ike most Cambodians, the Krang Tbaeng community in Kampong Speu province, which lies to the west of capital Phnom Penh, collectively bear a shameful secret: all of the 36 families there are buried in soul-crushing debt.
Many of them had moved there even before the brutal Khmer Rouge regime ruled between 1975 and 1979. Most were employed in garment factories, while others farmed mushrooms and vegetables from nearby forests.
But in 2010, the Phnom Penh Sugar Company — owned by ruling party senator and business tycoon Ly Yong Phat — began clearing their lands to make way for sugar plantations. Many families have since been forcibly evicted by armed guards who destroyed and set fire to their homes. Then the COVID-19 pandemic struck in 2020 and caused agricultural prices to plummet as factories closed down for several months, leaving several households without stable jobs.
These dire conditions forced community members to resort to borrowing from private lenders and microfinance institutions (MFI) — to build houses and buy motorbikes, or simply to finance their children’s education. But crushing poverty led them into a vicious cycle of taking out loans to pay off their other loans, said Khon Khorn, a community representative.
“In my village, there are two or three families that have sold all their land, house, and farmland,” she said. “More and more, when they don’t have money to repay each month, they go to borrow more … and then (sell) their motorbikes, houses, and other things … to repay their debt.”
Now, 100 percent of the families are knee-deep in loans averaging US$4,000 — even more than the national average microloan debt pegged at US$3,804, according to the human rights groups Equitable Cambodia (EC) and the Cambodian League for the Promotion and Defense of Human Rights (LICADHO). One community member said: “Now I have only 3,000 riel (US$0.75) to buy fish twice a day. Before having debt, we could eat well.”
Their experience was illustrative of the gnawing microloan crisis gripping Cambodia, whose citizens are now overindebted, with loans far outstripping their incomes, according to a new report by EC and LICADHO. Among others, it was found that lack of government regulation and oversight of the microfinance sector meant that borrowers were often pressured to use their lands and houses as collateral, as credit officers took advantage of their lack of understanding of banking and finance fundamentals to drive them into further debt.
“This research adds further evidence that human rights abuses are occurring frequently and systematically in Cambodia’s microloan sector,” Pilorge Naly, LICADHO’s outreach director, said in a statement.
“Cambodian borrowers do not have time for further delays. They need urgent debt relief for the most overindebted borrowers in order to prevent this human rights crisis from worsening.”
Breaching ethical standards
This is the fifth such report produced by LICADHO, EC, and other Cambodian human rights groups since 2019, as part of growing efforts to uncover the serious rights abuses perpetrated by Cambodia’s highly profitable MFI sector.
This year’s report focused on Kampong Speu, Cambodia’s third largest province in terms of outstanding loan amount, behind the capital city Phnom Penh and northwest province of Siem Reap. Their team surveyed 50 villages across the province’s eight districts, and covered over 717 households from June to July 2022.
One of the findings showed that over a quarter of the households surveyed spent more than 70 percent of their incomes on debt repayments alone — which meant that for every US$10 they earned, US$7 went to pay off their loans. Even worse, 10 percent of the respondents also spent more than what they earned each month on debt repayments, the report said.
This level of overindebtedness “effectively guarantees that households are trapped into making increasingly harmful sacrifices, such as eating less, taking children out of school, or selling land in order to make repayments,” said the report.
Moreover, the report said these numbers showed that their lenders were in breach of the ethical guidelines for financial providers set by Cerise+SPTF, a joint venture of two global organizations dedicated to social and environmental management. The Cerise+SPTF Universal Standards for Social and Environmental Performance Management states that borrowers should not spend more than 70 percent of their disposable income on their total debt repayments each month.
As of June 2023, the Cerise+SPTF website listed eight Cambodian microloan providers as having an “active client protection certification.” Of these, six were reported as loan providers by the EC/LICADHO survey’s respondents, and five of them had clients who were paying more than 70 percent of their incomes for loans.
