In North America and Europe, financial institutions refrain from providing their clients with short-term, small-dollar loans, otherwise referred to as payday loans. Since this is viewed as high-risk and unprofitable, American, Canadian and British have refrained from providing it.
Outside of these jurisdictions, however, a large number of financial institutions are seeing payday loans as an opportunity. There is no doubt that payday loans are very high in demand. So banks are wondering: why can’t we offer our clients such products to avoid losing business to payday loan franchises operating perhaps across the street?
Well, the question has been answered.
Acleda Bank, a financial institution operating in Cambodia, is one of those banks providing salary loans, again also known as payday loans. The number of banks promoting and offering advance salary loans continues to grow across the country, and it’s proving to be a hit.
The credit arrangements can be made within just one visit without any collateral or a guarantor. The banks also don’t require the clients to inform them on how the funds will be used upon receipt. For the most part, customers can borrow up to three times the amount of their monthly salary. The interest rate varies from one to two percent, and have up to 30 days to repay the sum.
Despite the fact that it wasn’t really popular at first, time has shown that it’s a product in demand. One of the biggest users of the bank’s payday loans are government workers. More than 2,100 clients from the public and private sectors have taken advantage of payday loans worth approximately $715,000, and it’s gradually becoming a new source of money for many clients.
Recently, a wide variety of financial institutions have embraced this business model. Canadia Bank started to offer payday loans in 2014, while Aeon Specialized Bank started to offer a similar loan product soon after. Just this month, Phillip Bank Plc offered payday loans to customers with steady jobs and a fixed monthly income.
With Cambodia’s middle class growing, they’re facing some of the many problems that American and Canadian middle class households go through, and these sometimes require payday loans.
“We’re tapping into the middle-class sector, mainly professionals and employees from both the private and public sectors,” said Han Peng Kwang, general manager of Phillip Bank, who added that he has seen a flood of applications come through over the last couple of weeks.
“The loan can be used for any purpose, whether for investment or personal consumption.”
Meanwhile, other banks are still apprehensive about entering into this niche. Maybank Cambodia noted that the bank has other priorities that it needs to fulfill and likely won’t serve the payday loan market anytime soon. She added that the bank does offer its clients an advance overdraft.
For years, public officials, anti-poverty activists and consumer advocacy groups in the West have regularly encouraged banks to adopt a similar model in order to protect consumers from excessively high interest rates and immense debt loads from traditional payday loan stores.