New Zealand Khmer Community

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I. Introduction

A. Background of Tontines
Tontines are rotating savings and credit associations ( Roscas ). Roscas have a very long history. In Asia the Hui, a mutual financial association in China ( Yang, 1952 ), can be traced back to the middle of the Tang dynasty ( 618-906 ) and Kou, a simplified form of group savings and loan associations, were documented in Japan in 1275 AD ( Izumida, 1993 ). Their emergence in Europe is somewhat later. In France in 1652, Lorenzo Tonti, an Italian financier, introduced Tontine as lifetime annuity for the government of France to raise funds for its treasury. ( Jennings and Trout, 1982 ) In England during the late nineteenth century, women acted collectively in organising saving clubs between themselves; but their risky nature was reflected in the name of ‘Diddly’ or ‘Diddlum’ clubs. ( Tibbutt, 1983 ) These could be general savings schemes.

While this financial instrument is new to New Zealand it has been popular in developing countries ( Besley, 1994 ) and within ethnic groups in developed countries such as America ( Bonnet, 1981; Delancey, 1978; Kerri et al, 1976; Morton, 1978; Tsukashima, 1991 ) and Australia ( Anderson, 1994 ). Roscas ( Adam, 1992 ) are known as Osusu in Gambia, Cheetus in Sri Lanka, Chit funds in India, Committees in Pakistan, Dhikuti in Nepal, Kou in Japan, Kye in Korea, Wui in Hong Kong, Byau hwei in Taiwan, Pia huey or She-i in Thailand, Houy in Laos, Wui or Hui in Vietnam, Wui or tontine in Malaysia, Paluwangan in The Philippines, Arisans in Indonesia, Sandes in Paua New Guinea, Tanda in Mexico, Pasanakus in Bolivia, Jaméeia in Iraq and Egypt ( Fawzi, 1996 ), Shaloongo or Aiuto or Ikub in Somalia ( Syad, 1996 ) and Ethiopia,and tontine in Cameroon, Nigeria and Cambodia.

People from Southeast Asia have used it as an alternative means to finance their business or personal needs. In New Zealand, Roscas have been in existence since at least the early 1980’s within various refugee and migrant communities. Roscas have coexisted alongside the formal financial system because various ethnic minority communities found them convenient. The Cambodian Rosca or tontine is claimed by Cambodians to be a popular and convenient stepping stone for financial freedom and a vehicle for capital accumulation and investment.

A. Purpose
This presentation seeks to explain how tontines operate and why Cambodian people prefer to use a tontine as an informal financial tool when they have access to formal New Zealand financial institutions. The specific aims are to:
1. provide information on the organisation of tontines: the reasons for involvement, the criteria for selection of members, the practices and rules, and associated problems; and
2. assess the tontine from a financial perspective which involves discussing the structure and operation of tontines and their significance for participants in terms of social and economic development.
 

II. Tontines in Cambodian Communities

Tontines are neither legal nor illegal, and are often simply outside the terms of reference and normative practices of the mainstream or dominant society. Since tontines are practised within a closed socio-cultural system which is well understood by participants, Cambodians would rather use tontines than bank loans. Although tontines may seem insecure, they continue to enjoy support because they provide people from Cambodia with a comfortable and flexible means of accumulating savings and access to credit impossible through other formal means. Participants in Cambodian tontines believe that the returns from tontines are higher than those available from other saving methods. To them a tontine is a familiar financial instrument within their ethnic communities.

A. Research
1. Participation Issues
This presentation is based on information provided by twenty participants in seventeen tontines operated by people from Cambodia living in Auckland, Hamilton, and Wellington. The process of conducting this study involved a participatory approach into a sensitive topic. At the beginning people from various ethnic groups would not participate openly in this study because of the fear that they would risk or jeopardise their privacy and personal financial interests. They also feared a back lash in legal and/or fiscal matters.

Some community leaders in Auckland and Hamilton acted in a so called ‘wise man’ attitude by taking a “ Hear no evil, See no evil, Speak no evil ” position on tontines, and although they participated in various tontines would not participate in this survey. They wished to keep information on tontines within the group rather than open a window for outsiders. Some community leaders preferred to leave tontine as it is and have no part in this survey. Although they preferred the ‘wait and see’ attitude towards participation and distanced themselves from this survey, they expressed an interest in the result of this study and wished to have a copy of recommendations especially on default management and the design of a tontine.

