isolated and developed and and very open developed and closed open

little trade

ENVIRONMENT

Natural Resources polder in the small plots water management good landprocess of being problems rehabilitated

Population 210 households 74 households 110 households 103 households

Households Surveyed 113 households 71 households 104 households 94 households

Transport very developed regional access difficult developed

Religious Groups Muslims and Buddhists Buddhists BuddhistsBuddhists

Security good average good good


8

2. The Typology of Rural Households2.1 Why Establish a Typology?Households are grouped in clusters to facilitate analysis. Agood typology makes it possible to limit the needs of thesurvey to a sample within each group. One can thus com-pare these trends to the major categories of socio-economicsituations and extrapolate the results. Typologies are there-fore a basic marketing tool.

In our case, we preferred to visit each household in the vil-lages surveyed (except Bang Ta Prum) in order to gain asfull an understanding as possible of the dynamics withineach village.

The typology therefore serves here more to communicatethe main trends observed by group of households and toproject these trends beyond the villages surveyed.

2.2 Typology Elaboration MethodThe clusters are formed essentially in function of the house-hold's relationship to equity and cash. Households are clas-sified in groups that are as homogenous as possible in func-tion of their main credit needs.

They are closely correlated to their activities7 , how theactivities are conducted, the combination of activities, etc.,and the households' standard of living, this last factor beingboth the result of the preceding factors and a decisive causebehind systems of activities.

The criteria chosen to establish the clusters are as follows:the seasonal nature of the household's main activity; thehousehold's food balance (level of self-sufficiency in riceprimarily); the number and type of income-generating activ-ities; their combination; and the use of equity and cash.

The clusters were first defined within each village. The sim-ilarities across villages then facilitated the definition of acommon typology for all villages. The common typology isnot ideal because it lacks finesse, but it is necessary forcrosscutting analysis.

2.3 The TypologyRice production is the basic activity but in most cases is ifnot insufficient to feed a family at least insufficient forfinancial accumulation. Most households therefore have

several activities. Generally speaking, the number of sup-plementary activities increases proportionately to the num-ber of people in the household and there is also a correlationbetween the number of active members and the household'sstandard of living.

Farmers' various activities are as follows:

1. Agriculture: rice (1 or 2 crop cycles), fruit, vegetables,stock farming;

2. Trade: small family shops or merchants or even whole-salers;

3. Fishing: in the ocean (Sihanoukville) or in paddy fields;

4. Crafts and other small household productions;

5. Services: moto taxi, water supplier, equipment rental,repairs, etc.;

6. Other activities: labour, administrative employees, factoryworkers, etc.

Typology elaboration led to the establishment of five majorclusters in two general categories:

• Households Without Secondary, Non-Farming Activities

> C1: households whose activities are solely seasonal, without land or with an underdeveloped farm;

> C2: households whose activities are solely seasonal, with a developed farm.

• Farms with Non-Farming Income

> C3: rice producer and / or chamkar 8 (sufficient or not) with regular craft-type activity;

> C4: small shop;

> C5: shop and diversified services.

2.4 Main Characteristics of Each ClusterA more complete description of each group can be found inAppendix 3. Only their main economic characteristics arelisted below.

Farmers without secondary, non-farmingactivities have extremely seasonal incomes. They musttherefore often supplement their income with temporaryactivities. The poorest sell their labour to other farms or in

7 We speak of "activity systems" because most farmers conduct, in fact, multipleactivities in combination or in addition to each other; when their only activities areagricultural, we speak of "production systems". There are several modes of produc-tion.

8 a field not destined for rice cropping but for vegetables, corn, etc.


An average five-person household with at least two activeadults will therefore have an annual income of approxi-mately 900 USD. Estimating that 30% of this income isself-actualised (essentially rice production which is largely

the city. Their credit needs concern mainly farming activi-ties. The consequence of the seasonal nature of activities isa strong need to regulate cash flow.

Farmers with non-farming income have more reg-ular and higher incomes. Among the secondary activities,two types of financing needs appear: those that need moreor less large amounts of working capital (mostly C3 andC4), and those whose stakes are closer to capital investment(C5 above all).

III. FINANCING

1. Indicative Data on the Farming EconomyThe table below gives the average income9 and assets perperson for each cluster. The clusters are listed according toannual income, from highest to lowest. Between C1 and C5,there is a gap of 1 to 3 for average income10 and 1 to 5 forassets.

N.B.: to extrapolate for the entire household, count the fullunit value for each adult and half the unit value for eachchild.

Average Income and Assets

Income per Assets per

Person Person11

C1 $ 83 $ 180

C2 $ 143 $ 451

C3 $ 200 $ 353

C4 $ 226 $ 549

C5 $ 371 $ 896

AVG. $ 187 $ 447

9 monetary and non-monetary income, including rice even if it is mainly destinedfor self-consumption

10 Thus, if we consider the highest values for the highest income group and the low-est values for the lowest income group, the gap is wider.

11 The distribution among household and farm assets is set at approximately 55/45,except in cluster 4 where households’ farm assets are greater than their householdassets.

destined for self-consumption), average annual monetaryincome is approximately 650 USD.

These figures provide only an indication of the volume ofsums involved, but it is interesting to compare them to the1996-1997 figures which had been estimated using similarmethods. One can see a 20% increase in the highestincomes, stagnation for the lowest incomes, and a more than40% increase in intermediary incomes.

The average solidarity credit represents less than 10% ofaverage monetary income and the ceiling represents 20%.For individual credit, the figures are 35% and over 100%,respectively.


10

2. Income-Generating Activities

The table below summarises, for each cluster, the households' main activities, the frequency of income intake, and theirsocio-economic trajectories.

CLUSTER C1 C2 C3 C4 C5

Main Activities • rice cropping • rice cropping • rice alcohol, • small • trade, service

• labour • chamkar palm sugar, commerce: activity

• fishing for • stock farming bamboo baskets, grocery store, • diversified

food sea fishing small farm

restaurant, etc.

• no selfsufficiency • rice cropping • civil service

• rice cropping • factory work

Regular Income • no regular • widely spaced • tied to crafts • tied to • multiple and/or

activity farming income activity and small shop in relation to

• outside help • civil service insufficient • additional the main

• work in city • additional activities activity

activities needed attenuate vulnerability

Social Status • new arrivals • households tied • household • women alone • household well

• women alone to the village techniques • the elderly integrated in

• the elderly • farmers • young couples • new arrivals the village

• young couples opposed to risk multiplying • vulnerable • social

activities households responsibilities

• "corporation"

Trajectories • work in city • upscaling, • saving to change • sustain or • improvement

upgrading activities improve shop of activities

• increasing land

• day-to-day food • stock farming • intensification • food • increaseproduction intensification and trade production in assetsstrategy strategy then

comfort• position comfort • advanced

strategy schoolingfor children


3. Savings

3.1 The Different Types of Savings

The chart below shows the percentage of savers for eachtype of savings.

N.B.: pigs have been included in the different types of sav-ings. This decision may be debatable but if the readerdecides to not take them into account, this in no way ham-pers the examination of the rest of the data. Extensive pigfarming is, for the farmers, both an income-generatingactivity and an investment; for this reason, it can be consid-ered as livestock savings. In reality, it is neither truly sav-ings, nor strictly stock farming. It is truly an investment inthe sense that the activity comports a non-negligible amountof risk12 and because the activity involves inputs. It is also,however, an investment. Its specificities are: limited cost(the cost to fatten pigs is limited because the pigs in partrecycle food waste), and interesting profitability (20% netprofit on average) which justifies the risk (15 to 30% mor-tality).

N.B.: "Loan" indicates that their savings are currently lentout. "Money" indicates cash savings (riels).

• Gold is still the most developed traditional form of sav-ings, excluding livestock savings. It is a safe investment,notably because it can be worn (jewellery), combiningthe useful with the agreeable. It is intended to be a long-term investment. Above a certain level of savings, own-ing gold is clearly a criteria of wealth.

• Cash in riels: this is less savings than it is the cash nec-essary for daily expenses. However, sums larger thannecessary are frequently held in riels (which is mostprobably connected to the stabilisation of inflation inrecent years).

• ASCAs are highly developed among professors andshopkeepers but little or not at all developed in rural vil-lages.

• The households surveyed did not consider family loans,generally short-term loans, as savings and loans aretherefore under-represented in our graphics.

• Households also find themselves acting as both lenderand borrower vis-à-vis the same people within the year.

• There is very little difference in the types of savingsacross clusters. The differences are clearer when it comesto amounts (cf. 5.3).

12 Only 27% of the farmers surveyed vaccinate their animals; the mortality rate isup to 30% for pigs and 50% for poultry.

Fig 1: Percentage of households with savings


12

3.2 Reasons for Savings

Fig 2: Percentage of households with savings, by cluster

Fig 3: Use of Savings


When asked "what do you want to do with your savings?",the responses were also constant across clusters. It can beclearly seen that savings are associated with the notion ofprecaution (59%) and not with anticipating plans to devel-op activities or personal projects. This holds even for therichest group.

By 'precaution' we mean facing up to illness, financial dif-ficulties, and unforeseen expenses as well as, for the rich-est, everything related to future expenses for their children.Here, of course, we were asking about the motive behindsavings. The response given does not therefore imply thatthe savings will effectively be used as anticipated. What ismore, savings are mainly absorbed by financing homes.Nevertheless, this shows the extent to which risk andunforeseen events are omnipresent in households' financialstrategies.

In order to preserve their savings, households often preferto go into debt when they need money for a few weeks ormonths. From a strictly financial point of view, they maylose in the exchange but, here, the psychological factor isdecisive. Borrowing to finance small investments and/orcover cash needs makes it possible to keep their savings incase of need, savings being the last resort before the saleof assets and a source of psychological security.

3.3 Savings AmountsReaders will understand that these figures should beexploited with caution because this topic is relativelytouchy and difficult to survey accurately.

In relative terms, these figures are logical, which givesthese estimates a certain degree of credibility. Yet, it isvery likely that the most well off households under-esti-mated their amounts of savings. We believe that the esti-mates for the most vulnerable groups are probably themost reliable.

pigs gold loans cash total

C1 $ 6 $ 17 $ 4 $ 17 $ 44

C2 $ 9 $ 20 $ 3 $ 26 $ 57

C3 $ 10 $ 38 $ 6 $ 19 $ 73

C4 $ 10 $ 47 $ 5 $ 25 $ 86

C5 $ 20 $ 53 $ 16 $ 14 $ 105

4. Cash NeedsThe seasonal nature of activities is the aspect with the great-est influence on the evolution of the household cash flow.

Fig 4: Income Generated Throughout the Year by the Different Activities

The graph in the previous page illustrates the evolution inincome13 over the year for the main income generatingactivities.

Logically, income from farming is very seasonal whereasnon-agricultural activities allow income to be distributedmore evenly over the year.

4.1 Several Sequences in the Year• Dry Season: January to MayUntil March

After the harvest (in December), numerous small-scale craftand trade activities can begin thanks to the availability oflabour and capital. In households without off-season activi-ties, members frequently move to the city for severalmonths.

March to June

Vegetables occupy many chamkar owners. The additionalincome is welcome, all the more so because the New Year'sfestivities (in April) consume a large share of the annualbudget.

Average Yearly Expenditure for Ceremonies

C1 $ 37

C2 $ 40

C3 $ 40

C4 $ 52

C5 $ 69

Total $ 45

The most vulnerable households lack rice during this peri-od. Work begins for rice farming. Those who had left for thecity return to the village.

• Rainy Season: June to DecemberUntil October

Work in the paddies is intense for approximately sixty days,no additional activities can be undertaken except for fish-ing. In flooded zones, travel is limited and villages are iso-lated. Even shops' activity falls off. Savings help peoplethrough this period.

October to December

Households that do not have a second rice cycle (during thedry season) or other production during this period often facedifficulties until the December harvest. This is the period inwhich households borrow the most from moneylenders, astheir entourage is rarely in a position to help them.

4.2 Cash Needs: A Consequence of SeasonalityThe graph below illustrates the consequences of seasonalityon cash needs for an "average" farming household with asmall plot and diverse off-season supplementary activities.

Credit needs result mainly from this situation. As do creditcycle start and end dates.

13including non-monetary income


14

Fig 5: Annual Evolution in Cash Availability for an Average Farming Household


5. Financing NeedsFinancing needs take several forms:

• Day-to-day expenses: lack of available cash can makeshort-term loans necessary.

• Pre-harvest loans: between July and November.

• Long-term investments: for household property or pro-duction, at any time.

• Crop years: mainly in April/May and July/August forrice.

• Accident-related expenses: at any time.

• Social needs: during holidays and religious ceremonies;from January to April and in October.

