CAMBODIA - A 103-page working paper by the Canadian Credit Co-operative Association (CCOA) and the Canadian International Development Agency (CIDA) studied the prospects of developing a credit union movement to stabilize the financial lives of rural people in that country. Eighty percent of the population lives in the countryside.

Despite extreme poverty, the population uses a variety of savings strategies that result in a greater ratio of savings to income than most Americans.

The foundations for a credit union movement already exist. There is a federation with 15,000 members in the Battambang area, plus an urban movement in Phnom Penh. Community financial Institutions (CFI) and village banks are organized as well as self-help groups and credit associations. The study reported that over 28,000 CFI members exist in 200 villages, mostly in the Mekong flood plains in the south central regions. However, for a full-fledged movement to be developed, the needs and attitudes of the people need to be understood.

The first major issue is trust, not surprising in a country where 25% of the population was massacred by the Khmers Rouge between 1975 and 1979. The country is rife with corruption and some CFIs have failed. The study showed that some people lost up to 15% of their cash savings in CFIs.

The study, finished in 2005, examined 602 people from three villages. Half were CFI members. In the sample, 44% could read, but CFI members were found to be more literate (55%) than nonmembers (33%). There was no surprise that the educated households were less poor and often relied on nonagricultural income such as teaching, government work and sewing. Twenty-three percent of the households were headed by women. Money management decisions for families are made by women, not men. The mean annual income was $270. The median household had $6 cash left over from expenses at the end of the year.

The goal of the study was to advance good practices to meet savings and trusts needs of poor rural households by supporting more effective community ownership and control, better delivery strategies and new product development. CCOA wants "to support the emergence of a national credit union movement over the next decade by providing technical assistance and catalyzing a process of learning and institutional growth among Cambodian practitioners," the study said. However, to do that they first had to understand the current situation.

Thousands of CFIs have emerged in the last decade in rural Cambodia, and although they claim co-operative values of democratic control and self-reliance, few are formally structured. The seeds are there, but there are three main obstacles: weak savings mobilization, low institutional capacity, and service gaps in remote areas.

Quality issues include lack of auditing and bookkeeping systems, limited reporting, lack of trust, low educational levels leading to manipulations, lack of clarity in roles and no mechanism for micro-governance.

Poor people save in large amounts relative to their incomes. Over half the people surveyed said when they had cash, they put some aside immediately for savings before paying expenses, something totally contrary to Western habits. They need safe savings places much more than they need credit, the study showed.

People connected savings with personal safety and goals (food security, education). They want something to protect themselves from "the hungry season" as some of the respondents described the shortages that occur as a regular part of their lives. Only 3% gave interest rates as a reason to save.

Cash is only one type of savings, and that is often stored in bamboo poles in the house or clay piggy banks. Some 60% of those surveyed had cash hidden at home. This figure correlates to other studies done over the past 10 years. A disadvantage of the bank is that when it is broken a new one has to be purchased, depleting part of the savings.

The second disadvantage to home savings is theft as is another popular savings tool, the purchase of gold and jewelry. Although it is less liquid, women have stated that it "makes them look pretty."

Many rural Cambodians see water buffalo, cows, pigs, and poultry as another form of savings.

When an animal dies, is ill or is stolen, the asset is lost. Many of the respondents were Buddhists and they cannot use the profits from sale of animals for any ceremonial expenditure. Weddings and ceremonies are among the top reasons for savings after food security, medical expenses and education for children.

Household money managers felt the money they kept was far more important than the money they spent, another idea contrary to most Western households. When people belonged to CFIs and take out loans the greatest percentage borrowed to finance micro-enterprises (28%). Others borrowed to buy animals (14%) or fertilizer (11%). Only 3% were interested in borrowing for home improvements. However, not everyone used the money for the stated purpose of the loan it was discovered. About 90% of the money used for loans from CFIs came not from local savings, but from outside sources.

In focus groups, nonmembers expressed the belief that CFI members were "stupid" for trusting their money to others. Some CFIs required loans from members and people did not want to borrow. Nonmembers see home savings as "intelligent money management" because it is always available and unlike loans, you don't have to pay interest to use it. CFI members tend to be in their forties and do not consider themselves "stupid" for using CFIs. The proportion of their savings to income was higher. Trust was shown to increase when the CFI was run by locals.

Subjects in the survey had strong ideas about what made a healthy CFI. They said a good CFI was considered safe with low interest rates, easy loans and formal records. Good CFIs were also free of nepotism. An unhealthy one had poor management, no democratic principals, didn't report to local authorities and was slow in making interest payments.

"Savings are essential to community finance. People with no real money invested in their local institutions are far less likely to demonstrate commitment to good governance, especially under difficult circumstances. In Cambodia, neither institutional savings nor effective CFI governance arise easily in poor rural communities" was a conclusion of the study, but there was also optimism that the problems, now identified, could be overcome through stronger controls and training. [email protected]