Although attempts were made to assure potential participants of confidentiality and benefits from this action research, few Cambodians had enough confidence to reveal their own experiences and opinions on tontines and preferred to provide information on other people’s experiences rather than their own. The issue of confidentiality in a Cambodian perspective is different from the issues defined by research ethics. Six respondents chose not to complete the consent form even though they completed the questionnaires. Recorded interviews were not successful with this survey group. This approach was a no-no to them. They preferred to have an informal talk either face to face or on the phone.

2. Quality of information
Individuals who ‘dared’ to participate in this study some times chose to answer only relevant general questions related to themselves and left out personal experiences. Financial information such as income is probably not fully accurate for reasons outlined above and earlier; but it provides common trends and relevant information to date on tontines.

B. Cambodian tontines
Informal savings and credit arrangements in Cambodian communities are influenced by a multitude of factors that include culture, the nature of the economy, education level of the population, and lack of access to institutional sources of finance and credit. Participants in these tontines have limited access to, and knowledge of, mainstream financial institutions. They based their tontine operations on common practices and without any collateral, conducted them entirely on the basis of trust and the good will of the organiser and participants.

1. Common feature

The common feature of Roscas is a periodic pooling of fixed contributions ( D ) called ‘hands’ to a common kitty or pool which goes once by turn to every participant of the association, with the sequence of the rotation determined by consensus, by lot, or by bidding. People from Cambodia have been involved in discount bidding Roscas or tontines.

A Cambodian tontine ( Table 1 ) is based on a system of monthly bidding ( b_t ) conducted by secret ballot with a discount offered by the highest bidder or borrower who pays the bid as a reduction in the instalments of the other participants. A bidding decision is done by isolated guestimation on bidding trends of past periods. A winner or borrower is entitled to the pool but has a duty to repay the loan in instalments prescribed by the tontine until it is terminated. The organiser has access to the first pool with a free of interest loan. Through the life of the tontine, participants change their positions from savers to borrowers at the moment they win the bid. Tontine is appealing since it allows the Cambodian subscribers to take the total subscription, partly paid and partly yet to be paid, in advance and it allows a borrower to fix the rate of interest on loans.

A tontine of twelve members with a $400 a month can be shown in the following matrix ( Table 3 ).

Winning a bid in a tontine means:
i. The winner can acquire his or her lending money or savings ( S_t ) instantly from all inactive members.
ii. The winner can get a loan ( L_t ) from all active members during that period.
iii. The winner becomes an inactive member and has no chance for further bidding.
iv. The winner has to pay back ( B_t ) in instalments to tontine until it terminates.
v. The winner does not pay instalment for him or herself. S/he will receive ‘Zero’ dollars.

Contribution of individual participants ( C_t ) is the sum of an individual row of the above matrix ( Table 4 ). The amount on the left of “0” ( zero ) is the stream of investment ( I_t ) . The amount on the right of “0” is the stream of payback instalment ( B_t ) by the winner. C_t = I_t + B_t .
The kitty or credit pool ( K_t ) received by a winner is the sum of a individual column of the matrix. The amount above “0” is the stream of savings ( S_t ) collected from the inactive participants. The amount below “0” is the loan ( L_t ) from active participants. K_t = S_t + L_t

The primary purposes of these tontines are to mobilise deposits, to encourage members to save more, to provide loans to members, and to act as a risk management instrument for members. It was found that participants in these tontines are not homogeneous and have different predefined goals. The design of a tontine is based on participants’ predefined financial goals, the size of financial needs and the capacity of members to pay. The most popular types of tontines are the $300 and $500 hand with a three to four year life. In general people use tontine to buy or fund businesses and to obtain deposits for houses on which they can obtain mortgages. Tontines operate on good faith with little more than a list of members’ name in many cases; but 36% of them suffered from other absconding members. Participants believe that the organiser is the person responsible for righting the defaults. Where problems arise they solve them within their groups; usually direct negotiation is the popular approach to the problems. Participants run into problems also when organisers abscond with their money and no one is able to solve the problems. Many participants would like to find means of preventing problems of defaults.

