Lutheran World Federation (LWF) Cambodia established a micro credit bank with deposits from villagers. All people in Phnom Srouch District, Kampong Speu Province actively support this service.

Sitting together in a public rest hall (Sala Chhortean)

Kallyann addresses the jounalists in her remarks why she selected the subject for her article

in Pring Village, Phnom Srouch District, women were patiently waiting for their turn. While their husbands were busy in the rice fields, these women paid much attention to their family budget. One after another, they presented accounting book held firmly in their hands and the money they saved during the week to the leader of the village bank. This leader carefully recorded the amount of money deposited and asked the villagers who were new customers to sign with their thumb print. When 40 woman villagers paid their contribution, the responsible person offered a new loan. Depending on their projects, these women may receive loans up to 120,000 Riels (30USD).

Ms. Roeun Sambath pays back the loan to Village Bank

Here the bank belonged to all the villagers. This system was established by Lutheran World Federation (LWF) in Cambodia and seemed to progress without any constraint. Since 2002, Mrs. Roeun Sambath, who had two children, was among the 40 women involved in the credit system of this scale. She described with smile.

"With 120,000 Riels (USD30) from the bank and the money my husband earned from selling his labor at charcoal kiln, I bought a baby pig which cost 40,000 Riel (10 USD) and some chickens and ducks to raise. My husband and I can earn money to pay back the loan on time because the monthly interest rate for this small scale credit is only 3% which is different from borrowing from money lender with interest rate from 7% to 100%." She successfully used the credit of Pring Village Bank. This 28 year-old wife expressed her pleasure. "With this small loan, I have money to build a house and the status of our family has been significantly improved."

Two or three houses away from that of the above lady live Mr. Dy Sary and Mrs. Phuoy Seng who were both farmers had recently bought a rice miller and a new motorbike. These materials were bought with income from selling some pigs. It should be noted that with their first loan, they could buy these pigs. The wife, Mrs. Phuoy Seng, explained with her shy face.

 "When the pigs grew big, we sold some of them, which made enough money to buy a rice miller. Then we sold some rice to buy a motorbike." They could reach this point because of the first loan they got from the village bank. According to her, this bank taught her a lot about how to make a family budget plan, especially the credit made her understand the burden of the family head and how to make money for a future project. Similarly, other villagers raise animals or run small workshop or small business.

Mr. Khim Vichet, LWF Project Manager in Phnom Srouch District revealed that credit enabled villagers to increase their livelihood activities.

Kallyann interviews LWF Cambodia Project Manager in Phnom Sruoch

Integrated Rural Development Project of LWF Cambodia, particularly supporting the capacity building of the poor community, operated eight short-term projects. Among these projects, micro credit service was operated to expand income generating activities of the communities.

Phnom Srouch in Kampong Speu Province located about 112 Kilometers from Phnom Penh is a model district for micro credit. This district was one of the target areas for the pilot project of LWF in 1996. Among 179 villages in this district with around 19,000 households, 52 village banks operate successfully. The total capital of these banks is almost 300 million Riels (74,000 USD). LWF expects that by the end of 2008, 58 village banks will be established and by 2010, 66 banks will be established in Kampong Speu Province.

Two other provinces- Kampong Chhnang and Battambang- are also involved with LWF Programs. In the three provinces, 253 banks of this kind were established since 1996. This system has mobilized the total capital of 1.5 billion Riels (380,500 USD).

Tropeang Saray, a small remote village in Phnom Srouch District, is accessible through a dam built during the Khmer Rouge. Even though the village infrastructures have not been restored, it is linked with other villages through the exchange of products. This is the advantage of village bank. Tropeang Saray has around 100 households. Thirty-five poorest households are members of the village bank. Since 2006, the villagers have deposited the total amount of three million Riels (750 USD). In the period of two years, they borrowed the total amount of four million Riels (1030 USD) from the bank. The system, however, seemed to be unsuccessful at the beginning. Mr. Tep Ung, the leader of the village bank, described how the villagers did not trust the bank. "They thought that would be indebted forever." The people were no longer reluctant after a campaign to disseminated information.

One village bank consists of no greater than 60 members. They vote for an administrator, a manager and an accountant.

After the selection, the chairman of the bank leads all members in preparing rules, approving statute and disciplining themselves. The rules include the punishment of those who fail to make payment on time or attend meetings.

The new member had to pay 200 Riels (0.05 USD) per day for the period of 8 weeks. Therefore, they learned how to save money. This period is also sufficient for her/him to prepare her/his business plan. Then he/she is able to get loan in the amount of 120,000 Riels (30 USD) and he/she has to pay back the loan within six month with 3% interest. Eventually, he/she is able to get more loans if he/she worked harder.

"One of the reasons which motivated villagers to become members of village bank is that they participate in the community saving," Mr. Pech Chenda, Community Empowerment Facilitator in Pring Village, evaluated. This enabled them to solve urgent issues, fulfill family needs or to prepare themselves for the day they may encounter difficulties.

"This is a good method to promote social contribution through the expansion of livelihood activities," the Facilitator added.

The other advantage of credit service is the easy access to loans. Mr. Pech Chenda explained the conditions of this service.

"The bank does not need the deposit or any asset for guarantee. All members only need to guarantee new membership. On the other hand, the new member has to defend his/her project, i.e. he/she has to create a business."

Village bank provided loan without interest in case of death or sickness of member of the family. In dirty clothes and unruly hair, Mrs. Men Yi, a Tropeang Saray villager, received loan when one of her children suffered from dengue. At that time, this mother could not get a loan from anyone, even if she offered high interest rate. Fortunately, the village bank helped her even though she had already received loan in the first cycle. The bank allowed her to get an additional loan without interest and since then she has owed much gratitude to this credit system and become a permanent member.

Before LWF established these small banks, the villagers always got loan from private lender with interest rate up to 100%. Sometimes, the villagers engaged themselves with tontine in order to save money. Commercial banks have recently been established in provinces and remote areas. These banks charged interest rate up to 12.5%, which is different from the system of small credit.

However, besides convenient access to loan, there were also some weaknesses with this small scale credit, according to the villagers. Mr. Som Ron, 40, is a resident of Tropeang Saray and the head of a family of five members. He got loans six times already and regrets that the amount between 25 and 30 USD is not sufficient to expand his businesses of pig raising, taro planting and rice farming. For example, while the price of a pig has been doubled since 2006 from 35 to 70 USD, the loan amount remains the same. This means that inflation was not taken into consideration. Mr. Tep Ung also acknowledged this difficulty and he hoped that it would be solved soon.