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October 22, 2009
Tontine au Cambodge
Cambodia does not have a modern financial system. While we Americans have lately come to deride the idea of "financial innovation," there's no denying that we could use some over here. There's no really stable form of investment beyond land-- which is still shaky unless you have ironclad title--or banks, a few of which are fairly deserving of the title "wildcat." This makes it difficult in my history class to explain the idea, for instance, of a national debt. When we're watching the "Connect with English" video series, I have to explain the concept of "insurance" to my students, though I tend to avoid the intricacies of health care in the US. (Here it's a bit simpler: people either pay for care, or they die on the doorstep to they hospitals because they have no money.) There have been baby steps toward modern financial system (the stock market has been "coming soon" since 2007), but in a country this corrupt I reckon it'll still be a while.
For the time being, people have to make do with informal, traditional ways of raising capital.
Case in point: the other day, I was hearing one of my co-workers talking about something that seemed to be called a 'tong-ting.' The way he explained it, a bunch of people give money to an organizer. Every month, people kick in certain amount, and then submit a bid. A sort of credit auction happens among the members where everyone submits a secret number representing the interest rate they would pay if they win. If you have the highest bid for the month, you can get out your contributions and get loans from all other members, but then you can't bid again, and you have to pay your loan back in installments until the it ends. The payments from the borrowers thus reduce the required contributions for the remaining members.
The process ends when there is only one person left who hasn't borrowed money, and that person gets all the accumulated money left. So there are basically two kinds of people who "play:" people who need a lot of capital fast for some sort of investment, like buying land or starting a business, and people who play for the long-term, either as a form of investment (since you come out ahead late in the game from all the payments from borrowers) or to win it all.
As I inquired further, I learned that it wasn't called a tong-ting, it was a tontine, the form of annuity developed by Lorenzo de Tonti in 1653. You may remember it from Agatha Christie novels as the long-term investment where members' shares are redistributed upon death to the living members. Here, though, it's mutated somewhat--instead of investing the capital in other things and paying the dividends to members, cambodian tontines increase due only to the members. And instead of going out of the fund when you die, winning the credit bid is called "dying" in the game of the tontine.
Of course, all too often the organizer just runs off with the money, leaving all the participants in the dust. So it goes.
Posted by flynn at October 22, 2009 8:21 PM
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Comments
Adam, I'm so enjoying these...keep it up!
Posted by: Barbara sweet at November 6, 2009 8:34 PM