Angkor Chum district, Siem Reap province — Two years ago, Phel Hoeun, a mother of five, used the title to her home as the collateral to borrow $8,000 from Thaneakea Phum, a microfinance institute in Cambodia.
Once approved, she used the money she had borrowed to purchase a four-hectare plot of land.
Phel Hoeun, 47, is a laborer, her income dependent on the daily needs and whims of employers. She envisioned planting the land with cassava, which is used to make flour, tapioca and animal feed. But between meeting daily expenses and the monthly $300 loan repayment, everyone in her family needed to leave their land to find work. Like hundreds of other Kok Doung commune residents here, Phel Hoeun and her family could not afford the time to farm.
In June, Phel Hoeun sold half the land she bought with the loan from Thaneakea Phum to pay off a debt from private lenders she had tapped for the money she needed to pay the microfinance institute (MFI) because even with the extra land “we did not make money,” she told VOA Khmer.
Now, after selling half the land she intended for cassavas, out of the original $8,000 Phel Hoeun still owes U.S $6,000 to Thaneakea Phum, which has been renamed LOLC.
To help pay the rest of the LOLC loan, now due at about $200 a month, Phel Hoeun’s husband works as a laborer in a nearby district. He makes around $5 per day. Her daughter left home to work in Thailand. She earns from $6.50 to $9.70 per day.
Each gives Phel Hoeun what they can, when they can, because their incomes are irregular, dependent on day-by-day demand for their labor. The loan demands a regular $200 month-by-month repayment over the next four years.
Phel Hoeun has seven siblings. Each has borrowed from a MFI, she said. So have her two other children. They’ve used the money in many ways --- to expand a farm, build a home, pay for medical treatments, or cover daily expenses.
The family is not unique in rural Cambodia. In Kok Doung commune, not far from the temples of Angkor, more than 3,500 families depend on cassava farming and family members working in Thailand to pay off debts.
Cambodia’s microcredit sector is burdening families with debt, which leads to coerced land sales, debt-driven migration and child labor, according to a recently released joint report by two human rights NGOs, the Cambodian League for the Promotion and Defense of Human Rights (Licadho) and Samakum Teang Tnaut.
Modern microfinance first received attention in the mid 1970s with small loans made by the Grameen Bank in Bangladesh. In many parts of the world, a low- or no-interest loan, sometimes as little as $20, has been enough to start a business or engage in other profitable activities, such as buying extra land that turns a self-sufficient farm into an income generator. Originally, many of the lending organizations were socially conscious, non-profits.
But today, controversy has dimmed the sector’s sheen. Critics now question whether microloans help the poor or send them down a spiral into deeper poverty with aggressive sales tactics and high-interest lending.
Villagers in Kok Doung are among the 2.4 million people in Cambodia who have taken loans from microfinance companies, specialists say. All told, the industry holds at least $8 billion in outstanding debt and according to the NGOs’ report, Cambodia has “the world’s highest average MFI loan.”
In Kok Doung, about half the families owe money to MFIs, and about a thousand villagers have left to work in Thailand, according to commune chief Kem Ham.
Kem Ham has also taken out a MFI loan. He says he is in debt. He acknowledges that most borrowers take out multiple loans to buy land, farm, start small business or build houses.
He said this year two borrowers in the commune left their land, as they cannot repay their loans.
They are not alone in their plight given that the average debt per Cambodia borrower is about $3,370. The nation’s GDP per capita was $1,384 in 2017, according to the NGOs’ report.
For Cambodian microfinance institutions, their microloan portfolios have increased from $300 million in 2009 to around $5.4 billion at the end of 2018, and together with the “small loan” portfolios of ACLEDA and Sathapana Bank, make the total microloan portfolio about $8 billion, according to the report.
Pho Vanna, 31, who has worked as a loan officer in LOLC’s microfinance office in Kok Doung commune for some two years said that 70% of the people who borrow from his office have multiple loans.
“It is rare to find a good client [without other loans],” he recently told visiting reporters.
Pho Vanna said that he has about 300 to 400 clients in the commune where “at least five to six borrowers” have gone into hiding because they could not repay their debts.
He added that when a borrower cannot afford to pay, the guarantor, a de facto co-signer, could request to sell the land, or other asset, listed as collateral.
“In this case, we reach out to the village chief or commune chief, and let them know that the guarantor cannot make the monthly loan payment. So they have to sell land, or any property that has put up as collateral at my company.”
The NGOs’ report alleged commune chiefs convinced residents to take out loans from microfinance institutions. Then, the chiefs acted as private lenders when the residents could not repay their loans, according to the report.
