Wednesday, June 12, 2013

To Lend or Not To Lend Money

Many Cambodians perceive foreigners as having money -  money to spend and money to lend. This manifests itself in the facts that the tourist gets his money taken by inflated tuk-tuk prices, at the Russian Market, also known as Tuol Tumpung Market, or elsewhere. Some expatriates get fleeced by bar-girls, or drink it away. In general, I would think it is a huge misconception.

However, if you have lived here for while and acquired either friends or possibly even a family (family being the greater family with once and twice removed folks as well) you will sooner or later be approached for a loan. So, you guessed it, I was the target for several  supplications to help out with people’s finances.

The first instance happened when I still lived stateside. One day my wife got a call from her uncle. That was some big expense for them, being poor folks, so it must be urgent. Of course, it was. They were in danger of losing their modest house. The bank threatened to take it away from them if they didn’t come up with the balance of their ‘home loan’ within a few days. It was some micro-finance  establishment. The balance was all of $2,500. If you don’t have any money this is a lot. They had obviously failed to make their monthly payments for some time. Who could turn these poor people away? So I agreed to lend them the money. They promised to pay it back as soon as their son who lived in Canada would be in a position to send them more every month.

Once we had relocated to Cambodia permanently they came to live with us for a while. As it happens many a time, we had a falling out and they moved back into their little house in Siem Reap. I drew a up a loan agreement, but being the ever-generous person, I did not include a term for the loan. It is interest-free to boot. Needless to say after that falling out, we never heard back from them and I guess I can kiss my money good-by. I also learned that they had used the original loan from the bank to extend micro-loans themselves but grossly miscalculated the risks and promptly lost those funds to ‘non-performing’ loans.

Another time, also still in the U. S., we got a call from a niece once removed. They asked for $5,000 which they needed to buy a car. They had $5,000 of their own. They wanted to use the car as a taxi. At that time you could hire just about any car with driver for $10 to $20 a day. On one of my visits I found out that they had bought the car already and gotten that $5,000 from a private person. They paid $200 a month in interest, which would translate into 100% interest. I could understand that they wanted to change that. As these people were not really in an emergency I advised them to go to a bank, e. g. ACLEDA, which makes car loans up to 40% of the value of the car. My friend even knew the loan officer and opened the door for them. When we asked them later what had happened they said they hadn’t dared to go to the bank. Also, since I had thought the business was a little shaky, I later learned that it was really going bad and they wanted to sell that car again. I would never have seen that money again.

The uncle’s son (divorced) in Canada was next to hit me up. He had been to Cambodia the year before and met a traditional Khmer dancer and wanted to get married. The problem was his business in Canada wasn’t going that great. He had made a big mistake with his divorce as the distribution of property left the wife with two houses, he got the business. The wife sold the houses at a good price and moved to Cambodia where she built a number of condos and rented them successfully. He, however, saw his sweat shop in Canada competing with imports from Cambodia, which sort of pulled the rug out from under him. In the end he didn’t have the funds to travel to Cambodia and hold that expensive wedding ceremony. He asked for $5,000 (this seems to be amount people think they can get easily). Remembering his uncle and his promise based on his son’s income I politely declined mentioning other capital intensive business. The wedding was a great success but he lost money – from what I heard from his father about $5,000. He had borrowed $10,000 from other people. They are still waiting for their money. The irony in this story was that once he got back to Canada he seemed to forget about his new wife because he didn’t contact her for months. He promised to send for her but needed money for the attorneys to prepare all the papers, etc. In the end, the wife lost patience and divorced him. The whole thing was done Cambodian style with no official paperwork, just the wedding ceremony. Am I glad I didn’t loan that $5,000.

Next up was one of my wife’s nephews. She has quite a lot of nephews and nieces. He had borrowed $300 before for a new car engine, which he indeed paid back more or less promptly. Now he also  had wedding plans; never mind that he was still in college and made a living as a part-time tuk-tuk driver. He did own a car, a tuk-tuk , and a bicycle, all of which he rented. The timing was essential as he had a competitor whose parents had also been in touch with the bride’s parents.  To me it looked more like a wedding out of hurt pride than of love. Anyway, he needed  $3,000 to pay for the preparations of the ceremony. Of course, he hoped that he would get that money back from the table money people give at weddings. As additional collateral he offered the next harvest of cassava, which he said was a dead-sure thing moneywise. Prices were at a very good level and he stood to make about $10,000 from that harvest.

I have a thing about Khmer reliability when it comes to paying money back. I suggested he wait with his wedding until he has finished his studies and found a job. But as anyone can imagine, that fell on deaf ears. I said I am not going to pay for his wedding this way. He needed to find another solution, e. g. sell his car. This is what he did in the end. It didn’t get him the needed $3,000 but only $2,500. The party was also a great success; unfortunately, he too lost money. At least his father-in-law was of some means, so not to worry.

Another time, I was to shell out $10,000 for some small hotel that someone we know wanted to build in Kratie. He had bought the land and now needed to run everything through the authorities. That’s what he needed the money for. He has a gentleman from the U. S. who is backing him in this. He will fund the whole thing; the catch, though, is that this gentleman still needs to sell his house in the U. S. The proceeds were to go into this project. The Khmer guy promised to pay me back after one month – the time it would take to sell the house. He sure doesn’t know the U. S. housing market. Needless to say, I again politely declined.

Of course, it is quite common that employees ask for an advance if there is some unforeseen circumstance. I usually reject those too; because his family will go hungry the next month. If it is one thing the average people here (and probably elsewhere too) don’t have the slightest clue of, it is that they don’t know how to manage money. Many people in the West, especially in the U.S., overspend, max out their credit cards, or take out second mortgages to fund extravagant purchases, but at least there is a developed consumer oriented financial industry, which is virtually non-existent here. So people better not spend the money they don’t have. It usually doesn’t end well.

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