If you've applied for a mortgage recently, you know how hard it can be. The bank demands all kinds of obscure documents and wants proof of almost every asset you own. But an innovative mortgage program halfway around the world will evaluate your application without any extra documentation — and if you're approved, it will give you a 15-year fixed-rate mortgage. There's just one catch: The mortgages are only for low-income people in Cambodia. The program is a throwback to the days when bankers got to know their customers — and trusted them.
Sriv Keng and her husband are prime examples of the people who are applying for these special mortgages. Until several weeks ago, they lived on the fringes of Phnom Penh, the capital of Cambodia. Their home wasn't a house, but a long corrugated metal shack that they shared with another family. It sits at the side of a field choked with green algae and trash.
The shack's uneven and lumpy floor is made of hard-packed dirt. There is no indoor plumbing, and the nine residents shared a hole in the ground for their toilet.
"If it rains for like two or three days in a row, the water gets into my house," Keng, 39, says through an interpreter. "When it's flooded, the water level is high, above my ankle." Keng says her family had been living there for five years, and they were desperate to move to a better home.
But if they had walked into a regular bank in Cambodia, or just about any country in the world, and asked for a mortgage to buy a nicer house, executives mostly likely would have turned them away.
Keng and her husband both work. She makes and then sells rice soup at a street stall, while her husband sells clothes at another stall. But they don't meet one of the crucial requirements for getting a mortgage: They don't receive salary slips or other financial documents, so they don't have what bankers call "verifiable income."
Late last year, Keng heard about an unusual bank called First Finance, which was designed specifically to give mortgages to low-income people like her. She and her family could already imagine the new home they wanted to buy: a two-story house with indoor plumbing. It would cost about $20,000.
"I have always wanted to live in a nice, beautiful house, but with my business, with my small, very small business like this, I never expected I can afford to buy a house," Keng says.
A New Kind Of Bank For A Changing Country
The First Finance mortgage program in Cambodia was the brainchild of Talmage Payne, a 45-year-old American. His parents worked as eye doctors in Nigeria, so he grew up wanting to help low-income people in poor countries. When Payne graduated from college in the early 1990s, he moved to Cambodia to work with the refugees of the fighting between the government and Khmer Rouge guerrillas.
"When I first came here, it would be dirt roads, the roads weren't paved, there would be no building over two stories. A few wandering cows," Payne says. "If you wanted electricity, you needed your own generator. The only vehicles were some form of rocket launcher or jeep. The country was at war."
But since the United Nations helped make peace later that decade, Cambodia has been changing dramatically. It's still one of the poorer countries in the world, but you can hear the transformation. Just five years ago, everyone rode bicycles, and the streets of Phnom Penh were quiet. Today, they are clogged with noisy motorbikes, along with more and more SUVs. A Dairy Queen just opened last year — a sign that globalization has come to Cambodia.
Payne used to run the Cambodian branch of World Vision, the international Christian relief and development organization. He also helped lead a microfinance program, which would lend small amounts of money for a few months at a time to help people kick-start a business. But Payne says the more he watched Cambodia's economy grow, the more he realized it was leaving many low-income people behind — especially in housing.
"If you go to their homes, they had horrendous homes, they were living all in the parents home, too many people, they don't have access to getting a good house," he says.
Microfinance, he says, was not the solution. People needed much bigger, long-term loans to buy homes. Payne also says he realized something else that contradicts traditional banking assumptions: Low-income families make great mortgage customers.
Just about everybody in a typical Cambodian family works. The wife might run a market stall, while the husband does day labor.
"Grandma sells peanuts, the kids work," Payne says.
As a result, many of the families are financially resilient. If one person has to stop working, the others can chip in.
"You're giving somebody something that they never thought they could have. So no matter what the hardship is, what's the one bill they're not going to miss? They're not going to miss the mortgage," Payne says.
A few years ago, he took that message to major banks in Cambodia and suggested starting a program together to help low-income families buy their first homes. Payne stressed that the program would be run like any careful business. The bank would not be subsidizing homebuyers; instead, the homebuyers would have to make down payments, and the banks would earn a profit. But the commercial banks didn't bite.
So Payne set up a new bank by himself with the help of some friends. They chipped in a total of $300,000. They raised another million from investment funds that want to do good and make money. They applied to the Cambodian government for a license, and the First Finance bank opened for business four years ago.
A Visit From the Credit Officers
Shortly after Keng and her husband applied for a mortgage, two credit officers from First Finance showed up at her soup stall at lunchtime to see how she runs her business.
These visits from the credit officers are the key to what makes the First Finance lending programs work. Keng sells her soup on battered wooden tables along a side street in a dusty neighborhood. It's flanked by factories that make clothing for the U.S. and Europe. As the factory bells sound and hundreds of workers wearing kerchiefs pour into the streets, the credit officers watch and take notes.
They want to see how many workers buy her soup and how much they pay. They also want to know what other vendors think about her.
For example, they talk to the man who grills corn cobs across the road from Keng's stall, asking if she usually has many customers and if other vendors trust her. The man, along with two other vendors, speaks positively about her.
After the lunch rush, the credit officers interview Keng while she washes dishes in plastic buckets. They create a financial spreadsheet by asking her details about how much rice, meat and vegetables she buys to make the day's soup. They ask for the contact information for the merchants she bought the ingredients from so they can verify how much they cost.
The officers have also been doing the same detailed research about her husband's clothing business. The officers calculate that Keng and her husband make almost $800 a month. A lot of First Finance customers make half that much.
After a full evaluation, executives at First Finance approved a $16,000 mortgage for Keng and her family. They immediately purchased and movied into their dream home, just down the gravel road from their shack.
Many families receive 10- or 15-year mortgages from First Finance, but Keng says she will try to pay it back faster. The family will pay 18 percent interest on their mortgage, while most Cambodian banks charge about 12 or 13 percent. But then, regular banks would never lend money to low-income people like Keng.
First Finance has given out more than 700 mortgages and building loans, Payne says. Roughly 2 percent of the customers have defaulted, which is lower than the rate in the U.S. The bank and its investors are now making a profit.
A New Home
Keng's new house is a world away from the corrugated metal shack that would flood when it rains. It has decorative tile work and arches, a living room with a 14-foot ceiling and a dining room. It also has an indoor kitchen with a sink and faucet. The second floor includes a good-sized bedroom. The house also has a bathroom with a porcelain sit-down toilet.
Back at the metal shack, nine people shared a hole in the dirt.
"I'm happy and excited for the new toilet, because it's easier for us when we want to use it," says Eng Sreng, Keng's 63-year-old mother. "And it's beautiful."