2. Components of Cambodian Tontines
The six cases presented shed some light on various components of Cambodian tontines which are more complicated than interest free loan tontines. In discount tontines, the bidding regulates the kitty size. Its operation is based on competitive bids from participants with the highest bid accepted. With a given size of the hand $D, the size of the participants N and period t, these tontines provide common descriptive features of those components as follows:

a. The contribution ( C_t ) of participant fluctuates in a decreasing trend through the life of a tontine due to the reduction of the cost of bidding from periodic contributions.

C_t = B_t + I_t
C_t = D ( N - 1) - ( S b_i ) , with a given D and N.
If ( S b_i ) increases then C_t decreases.

The longer a participant stays active in a tontine, the smaller the amount of individual contributions is needed to get a kitty. Individuals invest more and more as they stay in a tontine and loan repayments decrease as the period of the tontine increases.

b. The kitty ( K_t ) acquired by participants fluctuates in an increasing trend through the life of a tontine owing to the decreasing trend of the biddings ( b_t ).

K_t = S_t + L_t
K_t = D ( N-1 ) - b_t ( N - t ) , with ( N - t ) > 0
If b_t increases then K_t decreases.
If b_t decreases then K_t increases
With a given tontine, a participant would get smaller credit if the bidding rate is higher.

c. The size of the loan ( L_t ) fluctuates in a decreasing trend through the life a tontine . The size of the loan depends directly on the size of the paybacks ( B_t ).

L_t = ( D-b_t ) ( N-t ) with a bidding rate of b_t
with B_t = D ( N-t )
Then L_t = B_t - b_t ( N-t )
If b_t increases then L_t decreases. If b_t decreases then L_t increases.
or B_t = L_t + b_t ( N-t )
The size of the loan is dependent on the trade off of the size of the costs of bidding B_t.
This formula agrees with the findings of Kuo ( 1993) that the size of the loan in each bid decreases over time.
If ( t ) increases then ( N-t ) decreases hence L_t = ( D-b_t ) ( N-t ) decreases; the longer the period t, the smaller the size of the loan. Toward the end of the tontine when t = N, the last participant did not have a loan from the tontine.

d. The size of investments ( I_t ) grows along with the size of savings ( St) but at a rate lower than the rate of savings.

I_t = D ( t - 1 ) - ( S b_i ) , with i from 2 to t-1
S_t = D ( t-1 )
Then I_t = S_t - ( S b_i ) , with i from 2 to t-1
If b_t increases then I_t decreases. If b_t decreases then I_t increases.
This means also, if the bid is high, active participants can invest less money but receive the same amount of savings.

e. The bidding ( b_t ) is fixed in dollar terms by participants who are eager to acquire the kitty for the period. It was done by a secret ballot rather than by a competitive auction. The decision to set the bidding by secret ballot is based on limited information of past biddings, the present demand for the kitty, and the risk factor of a tontine. Similar to a risky investment, a high risk tontine produces high bids and good rates of return on investment.

f. The concept of percentile interest rates is not known in Cambodian tontine practice although decisions on bidding are made in dollar terms.

g. With the same size of bidding in dollar terms, the cost of a tontine loan depends on the number of participants. Two tontines of equal hand size and bidding size, but with different life span, can generate different interest rates on loans and investments; the smaller the number of participants, the higher the interest rate of the tontine.

h. The status of participants changes through the life of a tontine from savers to borrowers. The first group of the participants before C_t = K_t who challenge the tontine have to pay interest to acquire the kitty. Although they receive some returns from their investments, this return is not able to offset the cost of bidding. Acquiring a loan incurs net costs of borrowing or interest.
C_t = D ( N - 1) - ( S b_i ) , with i from 2 to t-1
K_t = D ( N-1 ) - b_t ( N - t ) , with ( N - t ) > 0
If C_t > K_t
then C_t - K_t = [ D ( N - 1) - ( S b_i ) ] - [ D ( N-1 ) - b_t ( N - t ) ]
C_t - K_t = b_t ( N - t ) - ( S b_i )
The cost of tontine = ( Cost of loan ) - ( Return on investment )