• debt repayment: at any time but in principle related to anunexpected event.

One should note that land acquisition is a constant objectivebecause one must plan to leave sufficient land to one's chil-dren when the time comes. The largest farms belong tohouseholds in cluster 2, diversified farmers, and cluster 5,the wealthiest households. Land concentration is not verystrong as distribution is still recent (15 years). However, itis obvious that in high-density zones and for householdsunable to acquire land, land pressure is becoming such thattrade or immigration to the city are the only other prospects.


16

6. Financing Strategy

The table below summarises, for each cluster, the types of outside financing needed.

CLUSTER C1 C2 C3 C4 C5

Main Activities • rice cropping • rice cropping • rice alcohol, • small • trade, service

• labour • chamkar palm sugar, commerce: activity

• fishing for • stock farming bamboo baskets, grocery store, • diversified food sea fishing small farm

• no self- • rice cropping restaurant, • civil service

sufficiency rice cropping • factory work

Regular Income • no regular • widely spaced • tied to crafts • related to • multiple and/or

activity farming income activity and small shop in relation to

• outside help • civil service insufficient • additional the main • work in city • additional activities activity

activities needed attenuate vulnerability

Assets • little or no • larger plots • small equipment • small initial • farmequipment renewed often capital equipment

• small plot • accumulated • small plot • small plot or • equipment equipment rarely sufficient no land or material

• no land • household related toequipment service activities

• considerablehouseholdproperty

Purpose of • pre-harvest • acquisition • acquisition of • working capital • investment,

Recourse to loans of equipment small equipment for stock possibly

Outside • Ban Cham • supplement • financing renewal supplementing

Financing • advances in savings additional • financing rice self-funding

kind • production activities production • money-lending • payment with

labour


Depending on the financial capacity of the households andthe period of the year considered, four strategies can be seenin response to a need for money. They are not mutuallyexclusive and indeed are often used in combination:

• multiply or increase income-generating activities:salaried or commercial, regular or seasonal activities,they make it possible to avoid contracting debts or dip-ping into savings but they naturally require a reserve oflabour or time.

• use savings: the form of savings used depends on theurgency of the situation and amount needed. The mostrapidly available livestock savings is poultry; pigs can besold rapidly but in general efforts are made to avoid sell-ing pigs at just any time (sales are programmed accord-ing to the animals' stage of growth). Households general-ly avoid using savings in gold unless absolutely neces-sary.

• Supplier credit: practised above all for fertiliser, mer-chandise stock, and certain materials used in crafts. It isa convenient option, but one that households prefer toavoid even if—and this may seem contradictory—theyoften prefer using their precautionary savings when theycan.

• Loans: for hard knocks, pre-harvest periods, and/or tosupplement their own funds for investments. This solu-tion is the last choice but is not for all that less frequent.

7. Conclusion• The largest incomes are three-times greater than the

smallest incomes.

• The financing problems encountered by Cambodianfarming households are closer to cash-flow needs thaninvestment needs in the strict sense of the word.

• For classic production systems (a single rice crop only),these needs are higher in the second half of the year. Inall cases, they are greatly dependent on the season.

• Multiple strategies are employed to meet these needs,generally in combination. Credit is the primary recourse.

• Savings are generally limited, and nearly non-existent forthe most vulnerable. They can be a solution to smoothout cash needs in the short term. Long-term savingsmainly take the form of gold. Households avoid usingthese savings whenever possible, preferring to borrow ifthe terms are not too unfavourable.

IV. THE CREDIT SUPPLY

1. Informal Credit

1.1 MoneylendersTheir interest rates vary from 1% per day to 10% -and evenup to 20%- per month.

Several moneylenders can be found in developed and openvillages. In more isolated areas, there is at least one money-lender in a nearby village.

Particularly flexible and available at any time, these loansare nevertheless not available to households with a poorreputation and/or a past history of failing to repay loans.

In ban cham contracts, the owner of a plot of land renouncesuse of the plot committed until the capital borrowed isrepaid in full. If at the end of the agreed-upon term (lessthan five years) the loan is not repaid, the lender becomesthe new owner of the land by paying the difference betweenthe amount lent and the value of the land as estimated in theinitial contract. If the borrower recovers his land at the endof five years, it is for the amount lent as the interest "paid"to the lender is the free use of the land during the period.

It is generally said that indebtedness to moneylenders is thefirst cause of bankruptcy among Cambodian households.While technically true, one must nevertheless clearly distin-guish between the role of the cause of the problem and itseffects. The cause is never indebtedness alone; most of thetime the cause is an accident that pushes the householdbeyond the point of no return. Contracting debt is the sec-ond-to-last defence, just prior to the sale of assets.

1.2 Merchants Moneterisation of the Cambodian countryside is unequal.Barter and payment in kind or at harvest are still practised—all the more so in isolated areas and when households aredependant on farming.

Loans in kind are perfectly integrated in household man-agement modes. All merchants agree to grant paymentdelays for merchandise or payment "in three instalmentswithout interest". That said, trust is naturally decisive. Smallgrocers have had to close shop because they could notrecover the money thus advanced.

Loans are usually very short term (2 days to 1 week). They


18

are for very small amounts and generally no interest ischarged unless they are repaid in rice during anunfavourable selling period. This is the case for inputsadvances, mainly for fertiliser and sometimes for seed. Therate applied is then equivalent to 10% per month because ofthe difference in price imposed on the purchase of rice atharvest. This mode of financing is favoured by Cambodianfarmers who can thus save their cash for the rainy season, atime when household finances are most vulnerable.

Stock advances granted by suppliers to merchants, whichcan reach 20% of total merchandise, are free. Suppliersensure outlets in this way. They are granted to a limitednumber of clients.

1.3 Family LoansEveryone makes use of family loans and everyone or near-ly everyone grants family loans for short periods. It is aform of solidarity, practised in rice or cash.

By "family", here, we mean a relatively large group of closehouseholds and people "that know each other well and trusteach other".

The importance of social cohesion, or more specifically har-monious coexistence, explains why the better off helphouseholds in difficulty. The debt can be repaid by work inthe fields at a lower salary, equipment loans in exchange, orother, not very visible practices that ensure the lendinghousehold is repaid and endow it with respectability.

2. Formal Credit

2.1 AcledaAcleda grants loans for large amounts and offers diversifiedfinancial products. Its clients travel to the district agenciesfor all transactions. The credit officers only visit the villagesto manage repayment difficulties or seek new clients.

Acleda's results are excellent. Even if its reputation is notalways impeccable in the villages, the villagers who needfinancial products for large sums do not have any betteralternative. Its commercial methods are effective and itsloan modalities do not seem truly restrictive for manyhouseholds.

2.2 EMTIn addition to the smaller loan amounts offered by EMT, thebiggest difference between EMT and Acleda is the presenceof its credit agents within the villages and the village com-mittees. It is a factor in trust and allows communication andthe transmission of information.

2.3 Other MFIsOther practitioners exist, as we mentioned, but under tacitagreements dating from the mid 1990s the MFIs did a fair-ly good job of defining their respective zones of interven-tion. This is why, with the exception of Acleda which hasnational stature, only EMT and Acleda are present in the vil-lages studied.

Generally speaking, the other formal credit offers adoptmethodology that is similar to EMT's.

The 4% monthly interest rate has become a national refer-ence even if some NGOs offer lower rates.

Interview with a Moneylender, Mr Lou

He has been lending money since 1986. He has earned a reputation and the number of his borrowers grew rapidly.Nearly all the inhabitants in the area have turned to him for loans, there is no single "typical client". Nevertheless, herefuses to lend money to gamblers and inactive families (landless, farm workers, etc.). What is more and because ofhis occupation, he thinks that the people in surrounding villages are all "poor". His loans range from 25 to 600 dollarsand have highly variable repayment terms from a few hours to several months. He prefers not to determine a rigidinstalment schedule but ensures that he is repaid, even if partially and over a long period of time.


The interest he receives ranges from 3% per day to 10% per month, according to diverse criteria:

• the duration of the loan

• the amount lent

• the quality of the borrower

• guarantees in the form of land or other tangible goods.

In response to failure to repay loans, he has turned to the courts several times to recover "mortgaged" land from poorpayers who had fled the village. The main reason for the inability to repay these loans was unexpected expenses forhealth care or accidents.

He occasionally borrows from Acleda in order to be able to grant larger loans himself; but EMT's loans (or "Frenchmoney" as he calls them) are too small. He has nevertheless noticed an increase in the demand for short-term loans atthe end of EMT credit cycles.

If, according to his information, some people borrow to play cards, the loans are not a problem because the amountsare suited to the clients' repayment capacities. The people who use his services only do so for short periods in the hopesof immediate profit.

3. Credit Modalities

CREDIT MONTHLY TYPE DURATION AMOUNTINTEREST

FAMILY 0% multiple short generally low $60

on average. highly

diverse within clusters

MONEY- 10 to 20% money, gold, one day to five years according to solvency

LENDER rice, etc. $37 on average. highly

diverse by village

SUPPLIER 0 to 20% in equipment, one production cycle merchandise price stock, inputs $21 on average.

EMT 4% individual or solidarity credit: solidarity credit up to $75solidarity credit 6 to 12 months individual credit up to $38014

individual credit: $40 on average.up to 24 months

ACLEDA approx. 4% individual loans, solidarity loans: solidarity credit up to $380

on average solidarity loans, 6 to 12 months individual loans savings, fund individual loans: up to 10,000 dollars.transfers, etc. up to 24 months $279 on average.

14 at the time of the survey (this amount has risen since then)


20

N.B.: loan amounts are given in US dollars to facilitate comparison. Among these various lenders, Acleda is the only onewho offers loans in US dollars. Interest rates are monthly.

These various offers of credit co-exist; this is fundamental to understanding how formal credit fits into household man-agement.

Cumulating several loans does not necessarily mean over indebtedness.

4. The Respective ‘Market Shares’

Fig 6: Market Share, per village

Market Share in the Villages Surveyed, given in number of households using this type of loan

N.B.: Taom Tom is the village in our study where EMT isnot present.

These data clearly illustrate that informal credit remainsvery present even when formal credit becomes available invillages.

77% of households declared that they borrow from otherlenders as much as they did before making use of EMTloans.

• By ClusterOne can see a relatively strong homogeneity across clusters.Even the richest call on moneylenders, a sign that this is notnecessarily incompatible with advancement strategies.However, it should be noted that they are very short-termloans for very large amounts destined to supplement self-funding in order to seize commercial opportunities.


Family and EMT are the largest credit suppliers (close to 40% of the market shares each on average). EMT reaches thepoorest category somewhat less well than the others.

Fig 8: Market Shares by Amount, given in percentages

Market Shares by Cluster, given in amounts

Family Moneylender Supplier Acleda EMT

C1 $31 $53 $14 $19 $53

C2 $76 $51 $19 $26 $52

C3 $47 $60 $55 $26 $44

C4 $63 $84 $25 $34 $46

C5 $114 $34 $41 $853 $46

Amounts in USD.

Fig 7: Market Shares by Cluster, given in percentage of households


22

In summary:

> Cluster 1 takes out their largest loans from EMT or mon-eylenders (those who do not have access to EMT).

> Cluster 2 turns more to family.

> Cluster 3 turns to suppliers; they are craftsmen who oper-ate under the "just-in-time" method with limited cashflows.

> Cluster 5 needs very large loans and Acleda is thus theirmain source.

> Loans from moneylenders go mostly to the most vulner-able groups; in terms of amounts lent, however, smallshopkeepers (cluster 4) are the main beneficiaries. Forthis cluster, EMT credit does not offer large enough loanamounts.

> Suppliers lend large sums most easily to craftsmen andfishermen with whom they do business once the productis available.

5. Distribution of Borrowings Throughout the YearIn 2001, the average number of loans taken out per house-hold was 1.4 with a range of 1.3 to 1.5 across clusters andincluding the 15% of non-borrowing households.

Distribution over time of the recourse to different sources isnot homogenous. The following trends can nevertheless beobserved:

• From January to March, needs focus above all on off-season activities (crafts, small-scale commerce).Households have more cash available and free or formalloans are dominant. Marriages also begin at this time.

• From March to June, "social" borrowing (to financeceremonies) begins as well as crop-year loans.

• Very few households manage to store rice to sell at themost profitable times. The period of heavy borrowingfrom moneylenders and the entourage begins after theNew Year’s celebrations, right before the new rice cropyear, and peaks during the rainy season, notably duringthe months of flooding.

• From June to October, many households face financialdifficulties. Pre-harvest loans from moneylendersincrease. Households are most vulnerable during thisperiod.

• Up to December is the time when labour is used, andtherefore the period for in-kind reimbursement.

