Microcredit in Cambodia: a predatory form of loan? | Poverty and development


The rapid increase in small loans to help poor Cambodians has led to increased debt, as many borrowers are forced to sell land, migrate or put their children to work, human rights groups said Wednesday. .

The Southeast Asian nation has an estimated 2.4 million borrowers with $ 5.4 billion in micro-loans outstanding – and one of the largest average loans in the world – according to a report from groups of defense of human rights Licadho and Sahmakum Teang Tnaut (STT).

High interest rates, the use of land titles as collateral and pressure to repay loans have led to a “predatory form of lending” by microfinance institutions or MFIs, human rights groups have said .

“MFIs, as they currently operate, pose a direct threat to the land security of millions of people in Cambodia,” their report notes. “In most cases, the lost land was income-generating. Consequently, the loss of land jeopardizes the livelihoods and identity of a family.

The National Bank of Cambodia did not respond to emails seeking comment.

An official from the industry group, the Cambodian Microfinance Association (CMA), said all members follow the law – as well as the CMA’s lending guidelines – to check for over-indebtedness.

“CMA and other stakeholders are carefully monitoring the growth of the sector and taking appropriate steps to ensure long-term sustainable growth,” said CMA Interim Executive Director Chea Saren.

Microfinance took off in Cambodia in the 1990s as a means of facilitating access to credit for those who remain impoverished after decades of war, allowing many to purchase agricultural equipment or start small businesses.

After the government introduced more formal microfinance policies in 2007, outstanding loans more than quadrupled to $ 1.3 billion in 2013, from just $ 300 million in 2009, according to data compiled by the Licadho and STT.

At the end of 2018, the average loan amount was around $ 3,370, more than double the country’s gross domestic product per capita of $ 1,384 in 2017.

The World Bank, in a report released earlier this year, warned of the risks to the Cambodian economy associated with larger micro-loans. In 2017, the United Nations declared that “for many Cambodians, microfinance loans only serve to push borrowers further into poverty.”

Cambodia imposed an 18% annual interest rate cap on MFIs in 2017. But this has proven to be “ineffective” in slowing credit growth, Licadho and STT said.

The impoverished Southeast Asian country of 16 million people has struggled to establish land ownership since mortal Khmer Rouge destroyed property records to establish some form of communism in the 1970s.

Over the past two decades, the government has made efforts to secure land titles to help reduce poverty.

About half of MFI loans in Cambodia are secured by land titles, according to Licadho and STT.

“Secured credit is riskier when extended to people who are already on the margins of economic vulnerability,” said Nathan Green of the University of Wisconsin, who studies microfinance in Cambodia.

“This is particularly risky in Cambodia because the microfinance market is already saturated, and because there is almost no government oversight,” he told the Thomson Reuters Foundation.

About 10 to 15 percent of the land held by Cambodian farmers has been lost due to non-repayment of micro-loans, according to Milford Bateman, professor of development studies at Saint Mary’s University in Canada, who studied microfinance.

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