Cambodia’s micro-loans: A form of predatory lending?
Some Cambodians are reportedly taking drastic steps to pay back tiny loans designed to benefit the poor.
The rapid rise of tiny loans aimed at helping poor Cambodians has led to more debt, with many borrowers forced to sell land, migrate or put their children to work, human rights groups said on Wednesday.
The Southeast Asian nation has about 2.4 million borrowers with $5.4bn in outstanding micro-loans – and one of the world’s biggest average loan sizes – according to a report from human rights groups 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, the human rights groups said.
“MFIs, as they currently operate, pose a direct threat to the land tenure security of millions of people in Cambodia,” noted their report. “In most cases, the land that was lost was income-generating. Loss of land, therefore, jeopardises a family’s livelihood and identity.”
The National Bank of Cambodia did not respond to emails seeking comment.
An official at industry group the Cambodia Microfinance Association (CMA) said all members followed the law – as well as CMA’s lending guidelines – to check over-indebtedness.
“CMA and other stakeholders watch the growth in the sector carefully and take appropriate measures to ensure long-term sustainable growth,” CMA acting executive director Chea Saren said.
Microfinance took off in Cambodia in the 1990s as a way to provide easier access to credit for those left impoverished after decades of war, allowing many to purchase farming equipment or set up small businesses.
After the government introduced more formal microfinance policies in 2007, outstanding loans more than quadrupled to $1.3bn in 2013 from just $300m in 2009, data compiled by Licadho and STT showed.
At the end of 2018, the average loan size was about $3,370, more than twice the country’s gross domestic product per capita of $1,384 in 2017.
The World Bank, in a report earlier this year, warned of risks to the Cambodian economy from bigger micro-loans. In 2017, the United Nations said that “for many Cambodians, microfinance loans only serve to push borrowers further into poverty”.
Cambodia imposed an annual interest-rate cap of 18 percent on MFIs in 2017. But that had proven “ineffective” in slowing credit growth, Licadho and STT said.
The impoverished Southeast Asian country of 16 million has struggled to establish land ownership since the deadly Khmer Rouge destroyed property records to establish a form of communism in the 1970s.
Over the last two decades, the government has driven efforts to title land to help alleviate poverty.
About half of MFI loans in Cambodia are secured by land titles, according to Licadho and STT.
“Collateralised credit is most risky when it is given to people who are already at the margins of economic vulnerability,” said the University of Wisconsin’s Nathan Green, who is researching microfinance in Cambodia.
“It is especially 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 land held by Cambodian farmers has been lost due to failure to repay micro-loans, according to Milford Bateman, a professor of development studies at Saint Mary’s University in Canada, who has studied microfinance.