The second group of participants after C_t = K_t who challenge the kitty, although having to pay loan interest which is often higher than the market rates, have made some net savings form their investment since the returns on investment offset the loss of borrowing. The longer the participants keep active in a tontine, further away from C_t = K_t, the more positive are the returns on their contributions.
C_t = D ( N - 1) - ( S b_i ) , with i from 2 to t-1
K_t = D ( N-1 ) - b_t ( N - t ) , with ( N - t ) > 0
If C_t < K_t
then K_t - C_t = [ D ( N-1 ) - b_t ( N - t ) ] - [ D ( N - 1) - ( S b_i ) ]
K_t - C_t = b_t ( N - t ) - ( S b_i )
The return of tontine = ( Return on investment ) - ( Cost of loan )

In cases where the contribution is equal to the kitty, the return on investment is equal to the cost of loan; the participant experiences no loss on the bidding and has the opportunity to access the kitty earlier than by saving alone.
C_t = D ( N - 1) - ( S b_i ) , with i from 2 to t-1
K_t = D ( N-1 ) - b_t ( N - t ) , with ( N - t ) > 0
If C_t = K_t
Then D ( N-1) - ( S bi ) = D ( N-1 ) - b_t ( N - t ) , with ( N - t ) > 0
S b_i = b_t ( N - t ) or
b_t = ( S b_i ) / ( N - t )
Where C_t = K_t, or the break even point of the tontine, the bidding rate b_t at the period ( t ) is equal to the average of returns on investment up to period ( t-1 ).

Similar to Ghate ( 1994 ) motivations that tend to predominate with Cambodians participating in tontines are the convenience of saving and repaying in instalment, the prospects of higher returns compared to the bank, and lower borrowing rates.

C. Economic Perspective
The practice of Cambodian tontines in New Zealand has been based on a discount Rosca model in isolation from any financial market influence. Opportunity costs of involvement in a tontine appear not to be significant in the minds of Cambodian participants because the returns on tontines are higher than those of other savings methods.

1. Tontine life is related to the size of financial needs
Cambodian participants revealed that a 36 hand tontine or a three year tontine is more popular than others because of the time frame and the amount of money needed for a certain commercial or social venture. The incentive to participate is directly related to the adequacy of the kitty relative to the contemplated purchase or spending. At present there is a six year tontine running in Henderson; but the general opinion on this tontine was that it takes too long to finish and it would encounter more risks because of its time frame. In most cases, Cambodians would split such a tontine into two tontines each with a 3 year life. It was observed that $200 hand tontines often have a two year life.

2. The supplies of money or potential pools are fixed.
The demands and supplies of money in Cambodian tontines were offset by the individual bidding costs. The size of the available pools are fixed with an amount equal to or less than equal to the contributions or supplies ( $24000 ); this was due to the acceptable level of the bidding costs that active members would trade off to gain the pools; the stronger those active members compete for an available pool, the higher the bidding rate hence the costs of bidding, and as a result, the smaller the size of the available pools.

3. Tontine is immediate
The unique advantage of a tontine is that every participant, except one, acquires the kitty sooner than it would take each participant to save the same amount alone. Tontine transforms future payments into immediate hands and accumulates small payments into larger pools. The pooling of resources reduces the time of waiting for all participants except the one who is last to collect the kitty, who nevertheless does not have to wait longer than if he had to save alone. 50% of the participants have access to the credit pools before half of the tontine life. Even if the interest or the cost of bidding is included, the gain from cutting time to half of the tontine period and the returns on investment would offset those costs. The last participant who is the net lender makes a significant gain from their investment.

4. Tontine is synergetic
Tontine is not related to formal financial institutions in New Zealand. Tontines have been operated within the Cambodian communities where financial limitations of the majority have excluded them from access to loans from financial institutions. Such communities have mobilised financial resources from their household savings or earnings which, individually, are not significant to the financial market. Individual’s contributions enable participants to form money pools which bridge their financial needs.

