Micro-loans raise major questions in Cambodia


A recent report in Cambodia detailing human rights violations in the microfinance sector sparked an outcry from the government – not against predatory lenders, but against the organizations and journalists who exposed them.

The study, published by Licadho and Sahmakum Teang Tnaut (STT), paints a picture of an abusive industry that is drowning Cambodians in debt, forcing them to sell their land, migrate for work, and reduce quality and amount of food.

Even if an international investment fund has good intentions, once they strike a deal with a corrupt government and local businesses used to operating in this environment, corruption is almost inevitable.

The Cambodian government pointed out the small sample size of 28 households in the study, and the Cambodian Microfinance Association rejected its findings. But the report’s findings are consistent with a growing lack of confidence in the once-heralded industry.

From India to Nicaragua to Lebanon and Mexico, mass suicides, riots, predatory lending behavior and over-indebtedness are all a part of microfinance history. The industry, developed by economist Muhammad Yunus, has been hailed as a means of eradicating poverty. Yunus, who won the Nobel Peace Prize in 2006 for his work, has since lamented that he “never imagined that one day microcredit would give birth to his own race of loan sharks.”

“Microcredit should be seen as an opportunity to help people get out of poverty commercially, but not as an opportunity to earn money with the poor,” he told the United Nations in 2010. .

But widespread debt distress suggests the $ 100 billion plus industry is now doing just that, with the Cambodian $ 8 billion industry just one example in a global trend.

Critics point to differences in the way microfinance is run today compared to Yunus’ original model.

Nobel Peace Prize Laureate Muhammad Yunus in 2017 (Photo: Overseas Development Institute / Flickr)

In their 2009 article “The Microfinance Illusion,” researchers Milford Bateman and Ha-Joon Chang explain that Yunus originally lent money specifically to small entrepreneurs. But over time, this practice gave way to lending money to anyone who needed it. When loans are given for daily needs, they do not generate any profit and cannot be repaid, compromising the whole process.

In Cambodia, 30% of loans in 2017 were taken out for household consumption, according to the World Bank. The percentage of loans taken out for agricultural activities fell from 31% in 2012 to only 17% in 2017.

The industry also turned away from its original social enterprise when big banks and for-profit companies realized the economic potential of the industry.

Coupled with rampant corruption and a lack of effective regulations in developing countries, this focus on profits leaves poor villagers vulnerable to abuse.

Cambodia consistently ranks among the most corrupt countries in the world. Even if an international investment fund has good intentions, once they strike a deal with a corrupt government and local businesses used to operating in this environment, corruption is almost inevitable.

Government spokesman Phay Siphan invited NGOs to a meeting to further discuss the report, but any illusion that the meeting would be conducted in good faith was shattered when Siphan called the report “fake news” in the same interview. . After the meeting, he requested that the study be withdrawn.

Chea Serey, the managing director of the National Bank of Cambodia attacked the media who reported on the study.

Serey called the report “hearsay” and accused the media of “coordination” and “plagiarism” for publishing articles on the same day – the day the embargoed report was published.

Serey accused reporters (including me) of failing to “check the facts”, but did not respond to any of the additional reports that supported the study’s findings.

In my own report for Al Jazeera, I interviewed a former employee of LOLC, one of the largest microfinance institutions in Cambodia, who said he quit precisely because the company was putting so much more emphasis. on profit than its so-called social enterprise.

I referred to a 2017 over-indebtedness study commissioned by some of the international organizations that fund Cambodia’s microfinance institutions. The report, which was never made public, looked at a sample of 1,660 people and found that 28% were objectively insolvent. An additional 18% were forced to migrate for work in order to repay their loans, and a third of those interviewed had reduced quality or quantity of food.

Extrapolated to the 2.4 million people with loans, these figures represent hundreds of thousands of poor Cambodians going into debt.

But Siphan and Serey never responded to these issues. Instead, the small sample size of 28 became the government’s sole focus as a reason to reject the Licadho / STT report rather than reform the sector. Never mind that the report also referred to other studies with larger sample sizes and interviewed microfinance executives who confirmed that such practices were standard in the industry.

The government’s response has been as predictable as it is depressing. But the report can still serve as a warning to international financial institutions that claim to operate ethically – that if they don’t address these issues, Cambodia may well become the next microfinance crisis.


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