The report alleged that “in several cases, local village- and commune- level authorities acted as enforcers for MFIs to pressure clients into making repayments, or preyed upon indebted villagers by offering them private loans at exorbitant interest rates.”
VOA attempted to confirm the allegation made in the report but instead found chiefs and residents who denied such practices. The NGOs said they stand by their report.
The researchers studied 28 households in 10 communes across four provinces, according to the report. Of those, 22 households were forced to sell land, 13 were involved in child labor, 18 had family members working in Thailand, and 26 households had eaten less food or food of lesser quality in order to repay their loans.
Twenty households had taken out at least one additional loan to repay an existing MFI loan while 22 households had borrowed from a private lender while still in debt to a MFI, the researchers found.
However, the Cambodia Microfinance Association condemned the report saying in an Aug. 7 statement that it paints a distorted and “an inaccurate picture that does not reflect the true state of MFI lending that has benefitted hundreds of thousands of Cambodians.’’
The microfinance association added that NGOs’ research and report "relies on flawed methodology.’’
International institutions have long said that MFI loans help improve the economic outlook for households in poor and rural areas where formal banks are not accessible.
Triodos Investment Management, which holds shares in ACLEDA, told VOA in a statement that MFIs help finance the building of “a resilient society.”
The company added that it is “very much aware of the need for the microfinance sector to do this in a responsible manner and that there are unfortunately several examples in the industry of malpractices, resulting in negative side effects for end clients, such as over-indebtedness.”
The World Bank Group’s International Finance Corporation (IFC), which has invested in microfinance companies such as LOLC and ACLEDA, said in a statement that these companies have provided financial support to poor villagers to “expand their businesses, increase their incomes, and create jobs.”
However, an IFC spokesperson said that it “will review the NGOs’ analysis of the Cambodian microfinance sector.”
“There are legitimate concerns about indebtedness in the microfinance sector,” the spokesperson said.
The IFC spokesperson added that it is working with the National Bank of Cambodia (NBC) “to set up a credit bureau to help avoid situations of multiple borrowings and unsustainable debt levels, and to provide information that helps stamp out aggressive lending practices. IFC has also helped to strengthen Cambodia’s financial consumer protection framework.”
Chea Serey, director general of NBC, said the bank would look into the report’s allegations.
“We condemn unethical practice by financial institutions in Cambodia and take seriously the allegation and will investigate and take necessary actions-just wish there were more facts in the report than hearsay,” she wrote on her Facebook.
At the same time, Chea Serey lashed out the media saying that news outlets published the story to “DAMAGE Cambodia’s financial sector image, on the SAME day, based on the SAME report by a small local NGO, with the SAME wordings (academic would call it plagiarism), WITHOUT fact checking,” she wrote.
A top American journalist, however, said it is routine for the news media to publish and broadcast similar stories following the release of a credible report or press statement.
“It is not at all unusual for numerous news organizations to publish similar stories from the same newsworthy press release,” Leonard Downie, a professor at the Cronkite School of Journalism and Mass Communication at Arizona State University, told VOA Khmer by email.
The former executive editor and vice president of The Washington Post added, “The National Bank’s general director misrepresented what happened in the coverage of the press release, especially by calling it plagiarism. She is trying to deflect the truthfulness of the coverage, rather than responding to the substance of the NGOs’ report.”
Due to many of the factors it outlines, Phel Hoeun’s family faces an uncertain future.
One of her brothers borrowed $7,000 from LOLC but now cannot repay the loan. Worried that the family’s house could be confiscated, her 25-year-old son borrowed $7,000 from Hattha Kasekor, a microfinance company, to give to his uncle while he took over the debt.
Now Phel Hoeun’s son must make a $250 monthly payment on his debt.
“If I had not let him take out the loan, he would not be in debt,” Phel Hoeun said. Her son now works in construction in the casino boomtown of Sihanoukville, where his wife works as well. On a good day, the couple’s combined daily income was about $13 but he has contracted malaria.
One of Phel Hoeun’s sisters borrowed $14,000 from two microfinance companies about two years ago because they needed money to build a home. She and her husband are now working in Thailand. Phel Hoeun minds their 14-year old son.
She also tends to her two children, aged 14 and 15, her three grandchildren aged from 10 months old to 3 years old, and her aging mother. Although Phel Hoeun wants to go to Thailand to make money to pay off the loan, she stays home so others can migrate to work.
In July, Phel Hoeun borrowed one million riel, about $250, from a private lender with the rate of $15 per month to pay LOLC for the monthly repayment.
Phel Hoeun told VOA that she is worried that her family may need to make more sacrifices to protect the property from being confiscated. She said “I am considering having my kids quit school to work as construction workers.”