The synergetic characteristic of a tontine enables access to the pools in a shorter time than it would take an individual to save the same amount of money.
Three participants from this survey used tontine deposits for getting a mortgage for their family houses; Seven participants looking for resources to fund an existing business or a new venture used tontines since most of them found it difficult to get a loan through the formal system. Another seven participants used tontines to save for emergency needs.

5. Tontine is complementary to existing financial market
Once participants have access to the credit pools, they inject the money back into the economy by way of spending or investment in capital goods. From the economic perspective, tontines have mobilised insignificant individual resources, which may be stowed away under their mattresses, to pump money back into circulation, accounting for a minimum of $13 million dollars yearly being recirculated into New Zealand’s economy from refugee communities.

Cambodian refugees have used tontines as triggers for the breakthrough to loans and mortgages from formal financial markets. Tontines have lubricated and bridged the gaps between refugees and the formal financial institutions. Also tontines have paved the way for refugees to become familiar with the formal financial system. This synergetic aspect of tontines has assisted Cambodian refugees to achieve better living standards ( in this case housing ) and to self generate their family business development.

The finding also agrees with Callier’s statement that “ the informal financial institutions and the unregulated markets in which they operate do provide services which otherwise would not be available to several segments of the population in the economy with fragmented capital markets. Therefore, an appropriate policy stance could be to avoid repressing them, and by so doing reduce the cost at which they are able to deliver useful services. If, however, financial development implies market integration, as the literature suggests, it is important to recognise that the essential features of the tontine do not offer a model consistent with this ultimate goal”.( Callier, 1990, p 276 )

6. Future of Cambodian Tontines
The tontine loses its raison d’être when capital market segmentation vanishes as a result of market integration: access to credit at the prevailing market rates solves the problem of lumpy expenditures. This implication can account for the disappearance of the Kou in Japan in the course of the 20th century ( Callier, 1990, p 275 ). With the Cambodian tontine it remains to be seen whether it will disappear in the long term when the social and economic situation improve and Cambodians have access to the credit market.

It appears that many Cambodian participants have some definite spending goal when joining a tontine. The evidence shows that the savings mobilised through tontines are used not only on consumer durables, but also for investment purposes. Callier ( 1990 ) wrote “the traditional approach, which analyses the Rosca in the framework of financial intermediation, is logically valid. However, it does not highlight the economic logic underlying the emergence of this institution and fails to account for the specific features of the Rosca”. Cambodian tontine confirms this suggestion.

D. Socio-economic Perspective
Tontine possesses the advantages of accessibility, flexibility, and adaptability, radiating from a small neighbourhood or working place. Cambodian refugees use their network to support themselves because of limited accessibility to the mainstream financial institutions. A Cambodian tontine is a user-driven type of credit mechanism that requires with the trust, loyalty, understanding, and some sense of social responsibility.

1. An effective collective action for better living standards and economic advancement
To participants, the tontine is more like a pool of resources needed to gain the benefits of some kind of collective action, than a combination of contracts involving mutual loans and debt service payments. “The logic of the tontine is the logic of collective action, not the logic of the market - hence the idea that interest rate considerations are a secondary aspect of the arrangement, absent from the original concept of the classical Rosca”. The reduction of the average waiting time is also seen as the main benefit arising from the collective action undertaken by the members of the group and is therefore its justification in the minds of participants.( Callier, 1990, p 274-275 ) This collective action has opened the window of opportunity for refugees to achieve their social and economic goals more quickly.

A Cambodian tontine organiser said ‘Even if I have the ability to deposit and to pay the monthly instalment for a hire purchase, the store does not allow me to buy their goods on credit because I have no job. Tontine enables me to acquire those goods without any hassles’ ( Thach, 1995 ) A young couple who has no family in Auckland explained that without tontines the dream of running a new fast food shop would not be possible. The couple paid off those tontines a few years later. The wife said ‘Tontines have changed my life from a machinist to a small business owner and I am in control of my own life’. A participant from Wellington used her tontines to upgrade a car in her taxi business. It is not surprising to find that most new bakery ventures and fast food shops opened by Cambodian owners in Auckland have been financed by tontines. The group actions produce a synergetic effect on refugees who can improve their standards of living and experience economic advancement with the money pools.

