Years of over-indebtedness might soon push Cambodia into a crisis as the coronavirus makes it even harder for families to pay back their loans, experts and debtors say.
While the country has officially registered only 122 cases of COVID-19, thousands of garment workers lost their jobs when their factories closed. Those working in the tourism or service industry similarly have lost their incomes.
Among those struggling with their loans is tuk tuk driver Hy Sokhom. He would usually drop off his wife and adult daughter at a school in Kandal province’s Kien Svay district for them to sell noodles, but the school closed mid-March to contain the spread of the virus, and potential customers no longer congregate in the area. Due to the pandemic, the family has lost $10 of daily income.
Their two sons lost their jobs when casinos in Bavet city closed. They now are unable to send $300 monthly remittances home.
The family’s joint income would have been enough to cover the $400 monthly installments to pay back their $18,000 loan - taken to buy a new tuk tuk, renovate their house, as well as supporting their sons’ move to Bavet near the border of Vietnam six months ago. However, this now seems impossible.
They also have to pay back monthly installments to two microfinance institutions of about $50 each.
One of the sons started a job as a security guard a couple of weeks ago, but that brings in little income. Now it is up to the father, Sokhom, to shoulder the daily expenses and the loan, but tourism has ground to a halt, and his income - reliant on foreign customers - has steeply fallen. He used to make $20 a day, now he makes between $5 and $7.50 a day.
“It’s troublesome,’’ said Sokhom’s wife, Keith Mom. “We don’t have money to pay the bank and not enough money to buy food.”
The family, she said, in the past had never been late at paying loans. ABA, the bank they had taken up the loan with, continues to insist on the monthly installments. The 48-year-old mother is concerned.
“I want [the bank and MFIs] to help assist us with a two- or three-month moratorium,” Keith Mom said. “They could collect money from us as normal when [COVID-19] is over.”
ABA, one of Cambodia’s biggest banks that is backed by the National Bank of Canada, told VOA Khmer that it could not “provide you with the specific solutions in that case as it is based on each customer’s loan repayment condition.”
Before granting potential delays in payment, ABA said, their loan officers had to “investigate our customer’s income situation.”
Like Sokhom’s family, millions of Cambodian families with debt have abruptly lost their incomes, leaving little money to feed families and pay back loans.
This prompted 135 civil society organizations this week to urge the Cambodian government to ensure that microfinance institutions immediately suspend all loan repayments and interests for at least three months. This, they said, was “necessary to ensure that people can survive this crisis without risking their health or homes.”
In response to the statement, the Cambodia Microfinance Association and Association of Banks in Cambodia said the statement “does not reflect the real situation and is adversely affecting the banking and financial sector.”
But Milford Bateman, a freelance consultant on local economic development policy who has written several books about microfinance, echoed the civil society organization’s assessment and said repayments should be frozen during the pandemic.
“If you give a grace period but add the unpaid installments to the total loan amount due, which some MFIs have said they will agree to do, you only delay the pain until the end of COVID-19 emergency when the microloan is larger than ever,” he said.
Prime Minister Hun Sen in March advised credit institutions to delay the due dates of payments. The Cambodia Microfinance Association said on its website that it would assess the situation on a case-by-case basis.
The government has also announced it would assist credit lenders with various measures, including low-interest state loans of up to $600 million for banks and MFIs to supply low-interest credit.
The Ministry of Economy and Finance spokesman Meas Soksesan said the government already had forgiven taxes for some businesses. “The small and medium enterprises that want to continue their business can borrow money at a fair rate so they could go through the storm,” he said.
But with more than 80 MFIs across the country, the civil society organizations said a case-by-case assessment would not be fast enough to support all the borrowers.
Neither the Association of Banks in Cambodia nor the Cambodia Microfinance Association responded to requests for comments.
With a lack of clear guidance from the government, villagers in Sokhom’s village turn to Facebook to follow Prime Minister Hun Sen’s announcements about microloans.
“When he is live [on Facebook], we watch him, since we want to know about the credit issues,” Sokhom’s neighbor Pann Sopheak said.
Sopheak, a 41-year-old widow who raises three children on her own after her husband passed away six months ago, has taken up loans of about $8,000 from three different microcredit institutions to renovate her house. Her monthly installment is about $400 a month.
As a fruit seller, she is dependent on people flocking to the markets, but out of fear of the coronavirus, she only had a few customers coming by on a recent day.
Because of the fall in income, she had asked the banks to delay the monthly installments by three months. Yet, they had informed her she couldn’t even defer the payment by a day, she said.
“Please, Samdech [Hun Sen] help your fellow citizens. Please Samdech help talk to the banks to give the borrowers a delay, a three-month moratorium,” she said.
In a similar vein, the civil society organizations urged the National Bank of Cambodia as well as the government to issue a sector-wide directive, making a three-month moratorium obligatory.
Various banks, including the National Bank of Cambodia, and the Association of Banks in Cambodia did not respond to requests for comment.
This crisis, Finance Ministry spokesman Meas Soksesan said, was not unique to Cambodia. “Everyone goes through a hard time during this pandemic,’’ he said. “Every country. I want to emphasize that it happens in European countries as well as the United States.”
But while the pandemic has affected loan borrowers all over the world, Cambodia is in a particularly vulnerable state, according to observers.
In their statement, the civil society organizations said that 2.6 million Cambodians owed an average of more than $3,800 to microfinance institutions. This, they said, was “the largest amount in the world,” when taking into account metrics such as average annual income.
“This puts millions of Cambodians’ livelihoods, health, and land tenure security at risk,” the statement reads.