6. Loan Use (for the informal sector)

Fig 9: Declared Use of Loans

7. ConclusionSeveral financing opportunities exist. Depending on thetype, they are used at different times of the year, some-times in combination. On average, households take outmore than one loan per year.

In villages where EMT operates, one can see a percentageof recourse shared between EMT and family loans.Despite the introduction of EMT and Acleda, credit needsremain considerable. The informal sector remains largelyprevalent.


Part III: Credit Impact, Client Exitsand Satisfaction Rate

I. FINANCIAL IMPACT OF EMT CREDIT

1. EMT’s Clients• Profile of EMT’s Clientele

One can note that Clusters 1 and 4 are relatively under-represented. These two clusters include the largest number of new-comers, young couples and single-parent families. Cluster 1 has the highest proportion of old people.


24

Fig 10: Proportion of Clients per Cluster

• Most clients are women (75%)

The explanations that emerge from the survey are:

- Practical reasons: women tend to be present in the villagewhereas men’s activities are more likely to take themaway from the village.

- Women are more suited to group dynamics: they aremore inclined to, and better at, discussing things andexchanging ideas.

- Day-to-day household costs tend to be managed bywomen.

- Within the couple, food costs and day-to-day cash expen-diture are the woman’s responsibility, while her spousetends to make decisions in the case of large investmentsfor an activity in which he is involved or for building ahouse. Most individual loan clients are men but evenhere women play an important part in the decision-mak-ing process.

Fig 11: Reasons for Non-Membership

Based on the replies given by the 123 non-clients from the villages visited


The discussion groups and private interviews revealed two main categories of non-borrowers:

- Households wishing to borrow but unable to think of a profitable use for the loan. Such households often replied that theywere afraid of taking out a loan;

- Households afraid that they will be required to reimburse for the group on account of their better financial situation.

Self-exclusion is most prevalent. Active exclusion, that is to say the refusal to accept a household in a group, is a rare occur-rence and is limited to people with bad reputations or to newcomers.

2. Financial Impact of Solidarity Credit2.1 Credit Use

Twelve different types of credit use were identified in the four villages surveyed. For the reasons mentioned at the begin-ning of this document we shall not dwell on these different uses because they are the direct uses, which are more an indi-cation of the diversity of clients’ activities than of the ultimate use of the loan.

There are on average two uses per loan: households usually associate productive and personal uses.

The "copycat" effect counts for a lot during the first cycles. It takes some households several cycles before they feel con-fident in their ability to manage the loan. In the meantime the tendency is therefore to see what the neighbour does andexperiment in handling the loan.

Fig 12: Types of Credit Use (Principal Uses Only) for the Last Borrowing Cycle


26

Two Examples of Loan Allocation Combinations

• Occasional Fruit Trade and Rice Production

The loan will be used to finance this limited fruit trade at the end of the rice-growing season. In Bang Ta Prum, the exam-ple most frequently encountered is that of watermelons produced in the surrounding villages and sold at the highly acces-sible district market. The sequence of events is as follows:- November & December: watermelon season, lasting 11/2 to 2 months. The capital required amounts to 100,000 riels,

i.e. $25;- February to April: jackfruit season; here again, 100,000 riels may be sufficient.- May & June: durian, mango and rambutan season. Durians are fairly expensive, with a cart of these three fruit costing

between $195 and $243. This is almost 31/2 times as much as the maximum capital in solidarity credit granted by EMT.

The net profit made on each activity comes to about 20%. By running the operation with its three stages, the client is thusable to reconstitute the initial capital and self-finance his rice production.

This enables him or her not only to buy input at the best price but also to purchase animals for fattening and to save forthe pre-harvest period.

Lastly, the household will be better able to finance ceremonies and enhance its social standing. After a few years, thebusiness can change from occasional to regular footing through the purchase of a means of transport and a market stall.

• Rice Production, Loan Reimbursement and Purchase of PoultryThe household’s use of the capital breaks down as follows:

- Input purchase: savings on purchases from the supplier, access at the right moment.

- Reimbursement of loan contracted with a moneylender, thus consolidation of debts.

- Poultry purchase: low-cost investment since no foodstuff need be bought. This investment also helps the client toprepare for the monthly interest repayments.

2.2 EMT Loan Use: the Principal Strategies

• Increasing activities, in particular by shopkeepers andartisans.

• Activity diversification, relatively little for solidaritycredit.

• Partial or total replacement of supplier credit.

• "Smoothing out" of the cash flow: the loan means thatthe necessary cash is available in the short term, thusprecluding the need to resort to unofficial borrowingand to reduce everyday activity. This explains why theloan is not always spent straightaway (the cash mayremain unused at home for a few days or even weeks).

• Reduction in financial charges, when the EMT loanmeans that recourse to a moneylender is not necessary.

• Economies of scale resulting from the acquisition of

equipment or inputs in greater volumes.

• Improved receipts from the sale of goods: the loanallows clients to wait until the best prices can beobtained for their agricultural products.

2.3 Changes in Borrowers’ Standard of Living

While unable to present reliable data on changes overtime, we nevertheless set out the data obtained from thepopulation surveyed concerning income and assets esti-mates.

It transpires that the village without credit has lower levelsof income and assets than the average for the villages withcredit. What is more, non-clients and former clients havelower incomes than clients. That said, we have notattempted to draw any conclusion from these data since weare not in a position to prove that the observed differencesare a result of the impact of the credit.


CLIENTS NON CLIENTS FORMER VILLAGE CLIENTS WITHOUT EMT

Average capital 1,997,644 riels 1,590,066 riels 1,646,910 riels

per person $429

US$ $512 $392 $422

Average income 854,163 riels 638,441 riels 762,764 riels

per person $146

US$ $219 $177 $196

Calculated from the questionnaires of the 559 households surveyed.

2.4 Origin of the Money Used to Reimburse Debts

A vast majority declare they repay their loans with the incomegenerated by the activity in question, well ahead of savings.

It should be noted that some clients state that their reim-bursements are the result of new loans (money lenders,Acleda and group, i.e. 7.3% in all).

2.5 Is Recurrent Indebtedness Present?

We have endeavoured to discover the significance of the6.5% of clients who declare that they have reimbursed EMTthanks to a loan taken out with a money lender, especially

in view of the fact that, taking all the villages and all cyclestogether, 35% of the clients already had recourse to a moneylender on at least one occasion in order to repay part of theirloans since becoming clients.

In the worst cases (Ang Svay Toul in the graph on the fol-lowing page—a village beset by a succession of problemsdue to floods, drought, and a plague of insects), this figure(the number of clients having recourse to a money lender)may exceed 60%. In 20% of cases, the moneylender will inturn be reimbursed when a new EMT credit cycle isreopened.

Fig 13: Origin of the Reimbursements


28

Although worrying at first sight, these figures are not in ourview as alarming as they appear. Everything depends on thetrend over time. As long as these practices remain occa-sional and contextualised, connected with recent events,they do not necessarily give cause for concern, either for theclient or EMT. As far as the clients are concerned, we mayeven go so far as to say that access to several sourcesenables them to solve cash-flow problems without default-ing on any lender. When the situation improves at the nextcycle, the clients will have suffered no more than a tempo-

rary cash-flow setback and EMT will have helped themnegotiate this passage.

We did not encounter any structural debt problems thatcould be explained by the credit as such, or by errors incredit management by clients.

Thus everything depends on the trends. These will need tobe watched closely and in such circumstances it is best tokeep clients supplied with small loans and to ensure that theamounts do not increase too quickly, until such time as thesituation improves.

2.6 Substitution Effects and Constraints Lifted by EMT Credit

According to the clients, most of their expenditure would have occurred even without the credit.

Ang Svay Toul Phiry Bang Ta Prum Samrong Kphos Average

Cluster 1 91% 100% 67% 80% 85%

Cluster 2 86% 56% 40% 100% 74%

Cluster 3 79% 83% 100% 92% 93%

Cluster 4 67% 75% 86% 100% 81%

Cluster 5 73% 50% 58% 78% 65%

79%

% of clients who would have incurred the expense even without EMT credit

Fig 14: Proportion of the 6.5% of EMT Loan Reimbursements derived from loansfrom Moneylenders, by village


• What Informal Credit Does EMT Credit Replace? If 79% of clients would have financed their project irre-spective of the circumstances, it follows that they wouldhave had to (and been able to) resort to other sources of

financing. The impact of the EMT credit therefore lies in thesavings generated when it takes the place of loans from amoneylender or supplier and, to a lesser extent, in lessersocial dependency when it replaces a family loan.

Fig 15: Proportion of each credit source as a percentage of the total credit granted

It is very clear that EMT credit has the effect of reducingrecourse to family and supplier loans; the number of loansfrom moneylenders, however, does not diminish.

3. Financial Impact of Individual CreditAt the time of writing, the ‘individual credit’ product hadnot been made available consistently in all the villages. Inour sample of villages, only one of them had derived realbenefit from this product, over three cycles. The data belowtherefore apply to only one village (Bang Ta Prum).

3.1 Individual Credit: Clients

Only the shopkeepers and one fisherman exercising severalother activities have access to these loans. The primary tar-

get for this product is thus our Cluster 5.

Individual credit clients include many group leaders (half ofthe clients in the village as a whole). According to the loanofficer (the sole decision-maker for this product), this is inpart explained by his superior knowledge of these people.

Individual credit clients do not leave their solidaritygroups15. In answer to the question "Why?", it would seemthat some of them were not aware that they were entitled toleave the solidarity group. However, a priori, they preferremain members of a group so as to be sure of finding, whenthe time comes if they need small loans again, a "good"group.

15 The client dropout study gave the same results for 66% of the 88 clients surveyed.


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3.2 Non-Clients

Outside zones characterised by strong economic activity, people tend to be wary of individual credits at first. Few peoplehave activities that would require such investments. This is particularly true for our first three clusters. However, the surveyshows that there is a reserve of potential clients for this product, particularly in the cluster of shopkeepers and serviceproviders (C5). Some of them have applied, but their requests remained unanswered or the credit was refused—more, itwould seem, as a result of the credit agent’s unavailability or because of a lack of available funds, rather than on the strengthof the analysis of their application. It should be emphasised that EMT was in the process of launching this product and thatadjustments were still required, not only with respect to the product itself but also in terms of internal organisation. Inparticular, there was a need to motivate credit agents to sell the product.

Fig 17: Question posed to EMT clients of Bang Ta Prum that had not contractedindividual credit (only half of them answered the question).

3.3 Use and Profit• Use

Fig 18: Use of loans per cluster

Unlike solidarity credits, it is in this case easier to know to what use the credit is put and what profit has been made.

Fig 16: Clusters’ Access to Individual Credit (for the sake of comparison, the firstline gives a breakdown of solidarity credit per cluster)


• Profitability

We present two cases, chosen because they are representative of the types of projects financed with this product.

The profit is already significant over one cycle. These clients will not require credit in order to continue their activities,and their net margin will be all the greater.

3.4 Criticism of the Individual Credit Product

The amount is still too low for some clients. For example,the fishermen inform us that, with 2 million riels, they couldbuy a boat and a sufficiently powerful engine for seagoingpurposes, or just a large boat or a new high-performanceengine which would allow them to move further away fromthe coast and thus improve both the quantity and quality oftheir catch. Some of the shopkeepers would also like to haveaccess to larger loans. They have Acleda in mind: as house-

holds with the highest incomes in Cluster 5, they are famil-iar with Acleda (having already borrowed from it).

Certain individual credit borrowers would prefer not to haveto reimburse interest during the difficult months of the year.They refer to months when even shopkeepers are affectedby seasonal factors.

For some activities, it is felt that it takes too long to obtainthe loans.

16 excluding remumeration for labour

EXPENDI INCOME – COST OF NET SHARE DEPRECI NET MARGINTURE OPERATING EMT CREDIT BALANCE FINANCED ATION

COSTS BY THE LOAN

purchase of fish sales interest rate capital of 1.5 3 years over 6 monthsan engine over 6 months over 6 months million riels is

(after deduction enough to reachof operating this same level costs) of output

throughoutthe year

1,500,000R 3,240,000R 210,000R 1,530,000R 100% 2,530,000R

purchase sale of bran, interest rate capital of 3 years over one yearof a huller of rice and over 1 year 1 million riels (and before

pig breeding for purchasing income the machine, originatingplus stock of from the salerice and piglets of pigs which

are sold thefollowing year)

1,200,000R 2,000,000R 232,000R 568,000R 50% 1,368,000R

Sea

Fish

erm

anR

ice

Trad

e


32

4. Clients’ Perception of Financial Impact

4.1 Perception of Profits Generated

During the last 12 months of your credit, how did your profits evolve?

