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."
AUDIE CORNISH, HOST:
From NPR News, this is ALL THINGS CONSIDERED. I'm Audie Cornish.
ROBERT SIEGEL, HOST:
And I'm Robert Siegel.
If you've applied for a mortgage recently, you know how hard it can be. Banks demands all kinds of obscure documents. They want proof of just about every asset you own. Well, now we're going to tell you about an innovative mortgage program halfway around the world, no documents needed. If you're approved, you can get a 15-year mortgage at fixed-rates.
As NPR's Daniel Zwerdling reports, it is a throwback to the days when bankers got to know their customers and trust them.
DANIEL ZWERDLING, BYLINE: If you're interested in getting one of these mortgages, sorry, there is a catch. It's for low-income people in Cambodia. Let's start off by visiting a family that applied recently.
(SOUNDBITE OF TRAFFIC)
ZWERDLING: We the crazy traffic in downtown Phnom Penh, that's the capital. We drive past outdoor markets, they're selling statues of Buddha and meats swarming with flies. The road changes to gravel then dirt. We are passing skinny, white cattle now with humps on their shoulders. Their ribs are sticking out. And there's Sriv Keng and her family.
They're all standing outside their house. She says they're desperate to get one of those new mortgages, so they can buy a nicer home because this one is a corrugated metal shack. They speak through my interpreter.
SRIV KENG: (Through translator) So it gets flooded during rainy season. And...
ZWERDLING: Oh, the house gets flooded during the rainy season.
KENG: (Through translator) And also, it has no proper water system.
ZWERDLING: It's like a long garden shed. Two families live here, nine people in all.
(SOUNDBITE OF DOGS BARKING)
ZWERDLING: This shack is at the side of a field that looks like a swamp. There's water all over, green algae, green goo, trash everywhere. Could you show it to us, please?
KENG: (Foreign language spoken)
ZWERDLING: The floor is just hard-packed dirt. It's not leveled. It's very lumpy little hills everywhere. So when did this flood?
KENG: (Through translator) If it rains for like two or three days in a row, the water will get into my house. When it's flooded, the water level is high, above my ankle.
ZWERDLING: But maybe all that's about to change. Now, if Keng walked into a regular bank in Cambodia and said: Hello, I live in a shack and I'd like a mortgage to buy a nice house. They'd basically say: Are you nuts?
Keng sells rice soup at a stall along the road. In fact, she's cooking the soup during our visit.
(SOUNDBITE OF SIZZLING)
ZWERDLING: She's frying ingredients in a huge aluminum pot on a charcoal fire, just outside their shack - rice, salt, palm sugar. It looks like there's various animal parts in that porridge - bones and skins. And what is this paste?
KENG: (Through translator) It's fermented Chinese radish.
(SOUNDBITE OF SIZZLING)
ZWERDLING: So she does work. But a typical bank would say: You can't prove how much money you make. You don't get salary slips. It's too risky to give you a mortgage.
Then late last year, Keng heard there's a special bank called First Finance. And First Finance is designed specifically to give mortgages on building loans to low-income people like her. So she applied.
On this morning, her family hasn't heard yet whether First Finance will approve the loan, but they can already imagine their new home. Two-stories with indoor plumbing. It would cost $20,000.
Before you heard of First Finance, did you ever dream that you could afford to buy and live in a nice house?
KENG: (Through translator) 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.
ZWERDLING: This unusual mortgage program in Cambodia was the brainchild of an American.
TALMAGE PAYNE: My name is Talmage Payne. I am the founder and chairman of First Finance.
ZWERDLING: Talmage Payne is 45 years old and he grew up feeling it's normal to want to help low-income people in poor countries. His parents were eye doctors in Nigeria. When Payne graduated from college, he moved to Cambodia to work with refugees. Roughly two million Cambodians had been slaughtered or they died of starvation or disease under the Khmer Rouge of the 1970s. When Payne got here in the early '90s, they were still. It made ABC News.
(SOUNDBITE OF AN ABC NEWS CLIP)
UNIDENTIFIED MAN #1: And in Cambodia, a new government offensive against the Khmer Rouge guerrillas. This new action threatens the success of...
PAYNE: When I first came here, it would be dirt roads, no building over two stories. A few wandering cows. 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.
ZWERDLING: Then the United Nations helped make peace. And since then, 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, /he streets of Phnom Penh were quiet. Today...
(SOUNDBITE OF TRAFFIC)
ZWERDLING: It's mainly motorbikes and more and more SUVs. You still see Buddhist monks strolling around in orange robes and sandals, and chanting.
(SOUNDBITE OF MONKS CHANTING)
ZWERDLING: And a lot of Cambodians still stop at a particular food cart along the river. The vendor is selling mountains of fried bugs.
These are the scariest looking things. Are these...
UNIDENTIFIED WOMAN: This is a tarantula.
ZWERDLING: What does a tarantula taste like?
UNIDENTIFIED MAN #2: (Foreign language spoken)
UNIDENTIFIED WOMAN: It's crispy.
ZWERDLING: But you know that globalization has come to Cambodia when you see the Dairy Queen right behind him.
So, this is where Talmage Payne has been working. Payne helped run a microfinance program. That's the system where you lend small amounts of money for a few months at a time to help people jumpstart a business. But Payne says the more he watched Cambodia's economy growing, the more he realized it was leaving many low-income people behind, especially in housing.
PAYNE: If you go to their homes, they had horrendous homes. They were living, you know, all in the parent's home, too many people. They don't have access to getting a good house.