2. Fairness and reciprocity is the norm
Tontines pool savings and tie loans to deposits. Tontines also resolve loan collateral and borrower information problems by enrolling only members who have mutual confidence in each other or by having organisers who guarantee the performance of individuals they enrol. In case of urgent need, a member can negotiate with a winning participant to swap places and take the money pool. Winning participants tend to assign their rights to the person in financial distress to allow them to use the pool to finance a deposit for a family house or a wedding. This decision is based on moral considerations, personal relationships, and the expectation of reciprocity at some future time.

3. A Group support network
During their resettlement, Cambodian refugees have encountered a paucity of information on how to get assistance and how to get access to social services. ( Liev, 1995, p 121 ) Participants found that tontines are not just a financial network for savings and credit but act as social support groups which provide social information and other services for their members. Cambodian tontines still preserve, in this aspect, the original concept of tontines which is to support the poor.

Organisers are people who are better off than others especially in terms of social skills and language skills; Cambodian participants brought with them various types of skills from fixing small problems to professional advice. Participants bring the issues with them and seek assistance from their friends. Problems can range from how to organise a wedding to filling in a tax return form. The tontine network also provides casual translation services to their members. Sometimes Cambodian refugees have found jobs through this type of network.

4. Self-confidence and No Shame attached
As fund receivers, refugees are not ashamed of their debts. Tontine is a veil for face saving in their borrowing. Participants do not need to dress up to impress interviewers at the banks and do not need a translator. With a tontine they have full control and understanding of the rules and procedures without any worries about small print. Participants do not need to answer to the object and essence of the loan; they do not need to have collateral and to reveal their personal budget and their financial confidentiality as in the case of application for a loan from a financial institution. An organiser talked about the effectiveness of the tontine which enabled him to pay cash to buy furniture from Farmer’s which had refused to allow him to buy on credit. He also expressed concerns about losing face and personal pride from the incident.

5. Tontines are prone to abuse
From a social and economic perspective, tontines have acted as stepping stones for the wellbeing and economic advancement of refugees from Cambodia. Tontines have provided refugees with exposure to a small scale financial method and helped them to become familiar with the formal financial institutions as well as creating self-employment. Tontines have been favourable to refugees; but, they also have opened windows of opportunity for some people to abscond with a lump sum of money because of the alegal nature of tontines.

IV. Conclusion
A. Research
This study intends to provide specific background information on Cambodian Tontine practice within the refugee communities from Cambodia. Care should be given when choosing a sensitive issue such as tontine. Although people who wished to seek help were prepared to become involved in this study, other people within the community were skeptical about the participation. Although this group shows some sympathy for the default victims, the latter do not believe that this study is conducted for their interests and to prevent further default problems. Conducting such a sensitive study and research within the Cambodian refugee communities needs careful consideration not only on cultural correctness, rapport, and the establishment of trust, but of their businesses and private lives that may be uncovered by this research.

In conducting such a sensitive study, a researcher needs to create a secure environment by providing space and time for participants to digest the concept of a participatory method and foresee future benefit from their participation in such research. Resistance can be minimised once the motive of the research is justified and clarified for them. It needs time and patience to create rapport and trust. Quality information will flow from assured participants.

It is important to remember that in dealing with small communities, a researcher should identify formal and informal networks of the groups and their politics. The success of this approach depends on the flexible attitude of the researcher and the research design in gaining appropriate information through formal and informal channels. The researcher should not undermine the leadership and the gate keepers of those communities.