Profits: Individual Credit Solidarity Credit TOTAL

increased substantially 23.5% 15.4% 17.9%

increased 67.1% 61.2% 63%

stagnated 8.2% 16% 13.6%

fell 0% 4.3% 2.9%

fell substantially 1.2% 2.1% 1.8%

no opinion 0% 1.1% 0.7%

TOTAL 100% 100% 100%

Results obtained from 273 replies.

The perception is largely positive. It is more pronounced for individual credits, probably because it is easier to measuretheir profitability

4.2 Perception of the Kind of Benefit Derived from the Credit How has the credit helped your household?

Individual Credit Solidarity Credit TOTAL

more food 69.4% 48.4% 54.9%

household equipment 48.2% 28.7% 34.8%

clothes 36.5% 18.6% 24.2%

facilitated management 15.3% 23.9% 21.2%

education 29.4% 9% 15.4%

medical expenses 4.7% 12.2% 9.9%

helped in overcoming 8.2% 10.6% 9.9%

difficulties

savings 11.8% 8.5% 9.5%

improved housing 12.9% 4.8% 7.3%

has not helped 1.2% 6.9% 5.1%

other 11.8% 5.9% 7.7%

Results obtained from 273 replies. Multiple replies were possible.

17 Corresponds to the possibility of having liquid assets in sufficient time to acquire inputs and to get through times of difficulty.

Only 5% of the clients consider that the credit has not helped them. More men than women feel that it has not been useful.


The question was also asked with reference to type of activity.

Fig 19: Which reply best describes the impact the credit has had on your activity?

Obtained from 193 replies.

4.3 Perception of the Type of Credit Use

Fig 20: How did you use the credit (solidarity credit and individual credit)?

Obtained from 273 replies. Multiple replies were possible.

Here, the replies to the same question are differentiated in function of the two products. The differences are most pronouncedfor the launch of a new activity. The individual credit is quite clearly better suited to this kind of need.


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Individual Credit Solidarity Credit

more inputs 47.1% 44.1%

pig 18.8% 26.1%

launch of a new activity 41.2% 15.4%

equipment, tools 23.5% 14.9%

household expenditures 7.1% 11.2%

improvements to the activity 4.7% 7.4%

increased labour force 2.4% 7.4%

savings 2.4% 3.2%

change of activity 1.2% 0.5%

loan reimbursement 1.2% 0.5%

Obtained from 273 replies. Multiple replies were possible.

II. ANALYSIS OF COLLECTIVE MECHA-NISMS WITHIN THE VILLAGES

1. Solidarity GroupsThe EMT system, as far as the solidarity credit product isconcerned, is based on two levels of social pressure: thewell-known pressure of the group but also that of the villagebecause the launch of a new credit cycle is conditional uponreimbursement in full within the association during the pre-

vious cycle.

This mechanism gives an important role to the groups andin particular to their respective leaders.

1.1 Composition of the Groups

The principal criteria for belonging to a group according tothe clients are to:- have an activity- have no outstanding debt;- not be known as a drinker and/or gambler;- not be a blood relative of or closely associated with the


other potential members; and- be the sort of person to whom it is possible to speak

frankly and openly.

There is no discrimination or grouping by type of activity,income regularity or gender. Trust is the cornerstone of theagreement. Furthermore, households newly settled in thevillage will find it difficult to join a group, irrespective oftheir reimbursement capacity.

When the borrowers are asked about the advantage of an organ-isation based on peer lending guarantee groups, the immediateanswer is: "it’s the rule, that’s why we form a group".

30% of the clients have changed groups at least once (thisfigure incorporates changes due to client exits).

Once clients have found a group that suits them, they wantto be sure that they can stay in it. Thus, 20% of them statethat they have already "left their name in the group" withoutactually borrowing. Some members—it is difficult to knowhow many—are prepared to borrow on behalf of anothermember when they themselves do not wish to use themoney during the cycle. They justify this "front name"arrangement by claiming that the amount of accessible cap-ital is too low. They also state that they only resort to suchpractices with a close family relation or with members ofthe group on a rotating basis. There does not seem to be anyadditional interest rate attached to such arrangements.

Once the group is running smoothly, discussions betweenmembers generate management ideas and investmentadvice. More generally, some 20% of the clients state thatthey have made friends within the group, without, however,being prepared to make joint investments. This is above allbecause they are wary of conflicts or find it difficult to agreeon the distribution of profits. But they are more inclined todiscuss their financial difficulties despite the fact that this isa traditionally sensitive and even taboo subject.

The group leader is chosen on the strength of his authorityover the others and on his ability to reimburse for others ifa problem arises. The leader must inspire confidence andabove all be sufficiently available to act as a relay with thecommittee. Finally, the number of candidates is limited bythe fact that the leader must be able to read and write.

Many group leaders often complain that the position bringsheavy responsibilities without financial remuneration, espe-cially when they have other responsibilities in the village.

1.2 Is the Guarantee Real?

There are contrasting replies to this question.

Solidarity is manifested in specific situations:

- When a member is unable to be present in person on theday of reimbursement, another member of the group willadvance the money until the first member returns. Thisconvention is accepted by all since everyone knows howdifficult it is to attend each meeting.

- In exceptional circumstances, members may be ready topay the interest for others in difficult straits provided thatthey know the reason (illness, poor crop, theft, etc.).

Although we are unable to say precisely how often there isrecourse to these forms of solidarity, we can say that 11% ofthose surveyed declared that "the group helps (them) toreimburse (loans)".

It is certain, however, that "practical solidarity", which con-sists of making payment for a member absent on repaymentday, is more frequent than solidarity in the face of financialdefault. In both cases, this type of aid is manifest only forshort periods of time.

Solidarity is not in evidence when it comes to reimbursingthe capital:

- ‘because it is not necessary’. The sums involved aresmall and everyone is in a position to repay them.

- because, as was seen earlier, clients prefer to turn toinformal loans over short periods rather than to dip intotheir savings.

- Solidarity is expressed at a practical level. The group isessentially a mechanism designed to ensure that rules arerespected and that members make their payments ontime, but does not extend as far as economic solidarity. Inother words, there is no question of paying for a default-ing member, merely of advancing him money for a fewdays or weeks; this holds true more for repayment ofinterest than repayment of capital.

The guarantee works for the following reasons:

- the primary motivation is to maintain one’s ability to bor-row during the following credit cycle; and

- the members know that they may all encounter occasion-al temporary difficulties for the interest payments.

When repayment problems arise within the group:

- either the group members decide to provide exceptionaland limited help;

- or it is a recurrent problem, in which case they will askthe bad payer to withdraw from the group.


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The excluded borrower will then be unwelcome in the othergroups and will find it very difficult to rejoin the villageassociation.

2. The Credit Committees The village credit committees almost always include a per-son belonging to or affiliated with the village authority. Thismeans that power is concentrated in relatively few hands.This is partly a reflection of the villagers’ fairly low level of

education but also a measure of their wish to steer clear ofa responsibility that can be tricky to wield.

It follows that there tends to be little change in the compo-sition of these committees, a factor which helps to ensurethat the system runs smoothly. The credit committee’s roleas an interface between the villagers and the institution iscrucial. Although not everyone in the village participates,the entire village is in a certain sense involved through theparticipation of the authorities in the system.

An Irremovable Committee in an Old Village

The credit committee in this village has not changed in the last 11 years, but there has been a steep decline in the num-ber of clients over the past three years. This coincides with the arrival of a new credit agent. The previous agent is a vil-lage inhabitant and his brother is a member of the credit committee.

Our interviews revealed that the application of stricter rules after the arrival of the new agent was not well perceived. Theborrowers state that they cannot speak freely with an outsider.

Another interesting development concerns the withdrawal of the committee’s chairman. Although he is periodically re-elect-ed by the villagers, he no longer manages the groups or deals with problems. In practice, his functions have been assumedby the treasurer (the previous credit agent’s brother), with members of his family acting as relays within the groups.

In short, the dynamics of the village association are based on a limited number of households with deep social roots inthe village.

3. The Regulatory Role of the Credit Agent The credit agent acts as a balance to the power of the com-mittee if it tends to take on too much authority. It mustguard against the risks of patronage, possible exclusion ofhouseholds, etc.

The credit agent must rely on the committee withoutremaining too much in the background. This balanced roleseems to have been well performed in the villages coveredby our survey.

An Influential Chairwoman

In another village, the chairwoman of the association is the daughter of the village chief, himself the head of the commune.

She also leads three ASCAs, daily and weekly, essentially made up of market tradesmen.

The position of the village chief’s daughter unquestionably gives her a special status which is in turn reinforced by herrole as coordinator of the ASCAs.

Here, the credit agent balances the committee’s power by making sure that there is fair access to the association. Sincethe association itself works well thanks to its chairwoman’s capabilities, the credit agent is able to devote more time tocommunication with the villagers.

The interactions between the three players—the credit agent, the credit committee and the clients—are vital to securing thegood working of the mechanism.


4. One Must Also Ensure the Reliability of the Credit Agents EMT has an internal monitoring and control department which intervenes in a random, unsystematic way. Here, monitoringand control is meant in the wide sense, and not only in financial and accounting terms. It must make it possible to spot pos-sible slippage in the credit agents’ modes of action. The scope of our study did not extend to internal control modalities but,in light of one case encountered (cf. box below), it is apparent that internal control is an important element in the good work-ing of the overall system.

A Credit Agent who Is Almost Too Well Integrated and a Committee Leader who Is Also a Moneylender

The credit committee is made up of the village chief and the credit agent’s brother in this case as well. Committee mem-bership has not changed for a long time.

In theory, the authority of the persons involved in the committee facilitates the credit agent’s work, especially as he, too,lives in the village. There is no sign of unpaid debts or payment arrears despite the fact that adverse weather conditionsare a source of much difficulty in the zone.

Villagers in trouble turn to the village chief, head of the committee and occasional moneylender, in order to obtain loansto tide them over. Of course, the involvement of the village authorities in the credit committee has ensured an excellentdissemination of credit (the penetration rate is 67% in a village where profit opportunities are few and far between), butthe downside of this involvement is the potential conflict of interest for the head of the credit committee, a conflict ofinterest which should be brought to an end despite this association’s good results.

The credit agent’s excessively close ties with the committee had masked this problem.

5. ConclusionThe system set up by EMT is based on four interconnectedlevels of responsibility:

- first, self-selection and partial self-regulation by the sol-idarity groups;

- second, giving responsibility to local stakeholdersthrough the credit committee, which ensures a minimuminterface between clients and the credit agents;

- third, the work of the credit agent is done in close prox-imity to clients; and

- fourth, the central level implements operational internalmonitoring and control.

Our study, despite its limited nature, would seem to validatethe operational nature of this mechanism. Paradoxically, thefoundation of the system—the solidarity guarantees—workall the better when they are not really used... That is to say,as the clients are rarely unable to reimburse the capital, themutual guarantee is not active in practice. The groups

strengthen trust and solidarity among their members. Aboveall, this solidarity makes it possible to cover interest pay-ment difficulties, which is already fairly good. In short, theeffectiveness of the system is more closely linked to socialpressure than solidarity strictly speaking.

The groups themselves are not called into question, as boththe client satisfaction study and the client dropout studymake clear. Clients may say they are uncomfortable withthis group system but in practice they accept the necessityof the system very well because they, in a way, use it to theirbenefit.

It nevertheless remains true that EMT must take steps toensure a proper balance of powers at all times. While thelongevity of the credit committees is a guarantee of effi-ciency, it also makes the need for balance all the more cru-cial.

EMT henceforth keeps a close watch on the risks inherent inexcessively close relationships between its credit agents andthe credit committees’ leaders.


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III. CLIENT ATTRITION

We met with 188 former ‘solidarity credit’ borrowers out ofnearly 8,000 former clients, and 23% of the former benefi-ciaries of ‘individual credit’ loans.

1. Closure of Village Associations Since it started, EMT has closed 59 village associations.

Three motifs can be seen:

- competition offering lower interest rates set up shop inthe village;

- too many changes in how loans are granted discouraged

the borrowers (the ‘oldest’ villages); and

- falling standard of living caused by natural disasters orinsufficient economic opportunities (this last reason isvery rare and never the only motif behind a closure).

2. Client Dropouts 2.1 Penetration Rate Since Opening in the Four VillagesSurveyedIt should be pointed out that the sharp fall in Kandal is due toa split in two village associations. The rises seen elsewhereare due to progressive growth of the association. Indeed, inlarge villages EMT limits the number of clients during thefirst cycles and only increases the number gradually.

2.2 Retention Rate

The table on the facing page gives the retention rate from one cycle to the next (it takes into account only the retention ofclients from the previous cycle when starting the following cycle).

