A 22-page report that examines the effects of microfinance lending in 14 communities in eight provinces across Cambodia has found that unsustainable growth and lack of effective client protection have increased borrowers’ debts and led to the confiscation of their land.
The report titled ‘Right to Relief: Indebted Land Communities Speak Out’ found that much of the growth in microfinance lending has led to widespread over-indebtedness with borrowers’ land titles serving as collateral.
Microfinance institutions (MFIs) in Cambodia charge high interest rates, require land titles as collateral, and target poor clients who are vulnerable to land loss, all of which are struggling with overwhelming levels of microloan debt, according to a report by two Cambodian human rights NGOs.
“Many Cambodians are drowning in microloan debt, which is leading to drastic and serious human rights violations across the country, and many people are suffering in silence,” said the two NGOs responsible for the report — Equitable Cambodia (EC) and the Cambodian League for the Promotion and Defense of Human Rights (Licadho) — on the report’s website www.mficombodia.com.
As of December 2020, the country had 2.8 million loans totaling US$11.8 billion dollars, as tracked by the Cambodian Microfinance Association, including loans from registered MFIs as well as small portfolios of several Cambodian banks. The average size of the microloans was US$4,280, an amount that is higher than 95% of Cambodians’ annual income, the report said.
If borrowers have difficulty repaying microloans, they often are subjected to unethical behavior by credit officers, including the use of aggressive collection practices, threats, pressured land sales, the keeping of their land titles after repayment and, at worst, fraud, the report says.
It also notes that most MFIs frequently work with local authorities, including village and commune chiefs, to both offer loans and ensure repayments.
“These predatory practices have led to immense profits for MFIs and their foreign lending partners and have negatively impacted the land tenure security of Cambodians, especially vulnerable communities,” they said.
The report also indicates that bank and MFI options for restructuring or delaying microloan repayments during the COVID-19 pandemic have been insufficient and have failed to stop coerced land sales or other abuses from occurring during the health crisis, when many Cambodians’ lost jobs and income and couldn’t repay their loans.
In the community of Chi Khor Kraom in Koh Kong province, an estimated 80 percent of families have average loan sizes of US$5,000 from MNIs and from private informal lenders. But because of the lack of options to help repay what they owed, the borrowers were forced to sell their land to repay the debt, leading to reduced food consumption for their families and the inability to pay off older debt.
Villagers said that the “fear” created by credit officers in the community meant that they had to pull their children as young as 12 years old out of school and to do work so their parents could repay the MFI debts.
The report also noted that in one case, an MFF returned a borrower’s land title more than one full month after the person had repaid the loan and encouraged him to take out another loan.
RFA could not reach government spokeswoman Phay Siphan or National Bank of Cambodia spokeswoman Chea Serey for comment.
Ministry of Economy and Finance spokesman Meas Sok Sen San declined to comment on the findings of the report, saying he was busy with a meeting. (Source: RFA)