LICADHO: Upsurge in microfinance debt leads to land loss and human rights abuses in Cambodia

• 8 August 2019
• Local News
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The acceleration in microfinance debt in Cambodia – for which land titles are mostly used as the collateral – can poses significant risks to millions of local debtors in the kingdom including land loss and many other systematic human rights abuses, according to the latest joint research by the Cambodian League for the Promotion and Defense of Human Rights (LICADHO) and Sahmakum Teang Tnaut (STT).

Released on 07 August, the report indicates that as of the beginning of 2019, more than 2 million Cambodians held a total in outstanding microloans of at least US$8 billion – about one-third of the Kingdom’s GDP. In other words, the average microloan debt per borrower in Cambodia was around US$3,370, which is the highest amount in the world. Moreover, more than 50% of those debtors in every province except Phnom Penh used land titles as the collateral.

Microfinance was introduced in Cambodia in the 1990s with the aim of helping provide easier access to credit for poor citizens in Cambodia, especially farmers. After the government enforced more microfinance policies in 2007, outstanding loans increased more than fourfold from just US$300 million in 2009 to US$1.3 billion in 2013, according to the same report.

In contrast to the initial objectives, this new research surprisingly found that microfinance instead is exploiting the borrowers. The report mentioned that Microfinance Institutions (MFI) are very reckless in the lending of their money. They loosely offer loans to clients who clearly have a low possibility to repay them and pressure them to repay loans through coercive land sales or other unethical measures.

“MFIs in Cambodia charge high-interest rates, require land titles as collateral and target poor clients who are vulnerable to land loss. This predatory form of lending, which has led to immense profits for MFIs and their foreign lending partners, has negatively impacted the land tenure security of Cambodians, especially vulnerable communities,” the report said.

“In most cases, the land that was lost was income-generating. Loss of land, therefore, jeopardises a family’s livelihood and identity,” the report added.

Of the 28 households that researchers interviewed, 22 had experienced a coercive land sale; 13 had engaged in child labour; 18 had a family member migrate due to debt, and 26 had eaten less or lower quality food in order to make loan payments.

In addition, the World Bank via their recent report released in May also gave a warning to Cambodia that the oversubscription of microloans could also put the kingdom’s economy into risk.

Similarly, the United Nations in 2017 also noted that “for many Cambodians, microfinance loans only serve to push borrowers further into poverty,” as reported by Reuters.

On the other hand, in response to this research, the Cambodia Microfinance Association (CMA), told Reuters that all members always followed the law and regulations 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,” acting executive director Chea Saren said.

Beside addressing the issue, LICADHO and STT also urged all the related parties, including the MFI, international investors, the Cambodian government, microfinance institutions and international investors, to help each other reform these practices and ensure that Cambodians are no longer forced to sell land and suffer human rights abuses in order to pay their debts, but instead have access to sustainable financing.

• Analysis