10% of clients dropout after each cycle. The fall is strongest around cycles 4 to 6. The penetration rate does not fall, how-ever, because other clients enter or return after a few cycles.

Fig 21: Penetration Rate in the Four Villages Surveyed


Retention Rate Kompong Speu Prey Veng Prey Nup Kompot Average18

Cycle 2 93.7% 84% 85% 97.1% 91.82%

Cycle 3 91.6% 90% 85% 93.1% 90.63%

Cycle 4 96% 88% 91.6% 85.3% 89.86%

Cycle 5 92.4% 88% 94.6% 84.5% 89.63%

Cycle 6 87.1% 91% 88.29%

Cycle 7 92.6% 50% 89.07%

Cycle 8 95.6% 95.62%

Cycle 9 92.4% 92.40%

Cycle 10 97% 96.96%

Average 92.8% 87.2% 89% 90.6% 90.6%

Calculated based on data from 33 villages.

3. Number of Loans Obtained before Client Dropout

Product Number of Loans

Individual Credit 1.6

Solidarity Credit 2.8

Average 2.48

33% of the people surveyed were unable to answer the question.The average was established on a sample of 125 households.

Use of the individual credit product is more occasional due to the nature of the loans. In addition, this product is still rela-tively new and therefore the results are not comparable to those for solidarity credit.

Note that 70% of the people who take out individual credit loans remain members of a solidarity group during and after this loan.

4. Who Makes the Decision to Stop Borrowing?Most of the time, it is the clients themselves who decide to no longer borrow.

Credit officers only intervened in 8.4% of cases, most often for individual credit.

There are very few cases of exclusion by the solidarity groups.

18 averages calculated over the total sample


40

More than 72% of client dropouts had not encounteredrepayment difficulties. Only 14% claimed to have encoun-tered problems.

Of the 188 people interviewed, only two households areconsidered by the credit agents to be too poor to borrow.

Among the 14% with repayment difficulties:

- 45% ran into difficulty in their activities,

- 27% have activities that ensure irregular income, and

- 18% were victim of a natural disaster.

The clients who encounter difficulties are rarely shopkeepers.

A very marginal percentage ceased borrowing on the advice

Results obtained from 188 parties surveyed in the sample.

Client EMT Children Spouse Group TOTAL

Individual Credit 84.6% 11.8% 1.2% 2.4% 0.0% 100%

Solidarity Credit 82.5% 6.9% 3.7% 3.2% 3.7% 100%

TOTAL 83.2% 8.4% 2.9% 2.9% 2.6% 100%

Who decided to no longer borrow?

of a family member (3%). This concerns households whoreceive a regular salary from one of their children.

Client dropouts therefore take place mostly under good con-ditions and of their own volition.

5. Reasons Behind the Decision to StopBorrowing from EMTPeople stop borrowing when they no longer need credit.This is the—quite simple—reason revealed in the inter-views. All the same, nuances appear depending on the prod-uct considered, the clients’ activities, and the length of timethey have been clients.

What are the main reasons behind your decision to stop borrowing?

Chose a response from among those listed: Open question, no options proposed:

Percentage of Clients Percentage of Replies

no longer need credit 50% no longer need credit 35%

activity-related reason 23% activity-related reason 24%

reason related to EMT’s credit 21% reason related to EMT’s credit 18%modalities modalities

outside reasons 16% outside reasons 16%

problems with the group 7% problems with the group 7%

TOTAL of clients surveyed 273 TOTAL replies 519


CATEGORIES DETAILED REPLIES

NO LONGER NEED CREDIT: have the capital needed to continue activities 21%

35% OF REPLIES activities irregular 14%

ACTIVITY-RELATED REASONS: poor yield from activity 11%

24% of replies natural disaster 8%

cessation of activity 2.5%

change of activity 1.5%

REASONS RELATED TO EMT loan disbursement and due dates 4%

CREDIT MODALITIES: cost 4%

18% OF REPLIES change of MFI 3.5%

amount 3%

other rule 3%

Detailed replies:

Only 6% of former clients stated they had found a better formal or informal loan.

Number of Solidarity Credit Loans Number of Individual Credit Loans

activity-related reason 2.95 activity-related reason 1.9

no longer need credit 2.85 no longer need credit 1.65

outside reasons 2.8 reason related to EMT’s credit modalities 1.62

reason related to EMT’s credit 2.72 outside reasons 1.5modalities

problems with the group 2.47 other 1

other 1.75

TOTAL 2.8 TOTAL 1.61

6. Correlation Between the Number of Loans and Reasons for Attrition


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no longer activity- EMT credit outside problems withneed credit related reason modalities reasons the group

trade 45% 30% 25% 16.7% 10%

farming 60.5% 20.9% 14% 20.9% 4.7%

stock-farming 53.7% 26.8% 7.3% 12.2% 9.8%

production 58.3% 33.3% 8.3% 16.7% 0%

services 72.7% 0% 27.3% 9.1% 0%

fishing 66.7% 50% 0% 0% 0%

TOTAL 50.5% 22.7% 20.9% 16.1% 6.6%

N.B.: multiple replies were taken into account.

Here too, the survey reveals that the reasons for withdrawal are related to a diminishing need for credit. EMT creditmodalities only figure in third place.

7. Link Between Activity Financed and Attrition

8. Former Solidarity Credit Clients’ Reasonsfor Satisfaction and/or Dissatisfaction8.1 The Advantages to the Solidarity Groups

In response to the question: "Do you feel you have benefit-ed from a solidarity group?", 56% of former clientsanswered, "Yes".

- 33% found ideas, advice and support from the group forloan use. Being able to discuss matters with trustworthypeople is appreciated.

- 18% found a solution to their late repayment problemsthanks to the group. Some groups organise repaymentwell, for example when a member works outside thevillage or will receive money in the following month.

- 18% say they have become friends with the other groupmembers. This includes help beyond the field of creditalone. Members may know each other before forming agroup but they henceforth know that they can count oneach other.

The remaining 42% said there were no advantages to beingpart of a group.


8.2 Satisfaction

Fig 22: What did you prefer in the modalities of EMT’s credit system?

Data obtained from 273 replies in the sample; 2 replies possible.

8.3 Dissatisfaction

The villagers do not like complaining to members of the institution, even when no longer borrowers. Thus, it was not easyto obtain responses to this question. Only 60% of the people surveyed were willing or able to answer.

Fif 23: What displeased you the most in EMT credit?

Data obtained from 273 replies in the sample; 2 replies requested.


44

lower interest rates 45.9% repayment delay 13.5%

higher amounts 16.2% smaller group size 2.7%

no mandatory deposit 8.1% products similar to Acleda’s 2.7%(individual credit)

money in time 8.1% no groups 2.7%

8.4 Former Clients’ Desires

Fig 24: What changes would former clients like to see made in order to become clients again?

Obtained from only 37 replies (the rest of the sample did not answer the question).

Fig 24: What do you think should be done to improve service for clients?

Results obtained from 273 parties surveyed in the sample.


yes probably no if changes are made don’t know

Individual Credit 55.3% 27.1% 0% 15.2% 2.4%

Solidarity Credit 37.8% 37.2% 13.8% 9.6% 1.6%

TOTAL 43.2% 34.1% 9.5% 11.4% 1.8%

• Do you think you will borrow money from EMT again in the future?

Percentages based on the replies of the 273 parties surveyed in the sample.

9. ConclusionThe retention rate is fairly high. It falls fairly steadily, witha slight increase in fall starting in the 4th or 5th credit cycle.

EMT seems to be for little in client dropouts. EMT creditmodalities are at cause for only one-fifth of announceddropouts. Dropouts are voluntary, with a few rare excep-tions.

The primary reason for dropouts appears simple: at a giventime clients no longer need credit. Dropouts are not accom-panied by either crises (repayment problems, for example)or resentment/frustration vis-à-vis EMT. At most, a fewimprovements are suggested. We were relatively surprisedthat increasing the amount of loans was not at the top of thelist of suggestions (in fifth place only).

The majority of borrowers abstain from thinking they won’tcome back. Certain improvements could incite them toreturn. Lower interest rates tops the list, but one mustremember as well that the question of interest rates is mar-ginal among reasons for dropouts.

• Would you encourage friends or family members to borrow from EMT?

yes no don’t know

Individual Credit 74.1% 11.8% 14.1%

Solidarity Credit 68.1% 14.4% 17.5%

TOTAL 70% 13.6% 16.5%

Results obtained from the 273 questionnaires in the survey.

IV. SATISFACTION SURVEY

We took our inspiration largely from the AIMS handbook,suited to a mostly illiterate population little inclined toexpress criticisms. The subjects addressed here are:

- knowledge of the credit offer;

- the feeling of profitability and changes in behaviour;

- products’and their modalities’strengths and weaknesses; and

- requests and proposals for product changes.

1. General Knowledge of EMT, its Products,and its Credit Rules1.1 Who is EMT?

EMT’s name was practically never pronounced by clients.They refer to EMT as "French money", "governmentmoney", or even "Mr X’s (the credit agent) money". Methodology changes in the oldest villages contribute to the


46

confusion, concerning both the MFI’s name and also its pur-pose and nature. It is generally accepted that EMT is anassociation that helps the poor and the entire village.

1.2 Insufficient Knowledge of the Individual Credit Product

The individual credit (IC) product is relatively little known,and not yet widely disseminated by credit agents at the timeof the study. Many of the villages visited did not know thatthe individual credit product existed.

When they express a desire to obtain individual loans, theymean they no longer want to be part of a solidarity group,but not necessarily that they want access to larger sums forproductive investments.

For loans corresponding to that offered by EMT, they general-ly think of Acleda who, even in villages where it does not oper-ate, has undertaken an effective communication campaign.

When the product is offered in a village, some confusionmay arise as to access conditions. This is often the casewhen a competitor offers a similar product. Villagers have atendency to say that these loans are for the rich and can onlybe obtained for investment against a guarantee of importantassets. However, truly motivated people are rapidly identi-fied by the credit agents. They have more specific informa-tion and are able to compare the different products offeredto chose the most advantageous.

1.3 The Role of Interest Rates

Interest rates were a favourite subject of discussion byclients during the various interviews destined to determinetheir level of satisfaction. Lowering interest rates is the mostfrequent request but, paradoxically, it is not a priority whenasked to rank their requests in order of importance.

All clients are content to note that the rate applied is lowerthan the other offers available in the village.

They are also aware of the cost of offering the service close

to home. Indeed, when they are asked why EMT mustcharge for the service, they reply that the credit agent visitsthe village often and the committee is paid in proportion tothe number of loans repaid.

Repayment modalities and penalties are well understood.However, doubling the interest rate in the case of late pay-ments is not understood. For villagers, someone who cannotrepay their loan on time has obligatorily run into financialdifficulties that a penalty will only make worse. They feelthat, in this case exclusion is a more appropriate and suffi-cient penalty.

The same holds for credit cycles during which natural disas-ters affect production. They think it would be fair to lowerrates and/or be more flexible when it comes to repaymentmodalities so to avoid pushing clients into over indebtedness.

1.4 Credit Cycle Dates and Length

The credit cycle opening and closing dates are actually cho-sen jointly by all members of the village association in orderto match as well as possible the needs of the greatest number.Some clients say they request dates that benefit the most vul-nerable households the most. In fact, the choice matches thedominant activity, usually rice cropping cycles: disburse-ments when inputs are purchased, and repayment at harvest.

There are a few exceptions in villages where, for logisticalreasons, the credit agents cannot distribute capital at alltimes (flooded and very inaccessible areas).

1.5 Other Rules

Clients are very knowledgeable about the amounts avail-able, as they are concerning access conditions and penalties;these are vital elements that are repeated at every meeting.

They know the conditions to be granted loans, the rules aresimple. It is the procedures that seem long and their interestis not always clear.

yes 14%

no 4%

no change 77%

no opinion 5%

2. Perceived Benefits2.1 Do clients think they borrow more than before EMT’s arrival in the village?

This information was analysed in the section on credit impact.


A majority claim to have turned a profit, whether in the form of savings when purchasing equipment, lower cost of the loancompared to previous practices, or growth in an activity or production. Even more express general satisfaction with the cred-it, even if they are unable to specify the profit they turned.

The profits cited are, for example, an animal they were able to raise and sell for a profit, or an activity they were able todevelop or continue. In the same proportions, others express their satisfaction concerning easier management of cash flow.Finally, they cite household expenses that have increased: health, food, schooling, ceremonies, etc.

Households say they invest the profits earned with the loan in improving their living conditions, with equipment being a pri-ority (home construction/improvement, means of transportation, television set, etc.).

