In October 2010 AMK integrated the work of the Special Interest Group Unit (SIGU) into its Urban Operations Team.
Since its inception in 2009, SIGU has successfully built strong partnerships with NGOs and aftercare organisations based in Phnom Penh. Through SIGU, AMK provided a service to vulnerable clients who would otherwise have found it very difficult to access microfinance. What became increasingly apparent during discussions with NGOs and clients, however, was that in order to reach larger numbers of potentially underserved people in Phnom Penh, it was necessary to significantly expand the scope of the project by designing a specific product for the urban poor.
Despite impressive rates of economic growth over the last decade in Phnom Penh, the urban poor still comprise a significant section of the population of the city. According to the NGO Sahmakum Teang Tnaut, there are 40,548 urban poor families in the city (STT, 2009). Conditions in the 410 urban poor settlements are incredibly diverse; in some settlements homes are reasonably permanent and secure and the residents have regular, although low-paid incomes, and access to utilities such as water and electricity. In other settlements, however, homes are constructed mainly from salvaged materials, household incomes are both very low and insecure, and access to utilities is limited and expensive. Settlements are often located in areas prone to flooding, along rivers and railway lines, and in resettlement sites on the outskirts of the city. In recent weeks regular downpours have left many of our urban clients struggling to cope with flooded homes and damaged property.
Although many Microfinance Institutions already work in Phnom Penh, the depth of coverage is the second lowest by Province in Cambodia (The Cambodia Microfinance Association, 2010). Most MFIs require collateral and provide loans which are comparatively large in size.
In June 2010 AMK embarked on the process of product design. We conducted market research in urban poor settlements and analysed client preferences. The Product Development Department then set to work to devise a flexible product for clients with diverse occupations and loan usage requirements. The objective was to build a product that was as inclusive as possible that could suit the needs of existing SIGU clients, as well as reach a broader target client group living in slums, informal settlements and low-cost rental accommodation.
Specific challenges associated with working with this client group include a lack of formal documentation, proof of identification or collateral, difficulties in obtaining information about a client’s background and credit history, and an increased likelihood of sudden migration or eviction. Relying heavily on Guarantors to secure the loans and placing a strong focus on accurate assessments of clients’ income and repayment capacities, AMK aims to successfully promote financial inclusion amongst the poorest and most vulnerable urban clients, while at the same time mitigating the risk of default.
The pilot product (named ‘Loan for our Family’ in Khmer) was launched in late August 2010. The pilot test will last for four months and is currently operating in 3 Districts of the city; Russei Keo, Meanchey and Dangkor. While we are continuing to work through our partner NGOs and receive referrals from them, we are also targeting urban poor clients directly in their homes and workplaces.
Initial responses from community leaders and potential clients have been encouraging. We are closely monitoring the pilot phase and are modifying the product based on feedback from clients and Field Staff. In 2011 AMK hopes to expand this credit product to all eight Districts in Phnom Penh and to other cities around Cambodia.