Meanwhile, nine out of every 10 households that took out a loan were required to put up at least one land title as collateral. In the Dor Por community, also in Kampong Speu, one respondent told the survey team that even if they repaid their loans, “it wasn’t easy to get the land title back. They wanted to keep it to make us get another loan.”
These conditions are exacerbating land conflict in the 16 million-strong Southeast Asian country, where many are still struggling to own lands 50 years after the deadly Khmer Rouge abolished private property and destroyed cadastral records to establish their own form of communism.
In the past, most Cambodians borrowed money for social services, like healthcare and education. By 2022, one-third of all loans made were used to repay existing loans, up from only 3.45 percent in 2012. This “reflect(ed) larger loan sizes and increasingly unsustainable debt burdens,” the report said.
Meanwhile, households in Kampong Speu were taking out an average loan size of US$9,073 — more than double the annual median income in rural areas in 2021, which was pegged at US$4,381.
“This is an unsustainable situation that puts tens of thousands of households at risk of being coerced to sell land, take further debts, and engage in other intolerable sacrifices, such as taking children out of school or eating less food, in order to make repayments,” the report said. “It also clearly represents a failure on the part of formal lenders to properly assess income and repayment ability prior to giving loans.”
When EC and LICADHO first wrote a report investigating MFIs in 2019, 2.4 million Cambodians held US$8 billion in outstanding microloans, an amount equal to about one-third of the country’s 2018 gross domestic product.
Initially, microfinance in Cambodia was a tool to help citizens who had no access to bank loans get much needed funds. In 2006 during a summit for donors, bankers, and government officials in Phnom Penh, Cambodia’s prime minister Hun Sen pitched microfinance as a way to lift the rural poor out of poverty.
By 2010, there were 20 licensed MFIs across the country. This number has spiked to 82 this year — and the microloan portfolio has more than doubled to nearly half of the country’s GDP in 2022 held as microloan debt, according to EC and LICADHO.
While Cambodia’s banks and regulators, as well as local and international investors see it as growth, the numbers belie a systematic practice of predatory lending that often leads to “coerced land sales, child labour, unwanted migration, hunger, threats and intimidation, and coercion using local authorities, as well as other harms,” the report added.
“These harms have now been revealed in detail, with both qualitative and quantitative methodologies, over the past four years,” said Eang Vuthy, executive director of Equitable Cambodia. “Investors, authorities, and development actors need to take immediate steps to enact remediation for borrowers and ensure these predatory practices stop, and put in place necessary consumer protection regulations so that we can ensure borrowers’ fundamental human rights are respected.”
But even now, both the government and the sector have failed to adequately address this crisis. For instance, the National Bank of Cambodia, the licensing and regulating authority of microloan providers, has “never issued strong consumer protection regulations to protect borrowers from unethical lending practices,” said Human Rights Watch (HRW) deputy Asia director Phil Robertson.
The issue has become heavily politicized as well after exiled opposition leader Sam Rainsy urged borrowers unable to pay their debts to hold onto their lands and money to survive. In response, Hun Sen urged financial institutions to seize property put up as collateral by borrowers who refused to pay their loans because they believed in Rainsy.
“Those who want the banks to collapse by refusing to pay their bank loans back and by withdrawing their deposits might be disappointed,” Hun Send said. “I would emphasize that I encourage the banks to seize the collateral of those who believe the propaganda. For those who are trying to pay off their loans, I appealed to the banks to understand them because this is a very hard time.”
But hard times for politicians and ordinary citizens are often spectrums apart.
“When we sell our last remaining land to repay the banks … it is the hardest thing,” said Khon Khorn. “Why? Because it’s our own land, the house where we live every day, and we have to sell it.
“And when it is all gone, there is nothing left,” she added. “It’s impossible to think about the future. You try to think but there is just nothing.” ◉
Text by Krixia Subingsubing, a Filipino journalist based in Manila, who writes stories on human rights, science, and local politics.