2.2 Do the clients think they have turned a profit?

yes 60%

no 38%

no opinion 2%

Results obtained from the 180 useablereplies in the sample.

yes 64%

no 8%

if needed 25%

no opinion 3%

2.3 Do current clients think they will borrow again?

The results, when analysed by group, are homogenous butslightly less so when analysed by village even if the overalltrend is clear. The demand for higher amounts is present inthe oldest villages.

Nevertheless, most clients agree that they cannot increase

3. Strengths and Weaknesses of Each Product3.1 Solidarity Credit

• Are you satisfied with the size of the solidarity credit loan?

C1 C2 C3 C4 C5 TOTAL V1 V2 V3 V4

No Opinion 6% 3% 2% 0% 4% 3% No Opinion 2.2% 10.3%

Yes 77% 80% 80% 81% 73% 78% Yes 74.2% 73.7% 79.3% 87.8%

No 17% 17% 18% 19% 22% 18% No 23.7% 26.3% 10.3% 12.2%

TOTAL 100% 100% 100% 100% 100% 100% TOTAL 100% 100% 100% 100%

their indebtedness. What is more, they are not ready to guar-antee loans for amounts much higher than those theyalready have.

Villagers speak of the interest of small loans that are notrisky because they do not exceed their debt capacity as the


48

capital to be repaid is, for them, always available at worst by the sale of an asset.

These discussions reveal a sense of maturity among clients, which validates the prudence exercised as a rule by EMT whenit comes to loan amounts.

V1 V2 V3 V4 TOTAL

Yes 48 85 37 49 219 92.02%

No 0 5 1 2 8 3.36%

No Opinion 1 3 0 7 11 4.62%

TOTAL REPLIES 49 93 38 58 238 100%

• Does the duration of the credit cycle seem appropriate to you?

Fig 25: Are you satisfied with the solidarity group rule?

Why or why not?

enough time to repay 67.2%

makes it possible to pay little by little 1.1%

the duration is flexible 3.4%

it’s too short 1.1%

need credit more than once a year 1.1%

other 24.9%

low interest rate 1.1%

Here we find a contradiction already evoked: the principle of solidarity guarantees is both an imposed notion relativelyout of touch with Cambodian social habits and, at the same time, appreciated or at least seen as the best possible compro-mise, a ‘lesser evil’. Above all, it is the non-material guarantee that is appreciated.


• What pleases or displeases you in the groups?

It’s the rule! 34%

open to family members 27%

other 22%

we can trust the members 7%

repayment is easier 6%

alone is better 3%

don’t trust the others 1%

TOTAL 100%

The problem with the groups is the need for all members to meet for every credit-related activity. The members would liketo be able to request the capital alone partially because the others are often occupied, and partially out of a desire for con-fidentiality. Even among people they trust, no one likes having to display of their money needs.

3.2 Individual Credit

• Loan Duration

Fig 27: Are you satisfied with the disbursement and repayment dates of your loan?

This near unanimity is due to the fact that the conditions for establishing the loan are discussed with the clients when theirapplications are analysed.

Fig 26: Are you satisfied with the duration of the cycle?


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Dissatisfactions lay more with the amount of time it takes togrant loans. When a commercial opportunity arises, a delaycan be detrimental: for example, purchasing merchandise ata less interesting price. However, the survey revealed nocases of private loans to face up to these delays.

Another criticism often formulated for the individual creditproduct is that it is only available to part of the population—the richest, those whose activities are already the most lucra-tive. Professional category also enters into it: fishermen andfarmers with good yields would like to be included.

• Cost of Credit

Individual credit is granted in the most developed villagesclosest to semi-urban areas. The clients therefore know ofthe competition’s offers and easily compare the variousproducts.

This leads to comparison with Acleda who offers lowerrates for the same product; clients, however, must add thecost of travelling to Acleda’s agencies whereas EMT dis-tributes its loans within the village. Thus, neither producthas a decisive advantage over the other.

Currency exchange costs for clients who purchase equip-ment in dollars remain marginal and in addition concernfew clients.

• The Proximity of the Credit Agents and CreditCommittees

Because of their frequent visits, the credit agents are seen asbeing close to the villagers. This contributes to creating apositive image for EMT; it is also a factor in EMT’s effi-ciency as dialogue is facilitated.

The role of the credit committees is also appreciated by thevillagers who feel comfortable when it comes to askingquestions and finding an interlocutor that is both under-standing and understandable.

However, the role played by the (volunteer) group leaders issometimes questioned. Group leaders find their task seriousand ‘commandeering’. Many groups also see them as lastresort payers, which doesn’t help matters. The co-borrowersprefer to be able to repay their loans without going throughthe group leader. However, the need to be able to read andwrite combined with availability required for the job makesit difficult to change leaders from one cycle to the next.

4. Clients’, Former Clients’, and PotentialClients’ Requests4.1 Loan Use

The households interviewed sometimes requested advice as

to how to use loans. EMT’s position is to not combine cred-it and technical advice. Yet some households "don’t haveany ideas"—one of the major causes of self-exclusion.

In the village without EMT credit, the households sponta-neously expressed expectations when it comes to trainingand investment proposals, arguing that they have little edu-cation and technical knowledge.

4.2 Lower Rates Under Certain Conditions

Numerous clients request a reduction in interest rates and/ormore time to repay loans in drought or flood years.

Another desire is for "favours" that could be granted tolong-standing clients in the form of lower rates. Clientsbelieve that their profits are much lower than the profitsEMT generates through the interest rates they pay.

4.3 Village Infrastructure Improvement

The inhabitants of the poorest villages and the villageswhere GRET’s first methodology was applied expect EMTto provide the services of a charity NGO. They think thatpart of the capital should return to the village to improveliving conditions both directly by financing infrastructuresand indirectly by providing aid to the poorest inhabitants.

The villages near areas where competitors offer integrated pro-grammes think they could benefit more from such programmesand hope to have access to them. In such contexts, a few clientdropouts were reported but this is nevertheless minimal.

4.4 Confidentiality

The major inconvenience of the solidarity groups seems to bethe lack of confidentiality concerning villagers’ financial needs.While they understand and appreciate the interest of thesegroups for non-material guarantees, they are neverthelessembarrassed by the co-borrowers’ dependency on each other.

The possibility of borrowing during the cycle without thepresence of all the members is a frequent request.

4.5 Loan Amounts

At first glance, the clients feel that inflation is not compen-sated for by an equivalent rise in loan amounts.

They also believe that this increase could be faster.

4.6 Too Much Time Spent on the Various Formalities

The meetings, surveys, and signatures for loans of each bor-rower weigh heavily on the clients. Most feel that these pro-cedures are too cumbersome in light of the amounts lent.They would like to be able to spend less time on procedures,above all after several cycles when they feel they know all thecredit rules and think it is no longer necessary to repeat them.


However, no clients would go without loans if these for-malities were maintained.

4.7 Satisfaction Levels Vary According to the Context

• Satisfaction depends on the number of cycles

The clients in the most recent villages are still getting toknow EMT. They are motivated by and curious about thebenefits they will obtain from credit. They formulate fewrequests. In addition, the prospect of altering formalities iftheir repayments are made without problems is sufficientreason to be satisfied.

In the older villages, clients’ satisfaction has a more solidbasis. Numerous former clients in these villages remain sat-isfied with EMT’s product.

• The Degree of Satisfaction Varies According to theContext

In an area struck by recurrent natural disasters, clients mayrequest an increase in loan amounts as they need to increasetheir sources of financing to maintain their level of activity.However, EMT maintains a positive image, specificallybecause of the need for credit in such situations.

In a village that depended on sugar palm production, anincrease in the price of wood (charcoal) put a stop to thisactivity. Credit facilitated conversion to another activity:intensification of rice cropping and stock farming withaccess to preventive treatments for livestock. Once thistransfer has been made successfully, the number of clientsmay fall off as borrowers have attained their goals.

Finally, in areas where financial intermediation is developed(where various formal, semi-formal and informal practition-ers compete with each other), clients are pickier and com-pare all modalities. These clients are logically the leastfaithful and most difficult to satisfy clients.

4.8 Satisfaction Also Depends on the Involvement ofAuthorities

When the authorities are involved in the committee, thecredit formalities take on another dimension. Whether theseauthorities are the village leader and his family or an impor-tant family that hires farm labour, the inhabitants avoid con-flicts with them and do their utmost to satisfy the necessaryrequirements.

5. Summary of Sources of Satisfaction and Dissatisfaction for Clients

Strengths Requests

Proximity • no travel, therefore no travel costs

• discourse and rules understandable• credit agents are well-integrated• credit committees are good relays

Groups • permit access to credit • possibility of requesting capital alone• provide ideas and support

Accessibility • no collateral (except for • groups C1 and C5 have difficultyindividual credit) finding a group

• Individual credit is obscure!

Confidentiality • fewer surveys, questions and meetings

• ability to request money alone

Amounts • easy to repay • increase amount to 300,000 oreven 500,000 riels for somehouseholds (solidarity credit)

Flexibility • ability to receive and repay • repayment delaysmoney when clients want • ability to borrow more capital

• free to use as wished before having repaid first loan

Cost • inexpensive • "rebates" for good clients • reduction in difficult years

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Appendix 1 Fungibility

Microcredit is used for the financing of small outlays suchas groceries, agricultural inputs, constitution of stocks, pur-chase of animals, etc. The credit is put to various uses whichare, in theory, concrete and easy to identify. However,despite the fact that the loan is allocated to a specific, imme-diate and concrete object, its true impact may turn out to beintangible and unrelated to its direct allocation.

In order to take such phenomena into account, we talk of thecredit’s "fungibility". In other words, the "consumption" ofthe credit is assigned to, and spread out among so many dif-ferent productive and consumer activities that it is no longer

possible to identify its real destination and final use.

As the schema below shows, this dilution effect is accentu-ated by the lack of a clear distinction between the farm andhousehold needs, since the household quite naturally man-ages its funds globally.

The greater the number of the household’s activities, thegreater the number of financial transfers from one activityto another—and hence the greater the degree of fungibility.It is easier to pinpoint the use to which the credit is put whenthere is little diversification of activity.


Bang Ta Prum: "Phum Phsar" of SIHANOUKVILLE Province210 householdsEMT Penetration Rate: 65%

Economic SituationWith a central marketplace, equidistant between the fishing harbour and the national road, the village has a vibrant eco-nomic life. It is an exchange point crossed by passing traffic.

The main activities are trade, fishing and farming.

Situated in a polder currently under rehabilitation, the area was still suffering from salinity and flooding problems at thetime of the survey, as the work had not yet been completed. Rice cropping is not the most profitable activity and is still pri-marily a food crop for local consumption. It has the necessary equipment and inputs, but labour is scarce and expensive.

Market gardening and livestock production bring in supplementary income in the dry season.

The presence of a Muslim community in the area is fostering the growth of small-scale craft industries (dressmaking,in particular) and fish-farming, to a lesser extent.

Many Muslim households are sea fishermen. Their household organisation and specific income-generating activitiesmake them a distinct group.

Apart from fishing in the mangrove swamps and rivers and fish-farming, the majority of households supplement theirdiet or their income by fishing in the rice paddies.

Nearly 40% of the households in this village do not possess farming land, a figure which is very high compared withthe national average, around 15% according to the 1998 census. The main reason for this high percentage is that the areaattracts trade.

It is obvious that the village is very well off. Electricity and water are available to a large section of the population livingaround the marketplace, cars and motorbikes are used on a day-to-day basis and the area is covered by a telephone network.

However, there are marked disparities, further highlighting the element of interdependence.

Credit Specificities

The area is favourable to small trade and credit is highly profitable. The village is also distinguished by the fairly coher-ent approach of social groups to the available sources of credit.

The village had been receiving credit from Acleda before the arrival of EMT. However the latter soon gained widespreadacceptance. It found strong demand for credit and a creditworthy clientele.

The village association is run by one of the village leader's relatives, who holds other responsibilities in the village. Thefact that there have been no repayment or operating problems is probably largely due to her personality.

Despite the abundance of both formal and informal credit, over-indebted households are rare.

There are frequent comparisons with the other available sources of credit. They give rise to quite detailed demands forimprovements to the services. Overall, the clientele is satisfied with EMT and when it stops borrowing, it is mainlybecause it no longer needs credit.

Appendix 2 Monograph of the Villages Surveyed


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Ang Svay Toul: The "Disaster" Village in PREY VENG Province110 householdsEMT Penetration Rate: 51%

Economic Situation

This village is completely isolated in the middle of the rice paddies and accessible only by boat in the rainy season. Theschools are a long way from the village. Few children continue their studies beyond lower secondary school level.

The economic activity lacks vitality and is predominantly local in scope. The lack of outlets and new opportunities hasprompted many households to seek their income outside the village.

The main activities are farming and factory or construction work in town.