B. Tontine operations
It was found that:
1. The longer the participant stays active in a tontine, the smaller the amount of individual contribution is needed to get the credit pool. Participants are better off to stay active as long as they can.
2. Participants should be aware of the costs of tontine based on dollar terms rather than on interest rate. The introduction of a tontine matrix would provide a dynamic scenario of competitive bidding and the trend of interest on tontine.
3. With a given tontine, a participant would get a smaller credit if the bidding cost is higher. Attempts should be made to bid just above guestimated competitive bids from other bidders to optimise the potential credit pool.
4. If calculated in terms of rates, the interest rates and the rates of return on investment vary widely although the individual bidding fluctuates in a decreasing trend toward the end of the tontine life. Participants should be aware that toward the end of the tontine, the interest rates on loans tend to be higher than those of the earlier loans.
5. Investment in a tontine yields better rates of return than the bank’s. It is more profitable for participants to stay active as long as possible.
6. Two tontines of an equal size of hands and an equal size of bidding will generate different interest rates and rates of return on investment if the life spans of the tontines are different. The smaller the number of participants, the higher the interest rates and the rates of return on investment. For a given size of hand and a bid of the same amount, borrowers will benefit from a long life tontine since its interest rates are lower than the rates of the short life tontine. Lenders will benefit from a short life tontine since its returns on investment are higher than the returns from a longer life tontine.

C. Attitude toward tontine
Tontine has arrived in New Zealand and will survive in refugee communities for some time to come. Further studies on tontine across the refugee and ethnic groups is necessary to provide an understanding on tontine issues for assisting refugees in their tontine participation process. Professionals in social and financial fields should be aware of tontine practices in order to assist them effectively in cases of dispute or professional consultations.

Tontine is not illegal, but its alegal status requires time and understanding in order to provide refugees with a transitional tool to gain full confidence in using mainstream financial institutions. Any attempts from the authority or formal financial institutions to discard tontines would not just jeopardise Cambodian refugee community development but also would undermine significant informal flows of unused resources. This study shows that $13 million dollars a year has been put into the New Zealand formal economy.

Participants should not just contemplate the alegal status of tontine but should attempt to improve this instrument so that there are effective ways of eliminating defaults and deterrent tools that can be used to their advantages. People from Cambodia regarded tontine as a financial instrument only known to them. They did not realise that tontine is a well documented international phenomena used by minority ethnic groups to survive during the early stages of their resettlement.

D. Tontine is not tax evasion
Refugees should not be afraid of the fiscal perspective. Income generated from tontines is treated similarly to other income. Whether or not people choose to declare income is a personal matter of conscience. The tontine is not of itself tax evasion. Tontines do no wrong from the fiscal perspective.

E. A proposed “tontine contract”
Refugees can keep tontine status quo practice; but they should be aware of potential problems such as defaults. Elements of operational and contractual areas of tontine practice can be improved. Management of tontines and its operations can be made more transparent by the use of a tontine list and a tontine matrix. The matrix provides instant information on their savings or loans, and trends in bidding.

The design of formal, written tontine contracts under the prescriptions of the Credit Contracts Act 1981 would safeguard participants from future disputes and could be used as a deterrent measure towards defaults. This contract should be simple but comprehensive in terms of a description of tontine and its terms and conditions. It should be composed of three documents. Firstly, an initial agreement to form a tontine with initial disclosure of the organiser and participants, and a reconsideration period. Secondly, operational rules and conditions, and its operations with the use of a tontine matrix for record keeping would be stipulated. Thirdly, individual credit contracts could be drawn up for inactive members disclosuring group creditors, the amount of credit, the total costs of credit, the financial costs of tontine, and schedule of instalments to reimburse the active members.

E. Benefits of tontine contracts
Tontine can be established in formal, legal terms under a tontine contract. On the one hand its legality would protect participants from problems such as default; on the other hand, this formality enables tontine to act as a transitional financial intermediary tool leading to the formal economy. Without tontines, an estimated $13 million would not flow back smoothly and productively into the formal economy. Furthermore tax can be collected from the interest made from their savings.

An attempt to wipe out tontine as an informal financial instrument would damage refugee socio-economic development during resettlement and the flows of money back into the New Zealand economy.

F. Transparency for business operations
Participants who use tontine to fund their business can use a tontine contract as a document to claim their loans as financial expenses from their business operations and to help accountants to clear their doubts on clients withdrawing money from businesses to pay back tontine. This would solve the problems of missing records on money withdrawn from the business operation.

In case of a dispute, lawyers and the parties can use a tontine contract as legal proof of identification. By having a contract, lawyers can identify borrowers and take appropriate action. Also in matrimonial disputes, lawyers can assess the entitlement of individuals to share tontine credit pools in a divorce case.
 
 

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