According to a joint report released by NGOs Licadho and Sahmakum Teang Tnaut, this amounted to more than $8 billion in total as of December 2018. The country’s GDP per capita was just $1,384 in 2017, according to the report.
To address the issue, the Cambodian government has over the years launched several attempts to prevent people from being trapped in debt.
In 2017, the government issued an interest rate cap at 18 percent, just before the commune elections. According to Bateman, this was not successful because MFIs increased their fees. Around the same time, the government launched a phone campaign reiterating that microloans were owed to private institutions and not to the state. Therefore, the government could not forgive debts.
The crisis hits the informal sector hard. Vorn Pao, president of the Independent Democracy of Informal Economic Association (IDEA), said the coronavirus crisis posed a real threat to the livelihoods of its 12,000 members. He said at least 80 percent of the members had taken loans. And the members of his association, he said, only represented about 10 percent of the total number of tuk tuk drivers, motorbike and taxi drivers, and vendors.
“I am worried that if COVID-19 is ongoing, it will have hazardous impacts on their daily lives,’’ Vorn Pao said. “They are already facing issues now. So, if it keeps on going, they could face food shortage as their income continues to decrease.”
Hout Ieng Tong, president of the Hattha Kaksekar Microfinance Institution, said that his company would grant a grace period to those most affected, including those working in the tourism and garment industry.
“We will investigate if he is really impacted by this virus, and if he is really incapable [to pay back the loan],” Hout Ieng Tong said.
Hout Ieng Tong added that for those who work in the informal economy, his company would assess the situation on a case by case basis. “We know that he drives the tuk tuk every day, and he doesn’t get that many customers, so we could give them some time,” he said. “[But] we have to talk to our clients. It’s not that we will give them an automatic grace period.”
IDEA’s Vorn Pao added that the government should set aside a budget to help provide them with food until the situation becomes better.
Meas Soksesan, the Finance Ministry spokesman, said his ministry had set aside a budget of $350 million to “serve those people in the informal and formal economy.”
He said this money would be distributed by the Ministry of Social Affairs and the Ministry of Labor, without elaborating further. The budget, he said, aimed to “secure social order and social stability,” to “help the business thrive,” to “enforce the local economic activity,” and to “restore the economy after the pandemic gets lower.”
“In other words, we will not let our people starve, especially those who are poor and vulnerable. That's where the 350 million dollars go,” Meas Soksesan said.
In about two weeks, Meas Soksesan said, they would have a meeting to determine the strategy going forward.
For some, this crisis could have devastating consequences. Many MFI loans are collateralized by land titles, leaving millions at risk of losing their homes and property should they default. Others could see themselves forced to sell their land to cover loans.
“Many clients submitted their land titles as collateral to get microcredit, and some of the worst MFIs might try to sell off this land to repay a microloan, thus leaving the client in a very bad situation - no land usually equals irretrievable poverty,” Bateman said. “The MFIs have not confirmed if they will or will not try to seize the land and houses of those clients who cannot repay their microloans.”
For Sokhom’s neighbor Sopheak and other neighbors, this is a very real threat.
“I am not afraid of COVID-19, but I am afraid the bank will confiscate my house and my land, honestly, as I don’t make money,” Sopheak said.
To prevent this from happening, the civil society organizations in their statement urged the government and the national bank to order the sector to return land titles to the debtors. “All people, including MFI borrowers, deserve unhindered access to their land titles – now more than ever. … Immediate steps must be taken to ensure that no one is forced to sell their land to make loan repayments during this economic crisis,” the statement reads.
A 2018 report, titled Untold Stories of Modern Slavery and Climate Change from Cambodia, found that when people were unable to pay back their debt, some turned to brick kilns. Owners of the kilns, the report found, would promise to pay back the loans for them in exchange for labor - but unable to pay back the loans with the little pay they earn - the workers cannot leave the brick kilns and find themselves in debt bondage. The researchers found that this debt was sometimes passed on intergenerationally, leaving the entire families trapped in their debt.
But Microfinance institutions themselves are dependent on other people’s money.
The World Bank’s International Finance Corporation (IFC), for example, has invested in Cambodian microfinance companies such as ACLEDA, and Triodos Investment Management, which holds shares in ACLEDA.
IFC said it is “closely watching impacts of COVID-19 in all developing countries including of course Cambodia.”
The spokesperson said in an email to VOA Khmer that it had set aside an $8 billion support package for companies and financial institutions to keep their operations going.
This, they said, “can strengthen the economic recovery process, shortening the time it will take for the most vulnerable to return to their traditional income-earning opportunities.”
In an email statement, Triodos Investment Management, an investor in Cambodia’s ACLEDA bank, urged companies to “deal with debt collection processes in a responsible manner,” and to consider relaxing deadlines for repayments.
But tuk tuk driver Som Sarith said he needs more concrete measures than that.
“I want [prime minister Hun Sen] to be straight with the banks,” Sarith said.
Another one of Sokhom’s neighbors, Sarith, 60, also borrowed 18,000 dollar from a microfinance institution to build his house, and to pay for his son’s wedding. He now has to pay $380 per month and another $100 for two other MFIs.
With both his daughter and wife working at a school, they didn’t have issues repaying their loans until the coronavirus crisis hit the country. But as the school has now closed because of the coronavirus, the family does not know how to raise enough money.
Sokhom said he had always been on time paying back the loans. But regardless of their good payment record, it could not save him in the time of COVID-19.
“When we borrowed money from them, they asked us everything in detail,’’ Sokhom said. “When we have problems [with COVID-19], they have not asked us anything. It’s only when we have to pay them money. It’s injustice for the debtors.”