The Failures of Microcredit in Cambodia

August 2022 saw the release of a new report into the troubled state of Cambodia’s microfinance sector – one that did not make for encouraging reading. In a landmark 2019 report, the human rights group LICADHO and the urban rights NGO Sahmakum Teang Tnaut documented how skyrocketing debt levels had generated a range of human rights abuses, “including coerced land sales, child labor, debt-driven migration, and bonded labor.” In May 2022, the watchdog of the International Finance Corporation, the World Bank’s private lending arm, announced that it would review a complaint filed by LICADHO and STT alleging that it has caused “grave harm” by funding and supporting microfinance lenders in Cambodia. The German government-funded INEF report was intended to supplement the anecdotal, qualitative nature of the existing studies into Cambodia’s microfinance sector, such as the 2019 LICADHO/STT report, and to create an empirical assessment of “the overall picture of the debt problem.” In addition to discussions with villagers and local authorities in 24 Cambodian villages, the statistical core of the study was a large household survey, involving 1,388 randomly selected households. Among MFIs, banks, and other credit institutions, the rhetoric of poverty reduction, once foregrounded in their public communications, has long given way to “the goal of expansion, of increasing turnover as well as profits.” In many cases, the report finds, debt “serves investment purposes and the majority achieves its purpose, be it the expansion of income-generating measures, investment in housing or the acquisition of higher-value consumer goods.” But it also notes that a considerable chunk of outstanding microfinance loans are taken out to service basic living costs, which “should not be the case with responsible financing and inevitably leads to over-indebtedness.” The INEF study notes that the average value of MFI loans among those surveyed was $5,183, a figure considerably higher than what has traditionally been considered a “micro” loan. “If this figure is extrapolated to all borrowers in Cambodia,” the report concludes, “then possibly 167,400 individuals or households were forced to sell land due to over-indebtedness in the last five years.” The report notes that MFIs and banks “try by all means to prevent expropriation of land titles by the courts,” at least in part to avoid the growing public criticism over the loss of land by defaulting creditors.