Phnom Penh, Cambodia – Two prominent civil society groups in Cambodia released a report detailing the predatory practices of local microfinance institutions (MFIs), including forced land sales.
The joint report, released on Wednesday by human rights group Licadho and land rights group Sahmakum Teang Tnaut (STT), covers 10 communities in four provinces and the capital, Phnom Penh. The report includes cases of abuse, which paint an unflattering image of MFIs.
While microfinance loans were meant to be a social enterprise to lift Cambodians out of poverty, the report argues that instead, microcredit entities take advantage of borrowers while making huge profits.
There are around two million Cambodians with microfinance loans.
Of the 28 families interviewed, 22 experienced “forced” land sales, while 13 turned to child labor to repay their debts and 18 saw at least one family member forced to migrate for work.
Two anonymous microcredit officers cited in the report admitted that it is common practice to “regularly pressure clients to sell land” and to use local authorities to “increase this pressure if necessary”.
In one case study, a woman was forced to migrate to Thailand in order to find work to repay her loan from Cambodian bank Acleda.
While away, she insists that she continued to make regular payments, but returned home to find that her house had been sold anyway. She now lives in a small cabin with her five children, one of whom is ill, but she is too afraid to take out another loan to pay for her care.
“The bank doesn’t care,” she said. “They just want their money.”
Another man was repeatedly told by microcredit companies LOLC and HKL to take out more loans to pay off his initial loans, creating a spiral of debt. Eventually, 11 men from HKL visited him to demand that he sell his land.
“MFIs have no advantages,” he said.
One of the leaders admitted, “Land prices are the most important factor for the MFI market right now. “
Generalized professional misconduct
Despite this widespread abuse, the report says MFIs still enjoy a good reputation internationally. In a meeting on Monday, IMF leaders told reporters the violations in the report were “isolated incidents.”
“MFIs have thousands of loan officers. We are not 100% sure that all loan officers will behave, ”said Kea Borann, CEO of microcredit firm AMK.
But all industry insiders interviewed by Al Jazeera said these issues are widespread and common knowledge.
A former LOLC employee said social mission always takes a back seat to profit.
“That’s why I quit, basically when I figured it out,” he said. “I was like I wasn’t helping anyone.”
“At LOLC, there was a great culture of making money and showing off your wealth. The CEO had a huge jewel ring, ”he said. “If you get promoted you have a bigger ring. “
LOLC CEO Sok Voeun said MFIs “cannot control” whether borrowers turn to unsafe practices like child labor and migration to repay their loans.
But the former employee said LOLC takes advantage of poor financial literacy and recklessly pushes borrowers into dire straits.
“A guy walking around the village knocks on the door of every farm and says, ‘Hey, do you want money?’ He told Al Jazeera. “I felt that the people who were taking these loans didn’t understand what they were getting into.
He said the institutional power of MFIs and non-existent government regulation also made them fundamentally untouchable.
Dos Dinn, CEO of Amret, said criticism of MFIs is “a little unfair”.
“The NGOs, the public and the government are expecting too much because we are working with the poor,” he told Al Jazeera.
But many local MFIs receive investments from European and international institutions specifically because of their mandate to help the poor.
Triodos, a Dutch partner bank of Acleda, claims to focus on social enterprise.
“Responsible practice is one of the most important aspects for us in selecting our partners,” the bank said in a statement.
While the bank said the report does not match its “image” of Acleda, it takes the allegations “very seriously”.
“Pending the outcome of our own investigation into these allegations, we will contact Acleda Bank on how to move forward,” the statement said.
An employee of a global impact investing firm said the issues Licadho reported were already well known in the industry. He said international institutions that support MFIs may make changes as a result of this report because “they are worried about their reputation.”
He said the biggest problem in Cambodia is “oversaturation” as MFIs give too many loans to people who shouldn’t take them in the first place.
“We are working in other countries which do not have the same problems as Cambodia,” he said.
Migration and Debt Researcher Maryann Bylander told Al Jazeera that despite the limited sample in the Licadho report, the results “align very closely with the kinds of things I have seen” .
“People who have to sell their land or be dispossessed is an extreme situation but it is certainly not uncommon,” she said.
Bylander noted that since 2009, over-indebtedness is cited as the second most common reason for selling land in Cambodia, only after medical emergencies.
She agreed that the systematic problems with Cambodia’s MFI industry are an “open secret,” and she would be surprised if international investors weren’t already aware.
During the meeting with reporters, MFI executives referred to a 2017 internal study on over-indebtedness – which was never made public – saying it shows over-indebtedness is not a problem. major.
But the figures in the report, obtained by Al Jazeera, do not match that.
In total, 28 percent of respondents were objectively insolvent, while 50 percent reported over-indebtedness to some extent. About a third of those surveyed reduced the quantity and quality of food due to their debts, and a fifth said they migrated for work in order to repay their debts.
The report also states that land titles are the most common type of collateral, admitting that this poses a “serious threat to low-income households”, but claims that land repossession rarely occurs.
Bylander says this is because most borrowers are forced to sell their land and use that money to pay off the loan, thus avoiding repossession while pushing the rural poor into landlessness.
The 2017 report does not contain any information on whether respondents sold land to repay loans.
“They don’t want to know the answer to that question or don’t want it documented,” Bylander said.