ZWERDLING: And Payne says microfinance was not the solution. People need much bigger, long-term loans to buy a house. And he learned something else. Low-income families would actually make great customers, if you gave them a mortgage. For one thing, just about everybody in the family typically works. The wife might run a market stall, the husband does day labor.
PAYNE: Grandma sells peanuts on the side of the road. Kids work.
ZWERDLING: Which means the families are financially resilient. If one person has to stop working, everyone else will chip in to save their house.
PAYNE: 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 their mortgage.
ZWERDLING: A few years ago, Payne took that message to major banks in Cambodia. He said let's start a program together to help low-income families buy their first homes. We'll be very business-like. We won't subsidize anybody. We'll require customers to make a down payment. And you, the banks, will make a profit. At the same time, you'll be helping your country.
Development specialists tell me that Payne is one of the pioneers who's taking this approach. The commercial banks didn't bite.
How many banks did you go to saying, please, lend us money to give out mortgages to these people?
PAYNE: Probably four or five.
ZWERDLING: And every one of those banks said...
PAYNE: No, no way.
ZWERDLING: Payne decide, OK, then I'll just have to set up a new bank myself. He and a handful of friends chipped in a total of $300,000. Then they raised another million from investment funds that want to do good and to make money. They applied to the Cambodian government for a license and, presto, the First Finance Bank opened for business four years ago.
(SOUNDBITE OF NEWS CLIP)
UNIDENTIFIED MAN #3: (Foreign language spoken)
ZWERDLING: So now, Cambodia had a bank that wants to give housing loans to low-income people. The next challenge was how do you get the word out. Surveys show that Cambodians listen to radio.
(SOUNDBITE OF RADIO AD)
UNIDENTIFIED MAN #4: (Foreign language spoken)
ZWERDLING: When the woman who makes rice soup heard about First Finance, she and her husband applied for a mortgage so they can move out of their shack. And next thing she know, two credit officers from the bank showed up at her soup stall at lunchtime, so they could study how she runs her business.
(SOUNDBITE OF CROWD)
ZWERDLING: I joined the officers one day when they went back for a follow-up. This was their third visit.
(SOUNDBITE OF CONVERSATION)
ZWERDLING: And these visits from the credit officers are the key to what makes First Finance work. Sriv Keng sells her rice soup from three battered wooden tables on a side street in a dusty industrial neighborhood. The street is lined with factories that make clothing for the U.S. and Europe. There are other food stalls too that sell grilled chicken and noodles. When the factory bells sound the break...
(SOUNDBITE OF ALARM)
ZWERDLING: ...hundreds of workers pour out on the street and up to the stalls. Keng's soup cost around 25 cents. Workers crowd around her. And the credit officers stand back and watch the scene unfold.
Since Keng and a lot of other vendors don't keep financial records, these credit officers go into the field to investigate. Can the applicants afford a mortgage? The officers are named Sopaek Si(ph) and Vani Heng(ph). They've already been doing reference checks. For instance, they talked to the man who grills corncobs nearby. Does Keng usually have a lot of customers? Do other vendors trust her?
UNIDENTIFIED MAN #1: (Foreign language spoken)
UNIDENTIFIED MAN #2: The final question they ask is what is her personality and he replied, that lady, she's also friendly and that's why she's got a lot of customers.
UNIDENTIFIED MAN #3: (Through translator) I actually asked three people before and the answer is all positive.
ZWERDLING: And after the lunch rush, the credit officers interview Sriv Keng herself while she washes dishes in plastic buckets. How many kilos of vegetables did you use today? How much chicken? How much did you pay for them?
UNIDENTIFIED MAN #4: (Though translator) Last thing is don't forget to give me a reference number people that you bought the rice from, people you bought the pork from and also the grocery store, I would like to know their phone number.
ZWERDLING: These credit officers have been doing the same detailed research on her husband. He sells clothes at a roadside stall in another part of town. The officers calculate that Keng and her husband make almost $800 per month, a lot of First Finance customers make half that much.
So I think we've arrived at the new house.
Just before I left Cambodia, officials at First Finance approved the mortgage for Sriv Keng and her husband. They lent them $16,000 so the family could leave the shack they share with another family and live in their own dream house. Many families get 10- or 15-year mortgages, but Keng's going to try to pay it back faster. They bought their new house as soon as they got the money.
Will you please show it to us?
The family will pay 18 percent interest. Most Cambodian banks charge more like 12 or 13 percent. But then regular banks would never lend money to people like Sriv Keng. Her mother shows off their new home just before they move in. Wow. Now, this...
ENG SRENG: (Foreign language spoken)
ZWERDLING: This house is completely different than the house where you're living now. There's beautiful tile work, arches.
There's a living room with a 14-foot ceiling. Then a dining room and an indoor kitchen. There's a bathroom with a porcelain sit down toilet. Back at the metal shack, nine people share a hole in the dirt.
SRENG: (Through translator) I'm happy and excited for the new toilet because it's easier for us when we want to use it and it's beautiful.
ZWERDLING: Oh, shall we go upstairs? This house is so big that you might get lost in it.
SRENG: (Through translator) I will not get lost in this house.
ZWERDLING: Talmage Payne says, so far, First Finance has made more than 700 home loans, roughly 2 percent of the customers have defaulted. That's a lower rate than in the United States. And listen to this, First Finance and its investors are making a profit. Daniel Zwerdling, NPR News.
(SOUNDBITE OF MUSIC)
SIEGEL: You can see pictures of Sriv Keng's old shack and her new house at NPR.org.
(SOUNDBITE OF MUSIC)
CORNISH: You're listening to ALL THINGS CONSIDERED from NPR News. Transcript provided by NPR, Copyright NPR.