The village, situated in a flood-risk area, has no dike. For four years running, drought and flooding have destroyed alarge proportion of the two annual rice cycles. Very few people possess the equipment necessary (motor-driven pumps)to limit the losses.

The redistribution of land was apparently inequitable, as some villagers hold plots that are not very productive.

Pig-farming and even poultry-farming have felt the effects of the successive disasters. Floods are problematic in that theanimals have to be taken to high areas and kept there.

The villagers fish during the floods, but the quantities obtained are not sufficient for trading.

Small trade is rare and few households know how to produce palm sugar.

There is also little market gardening. The majority of households harvest the fruit from the orchards situated around their homes.

The fact that each household has a large number of activities reflects their vulnerability in relation to farming activitiesand the highly seasonal nature of their activities in general.

Land prices have been falling over recent years, but debt has nevertheless forced many households to part with their land,either definitively or until they can build up their capital again. The households that have sold their land are not thosewith credit from EMT but those who borrowed from traditional moneylenders.

The households that hold responsibilities at community level are those with more equipment, more infrastructure and thehighest level of education. The village geography is made up of quite widely spaced out hamlets.


This village association is the longest-established one in our panel of villages. It saw our first tentative efforts and thechange from "experience 1" to "experience 2" 19.

The credit agent lives in the village and the village leader is president of the credit association.

Credit is very important here because of the difficulties of production and the need to seek income in the town. Manyloans are used to supplement income during pre-harvest periods. Despite this, the study shows that credit has not had anegative effect (downwards spiral of indebtedness). In 11 years, the maximum loan amount has gone from 15,000 to 150,000 riels (representing a slight rise in constant riels).

On the whole, credit enjoys a positive image, but the most dynamic section of the population is calling for loans for larg-er amounts and the most vulnerable section is calling for a different form of support in addition to loans.

19 Experience 1 was the programme’s initial approach, under which the village branches were granted capital which became their

property. Experience 2 is the current method in which the village associations’ only role is that of facilitator.


Phiry: Thnôt20 Village in KANDAL Province94 householdsEMT Penetration Rate: 40.4%

Economic SituationThis riverside village, situated less than 10km from the main roads and two marketplaces, is within an hour's motorbikeride of Phnom Penh. Close to exchange points and offering a high level of education, it reflects a fairly high standard ofliving and quite good living conditions.The main activities are rice cropping, trade, sugar production, factory work and market gardening. Land pressure is intense, as in all areas close to the capital, and accentuated by the population explosion. There havebeen very few land sales and only one "mortgage" (ban cham).

Production levels have generally risen, through better use of fertilisers and improved access to water. The majority ofhouseholds possess their own draught animals and nearly half have a motor-driven pump. The vast majority of house-holds are self-sufficient and nearly a third can sell rice at the best price.

Another change in recent years has been the setting up of a large number of factories in the vicinity. As a result, nearlya third of the households benefit from the wages of one of their children and are able to save.

The wealthiest households trade in cattle and rice; the others limit themselves to the fruit and vegetables bought in the village.

Sugar palm farming is plummeting. It is less profitable and consumes more energy than other activities; it is also riskyand physically demanding. Even so, it remains the premier activity of a few traditional households and of young cou-ples, who see it as a short-term necessity but not a lasting concern.

Social cohesion appears quite strong.

While there is admittedly a group of teachers and other professionals who are distinguished from the rest of the villageby their regular income, income-earning opportunities, like the land, are quite equitably distributed.


This is another of the very first villages to benefit from EMT credit (set up in 1992). It was one of the villages studiedduring the previous impact study. This has led to a certain annoyance and weariness on the part of the population, whoexpects fresh changes as soon as a few researchers visit the village. The population has also expressed its disappoint-ment that experiment 1 was abandoned, as it would have enabled them to create joint capital to invest for the benefit ofthe village.

The sharpest criticism comes from the wealthiest households. Many of them nevertheless borrowed money over sever-al credit cycles. They recently have begun turning more to Acleda.

The former credit agent lives in the village and is solidly established there. There has been a high attrition rate since hisdeparture, which coincided with a return to more stringent operating rules. Whereas the majority of households wouldregister their name in a group regardless of whether they took out a loan or not, the new credit agent put an end to thispractice, which was apt to facilitate the system of front names.

In spite of the rule changes, the new credit agent and the arrival of competition, the benefits of the 12 credit cycles areevident and villagers' perception of the scheme is positive.

The departures are however a sign of new needs.

20 sugar palm


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Samrong Khpos: Traditional Village in KOMPONG SPEU Province71 householdsEMT Penetration Rate: 69%

Economic Situation

This small traditional village is situated only ten kilometres or so from the district's marketplaces and administrativecentre. The construction of a road recently put an end to its isolation; the total lack of available land combined witha high rate of population growth is an obvious handicap. The rare land sales that occur are the consequence of ill-nesses and take the exclusive form of ban cham between close relations. There have been no new arrivals in the vil-lage. No households have left the village in recent years.

The main activities are rice cropping, basket-making and market gardening. Fairly isolated until quite recently, with adifficult past and a rather low level of education, the village is not very diversified and innovations are slow to gainground.

The plots suitable for rice cropping are small. Most of the population now uses fertilisers, which has caused produc-tivity levels to double over the last 20 years. 46% of households are not self-sufficient in rice, because of the damagecaused by insects, and the lack of equipment and techniques.

To cover basic food needs, 87% of the households make rice baskets that are then sold to the wholesaler on his reg-ular visits to the village. It requires a lot of work for a small return, but their cash needs and the lack of alternativesolutions have kept this activity alive for many generations. The development of this activity has been made possibleby the proximity of areas of bamboo.

Pig-farming also plays an important role in household financial management, as is common in numerous farminghouseholds with not very diversified, family-scale production. The farmers lack training and information on diseaseprevention and the conditions for livestock production. The high mortality rate has discouraged many households.

Over the last five years, watermelon farming has become widespread. The watermelon harvest precedes the rice crop-ping cycle. Likewise, cucumber farming precedes the watermelon cycle; it is however not as widespread.

This is because, at that time of the year, many men prefer to go to work in the town; they later return to prepare theland, with money that will allow them to settle their debts, and start a new production cycle.

As we can see, this village's activities are very traditional and the households need a large number of small-scale activ-ities to balance their budget. The children are very frequently required to participate. Few of them work in factories.

The wealthiest families are those in which one of the family members has a regular income and/or is a teacher.Overall, the standard of living remains consistent.


Samrong Khpos is a small village that functions largely on the principle of imitation and has a low level of moneter-isation. The village association is in its eighth credit cycle, which is generally a time when the number of borrowersdwindles. In spite of a fall-off, EMT remains very active here.

The village association is managed by the village leaders. Their successive re-elections can be attributed to the lowliteracy rate, lack of motivation on the part of the other village inhabitants and the trust placed in the leaders.


Taom Thom: Village without EMT Credit (Sihanoukville Province)136 households

Economic Situation

The village is close to the district's administrative centre and next to a national road.

Income is derived primarily from rice cropping, the gathering of forest products, river fishing and small trade.

Only 46% of the households are self-sufficient in rice and poor yields have moreover led several households to leavethe village. The households have a rather high average level of cultivated land, often with plots of different quality.Rodents caused heavy damage last year.

The forest plays an important role for the village. It provides the wood that is transformed into coal and sold on theside of the road and at the neighbouring marketplace. It is also a source of "Chinese" medicines and a nearby hunt-ing ground.

A quarter of the households also grow fruit and vegetables at the foot of the mountain at the beginning of the rainyseason. Between pricking out and harvesting, the villagers go fishing.

However, none of these activities are very lucrative, as they are conducted on a small scale, with little equipment ortechnique. Many villagers consequently hire out their labour in the neighbouring fields, that often belong to thewealthiest farmers; they are either paid in paddy on a daily basis, or their work goes towards reimbursing a previously-contracted loan.

Small trade is on the increase, along with service activities such as moto taxis, farm machinery rental, rice trading,groceries, etc.

Practices involving mutual assistance, exchange, barter and payment in kind, which were widespread up until now,are waning under the influence of a certain modernisation.

Few land sales have been recorded: two for reasons of prolonged illness. No over-indebtedness.


This village does not have a village association, as EMT has always considered it not very creditworthy and not verysafe.

Loans from moneylenders are very common there, with two people providing credit at a 10 to 15% monthly interestrate.

Acleda loans are not very popular because of the failure of certain borrower households. Moreover, they concern onlya small privileged section of the population and/or those with a means of transport.

The villagers are calling for small loans and also investment ideas and training in relation to various crops, livestockproduction and fish-farming.


58

C1. Households with Exclusively Seasonal Activities and Either Small Landholdings or No Land at All

This cluster consists of households that earn their living exclusively from rice cropping, livestock production, cropgrowing and the sale of labour.

The farms are small in size, given the number of people in the household, and are seldom self-sufficient. There areseveral possible situations: the households arrived in the village after the redistribution of land; they had to sell partof their land; they lost their land as a result of a divorce or the death of a spouse; they are elderly people who havetransferred their land to their children; or they are large households with young children. They do not have sufficientmembers working to enable them to develop new sources of income, and they do not have sufficient farming capaci-ties. There are also a few newly-established young couples.

The activities engaged in are often very labour-intensive over short periods, after which the working members of thehousehold endeavour to find other sources of income in the form of piecework or new occasional activities. They fre-quently alternate periods of work and periods without any precise occupation. Finding a job site is fairly uncertain anddepends on the briskness of the activity in the area, job-seekers' capacity to relocate and their qualifications.

Crop year expenses are often problematic and are either reduced or financed by loans from the household, the sup-plier or in exchange for work. The lack of household capital pushes the level of expenditure up, as these householdsdo not have all the necessary equipment (essentially draught animals) and their farms are among those most at risk inareas subject to flooding.

The farms seldom provide sufficient rice, especially as the stock is used to regulate household cash-flow during theyear: sales of rice bring in cash and enable the household to cover expenses during the periods without income. Afterreimbursing the various debts and advances on harvest (January and/or July, depending on the number of cycles), thehouseholds are able to buy a pig.

The other incomes are used to cover day-to-day expenses, which are kept to a strict minimum21. These householdsquite frequently call on the household for pre-harvest credit, advances in kind and urgent needs. Income in kind isquite common, especially in less moneterised areas or in those a long way from marketplaces.

In summary:

• These are consequently the most vulnerable households, with very irregular income.

• Rice cropping expenses at the beginning of the rainy season place an enormous burden on their annual budgets.

• They have to cultivate their own fields and work on other farms during the same period, but they have limitedlabour resources within the household.

• The annual production allows them to reimburse advances, regulate cash flow and feed the household for part ofthe year, as well as set aside short-term savings.

The differences within the cluster relate on the one hand to the number of available assets and on the other to the sizeof the farm. Other differences stem from the presence of more or less regular aid from a member of the householdwho has emigrated (to the town or abroad). This aid sometimes represents the main source of cash.

Appendix 3 Classification

21 The households occasionally produce vegetables and fruit for their own consumption, and sometimes also fish in the rice paddies and rivers to supple-ment their meals and sometimes their income.


C2. Diversified Farms

This cluster comprises households whose activities are all centred on the farm. The farms here are larger and betterequipped. These households have the knowledge required to diversify crops and engage in more intensive pig, cattleand poultry farming.

Self-sufficiency in rice is more frequent here and represents one of the key elements differentiating this cluster, alongwith the size of household assets and the existence of a regular pay or regular aid from a household member.

These traditional farms, strongly anchored in the village, are seldom engaged in non-agricultural activities, throughlack of qualifications or networks, or through aversion to risk.

They are more inclined to enhance their standard of living (house, equipment, schooling, farm size, etc.) than investin new activities.

As with the previous cluster, the activities require the participation of all the available labour resources during shortperiods. The sums required for crop year investments and sustaining the activity are generally self-financed.

Entries of income from the sale of rice, animals, fruit or vegetables are spread out over a period of time. Income isused to meet household cash needs; sufficient stock remains to cover unforeseen or large expenses. Credit is advan-tageous, though, as it allows households to save stocks until periods when prices are high, which is generally prof-itable.

For rice cropping, they traditionally exchange labour, a practice which is facilitated by their social network.

Livestock savings and loans to other villagers are more widespread.

In summary:

• These households are not as vulnerable, as they produce more rice and other farm produce.

• Income is seasonal here also, though flatter over the year, thanks to livestock production and stocks.

• Crop year expenses place a considerable burden on their annual budget, but are better anticipated.

• There are more household assets and equipment.

• Monetary income is rare; social networking, exchange and mutual assistance are more widely practised.


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C3. Producer with a Craft Activity

By craft activity, we mean any activity that produces a transformation by means of a skill and equipment. It includesthe production of palm sugar, rice alcohol or baskets, for example, or construction, etc.

In the particular context of the Sihanoukville province, there is another activity that requires specific discussion, andthat is fishing.

These households are seldom self-sufficient in rice. Either they have clearly chosen to invest first and foremost intheir craft activity or they are accumulating capital in view of future expansion.

Their assets are consequently quite small (little land or equipment and a house that is rarely new). The income fromtheir production cannot cover all their expenses. They consequently have numerous small ancillary activities. The ini-tial capital is not very large and seldom represents an entrance barrier, unlike the need for labour and technical expert-ise. Equipment is often purchased using credit obtained from the household or buyers, or less frequently from a mon-eylender.

These activities demand the full-time commitment of one person and often occasional help from the other members.When the periods overlap rice cropping seasons, extra workers have to be taken on. These activities are often sea-sonal and the income and prices fluctuate. There are many young, dynamic households with a number of ancillaryactivities in small-scale services, market gardening and livestock production to supplement income during the slackperiods.

Cash needs are generally quite high; small equipment has to be replaced regularly; there is a high daily consumption ofinputs; sales however are occasional. Credit enables the households to both sustain craft activities and regulate very tightcash-flows. Fluctuating input prices can drive households to cease activities that are nevertheless profitable, for want ofcash22.

As sale prices fluctuate, the households build up stocks of products that they transform into livestock savings or gold,or directly into equipment, when the time is right.

The rainy season is generally a slack period for this type of activity.

Crop year expenses are financed primarily by savings and household expenses by income from the activities.

In summary:

• These are dynamic households, but dependent on the outlets and the buyers, and weakened by fluctuations in theprices of inputs and products.

• They possess fewer assets and less productive capital than the previous cluster and yet their income is higher, moreregular and more diversified. Their cash needs and their high level of investment tend to limit their personal expens-es.

• Less vulnerable to the uncertainties of the weather and other risks associated with rice cropping, they seem on thewhole to be on a path conducive to accumulation.

• As regards future prospects, these households are headed towards either ceasing this activity after acquiring landand equipment, or entering trade through upwards integration.

22 This is true of firewood for palm sugar and nets for fishing.


C4. Small Trade

This cluster includes groceries, the sale of noodles in the morning, the sale of cakes and small-scale trading in fruit.

In many cases, this type of activity is conducted by women working on their own. They can do so because these activ-ities allow them to not only bring in income but also be present in their homes. This cluster very often also includeshouseholds with little (or no) land suitable for cultivation. For these households, small trade is their sole source ofincome. The businesses vary greatly in size and the initial capital is generally quite small. The main difficulty lieswith cash flow: stocks are renewed frequently and the customers often pay on credit. Even if the amounts involvedare small, several households have had to cease their activity through lack of cash. The regularity of their income pro-vides them however with a certain security, saving them from ever being in great difficulty and making it easier forthem to obtain other sources of funding23.

With a lower level of rice production and capital than cluster 2, these households are however less vulnerable, as theyare less subject to uncertainties and can more easily manage their cash flow. Small trade requires one person work-ing full time, very often with occasional help from all members of the household (young children included). The otherhousehold members combine a number of small-scale, irregular activities (livestock production, market gardening,small-scale services, another shop, etc.).

The income is sufficient to support the household and sustain the activity, but supplementary income or savings arenecessary to cover the major crop year expenses and investments. Supplier loans (free of charge) are frequent andallow the households to increase stock.

The households have quite high levels of expenses.

Often, they are not as well established in the villages as the farmers.

In summary:

• Small trade is easy to enter and provides regular resources. Its growth is closely tied to the village context and theinhabitants' purchasing power.

• Vulnerable households often turn to this type of activity, which requires neither large initial capital nor specialskills. This is not heavy work and is usually performed by women.

• Economic success depends on the capacity to seize occasional or seasonal commercial opportunities.

23 Such as ASCAs, loans from moneylenders or suppliers, etc.


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C5. Services and Large-Scale Trade

These activities, necessitating large initial capital, include fish traders, tailors, car and motorbike repairers, cafés, elec-tricity suppliers, motorbike taxis and farm machinery hire services.

Besides a large initial capital, these households possess a skill or an extensive network of acquaintances. This cate-gory also includes households with several medium-sized activities.

Most of the households in this cluster own large plots of land suitable for cultivation. They have the means to storerice for subsequent resale when prices are high. They are well equipped and have often inherited a comfortable assetbase, in addition to what they obtained during the distribution of land. These households tend to accumulate land andequipment, on the one hand to enhance their living environment and on the other in view of future distributions totheir children on marriage.

They have numerous regular incomes; all of the household's active forces are put to use; the children continue theirstudies longer and household expenses are generally higher. For farm work, additional hired labour very often freeshousehold members for more profitable trading activities.

A larger proportion of these households save money and the levels of savings are higher. Savings are used to financeproduction and investments, and more rarely for consumption.

This cluster includes the villages' occasional or regular moneylenders.

Their loans are for larger amounts and are used to supplement an existing capital for investment and consumption.These households do not have any problem obtaining the various sources of funding.

There are numerous households in which one person has a paid job (working in a factory or the public service, etc.).

In summary:

• The least vulnerable households, with regular, diversified income.

• Numerous assets and considerable productive capital, at the accumulation stage.

• Investment and lending capabilities.

• Crop year expenses are financed by the many sources of income and by savings.

• Available labour within the household, supplemented by seasonal workers.


Appendix 4Description of a Few Typical Households from Each Cluster.

C1: Small Farmers

• The household is made up of a couple with one child at school.• They obtain 5 to 7 tang of rice per year from their 20 ares and buy rice most often.• They arrived in the village only recently and have little capital and cannot work for more than 3 months of the year

because the other households provide less and less work in difficult periods.• Credit has enabled them to buy a pig; they were able to enter the group that included one of their relatives who helps

them in the village.• They often call on outside help and have a very low debt capacity. As they do not have extra rice, livestock fattening is

too expensive for them.


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C2: Farmers with a Regular Salary

• The household lives primarily on the wages earned by the head of the household as employee of an international organ-isation (IO), as well as rice cropping and livestock production.

• He works only once a week for the IO; this entitles him to receive the training that the IO is responsible for dispensingto the villagers (use of fertilisers, vegetable production, loan of motor-driven pump, etc.).

• Livestock production is financed mainly by credit. One of the pigs is sold to repay the capital; the other represents theprofit gained from the activity thanks to credit.

• He has been a client for 10 credit cycles now. He evaluates his financial profit over the whole period thanks to the goldhe considers he has accumulated from the profits earned thanks to credit.

- During the first credit cycle, he obtained 30,000 riels:

1. one pig = 8,000 riels (today it is worth 20,000 to 50,000 riels); expenses were minimal at the time.

2. Fertiliser: 1 taev = 20,000 riels (now 45,000 to 60,000 riels)

3. The remainder was used to cover labour costs associated with rice cropping (50,000 riels in total; now one would haveto count 200,000 riels for 24 are). At that time, they produced 50 taev; they now obtain 80 taev.

- During the last credit cycle, he obtained 200,000 riels

The household again used credit to buy pigs and finance rice cropping.

The pigs cost 40,000 riels each; the fertilisers (2 sorts) cost 48,000 riels and 42,000 riels.

The household believes it has saved over a million riels and that this gold has enabled it to build its house.

Capital Obtained Profit Generated

Cycle 1 30,000 55,000

Cycle 2 50,000 55,000

Cycle 3 70,000 60,000

Cycle 4 90,000 70,000

Cycle 5 110,000 70,000

Cycle 6 130,000 70,000

Cycle 7 150,000 70,000

Cycle 8 170,000 110,000

Cycle 9 200,000 110,000

Cycle 10 200,000 110,000

Cycle 11 200,000 110,000

Cycle 12 200,000 110,000

TOTAL 1,600,000 1,000,000

Summary Table of the Profits for Each Cycle, as Calculated by the Household


C3: Palm Sugar Producer

• The household is made up of a couple and five children, not all of whom go to school.

• They obtain up to 30 tang of rice a year from their 76 ares, part of which was bought recently.

• They buy rice for six months of the year, thanks to income from palm sugar and hiring out their labour.

• The rising price of the firewood used to cook the palm sap is a real problem. Credit is used to purchase and store equip-ment for sugar production.

• Vegetables and rice can be produced at low cost thanks to the plentiful household labour resources, but it remains difficult.

Trends in Cash Flow During the Year

Month Rice Vegetables Ceremonies Food Credit Palm Sugar Schooling Labour Monthly Cash Flow Balance

1 -43 000 -100 000 -45 000 -8 000 110 000 -30 000 -116 000

2 -98 000 -100 000 -45 000 -8 000 110 000 -30 000 -287 000

3 -98 000 -100 000 -45 000 -8 000 110 000 -30 000 -458 000

4 -198 000 -200 000 -100 000 -45 000 -8 000 110 000 -30 000 -929 000

5 -198 000 -100 000 -45 000 -208 000 75 000 -30 000 120 000 -1 315 000

6 10 000 -45 000 -25 000 -30 000 120 000 -1 285 000

7 740 000 500 000 -45 000 200 000 0 120 000 230 000

8 -73 000 -45 000 -8 000 0 104 000

9 -43 000 -45 000 -8 000 0 -30 000 -22 000

10 -43 000 -45 000 -8 000 0 -30 000 -148 000

11 -43 000 -45 000 -8 000 150 000 -30 000 -124 000

12 -13 000 -45 000 -8 000 150 000 -40 000

Based on information provided by the household (in riels)


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C4: Regular Small Trade and Land

• Widow with two children at school. She has returned from Phnom Penh, where life was too difficult.

• 40 ares of land: this is just enough to feed the household and cover a few extra expenses.

• To cover day-to-day expenses, she sells 1 taev of rice every 3 days (6,000 riels) and receives money for her work in the fields.

• Thanks to credit, she trades in cattle and the profits support the household.

• She keeps some rice to pay school expenses in September.

• She also keeps 10,000 riels for a basket of rice (this is the period when prices are high) for weddings and 2 000 riels forexpenses related to ceremonies.

• In the event of illness, she asks the doctor for credit.

• Apart from rice, she occasionally buys pigs for subsequent resale, which allows her to keep 1 chii of gold for food andunexpected expenses.

MONTH Income Credit Consumption Schooling Ceremonies Food Rice Monthly Cash from Cattle Flow Balance

1 100 000 -8000 -160 000 -12 000 -20 000 -45 000 -100 000 -245 000

2 105 000 -8000 -12 000 -40 000 -45 000 -245 000

3 110 000 -8000 -12 000 -40 000 -45 000 -240 000

4 115 000 -8000 -12 000 -40 000 -45 000 -230 000

5 120 000 -208 000 -12 000 -30 000 -45 000 -405 000

6 125 000 -45 000 -325 000

7 130 000 200 000 -45 000 -100 000 -140 000

8 135 000 -8000 -45 000 -100 000 -158 000

9 140 000 -8000 -19 000 -30 000 -45 000 -120 000

10 145 000 -8000 -12 000 -45 000 -40 000

11 150 000 -8000 -12 000 -45 000 45 000

12 155 000 -8000 -12 000 -45 000 135 000

TOTAL 1 530 000 -80000 -160 000 -115 000 -200 000 -540 000 -300 000 135 000

Trends in Cash Flow During the Year

Based on information provided by the household


C5: Trade and Other Activities

• The household is made up of a couple and six children, one of whom is studying in Phnom Penh. This is a relatively well-off household.

• They obtained 1 hectare during the distribution of land. They obtain up to 200 taev of rice a year. They resell part of itduring the pre-harvest periods and when prices are at their highest.

• The husband is a teacher and does tutoring, which gives him a regular pay and enables the household to accumulateappreciable profits.

• One of their daughters works in a factory and gives most of her pay to the household.

- During the first credit cycle, they obtained 30,000 riels

1. The household contributed a capital of 130,000 riels and with the total bought 690 kg of tamarind, subsequently resoldin Phnom Penh. Net profit amounted to 48,300 riels after deduction of all expenses including transport. It then extend-ed its trading activities to include sugar and rice, depending on the season.

2. At the end of the year, it had accumulated a net profit of 1 chi after having reimbursed the credit.

- During the last credit cycle, they received 200,000 riels

1. The household again used the credit for its trading activity; its personal capital increased each year.

2. After 10 years, it had a capital of 400,000 riels devoted to the activity. Profit stands at 2 chii per year. The householdhas also been able to buy 5 cattle, a house worth 6 domlongs (1,700 dollars) and a motorbike worth 280 dollars.

The mother ceased trading this year because of illness.

Fig 28: Trends in Cash Flow During the Year for the 5 Households

emt client led assessment -...

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