Micro-finance is big business in Cambodia, which at US $3,804 per capita, has the highest average borrowing amounts from micro-finance institutions in the world. That’s a hefty figure in a country where the average household income is just $1,376 per year. Total micro-loan debt now sits at around $10 billion – and with the Covid-19 pandemic suspending tourism, trade and cross-border movement, slowing the economy and rendering livelihoods precarious, many Cambodians now find themselves unexpectedly able to repay their loans.
Even before the pandemic hit, it was clear Cambodians were borrowing at an unsustainable rate. In January 2019, the World Bank warned that average loan size had increased more than tenfold, including those loans taken out to cover basic consumption needs. Pre-empting a default crisis, the National Bank of Cambodia (NBC) issued guidelines to all financial institutions in March, asking them to take the impact of the crisis on their customers into consideration and “mitigate the burden” on borrowers, especially garment workers and others employed in hard-hit industries.
These recommendations were non-binding and open to interpretation, though, giving micro-lenders plenty of leeway to disregard them. 135 communities, unions, and local civil society groups wrote an open letter to the government in April, calling for the temporary suspension of debt collections by micro-finance institutions – again, to no avail.
To make matters worse, the issue has now become a highly politicised weapon in a bitter spat between Prime Minister Hun Sen and exiled former leader of the opposition, Sam Rainsy. On Facebook, the head of the now-banned Cambodian National Rescue Party (CNRP) repeatedly stated that those in dire need should not be forced to sell their homes and land to pay off debts during the pandemic and had organised an online forum discussion on the issue on 8th May.
On 24th June, Hun Sen responded by downplaying the problem and claiming that opposition activists were trying to stir up trouble, threatening them, “if you act, I will arrest”. He also called for micro-loan providers to confiscate the properties of those who “follow the opposition’s calls” to miss repayments. Not only are Cambodians deep in debt and struggling to pay their loans, they now risk having any defaults, or requests for more time to pay, being interpreted as politically motivated by their increasingly autocratic leader.
Indeed, citizens that have tried to bring the government’s attention to the mounting problem have been met with hostility. On April 28, representatives from 141 Cambodian communities were turned away while trying to deliver a petition to the office of the Council of Ministers. Police detained and interrogated nine of the representatives, forcing them to sign a pledge promising not to engage in any further advocacy work on behalf of their communities before allowing them to leave, according to Phnom Penh civil rights organisation LICADHO.
“Without a moratorium on debt collection, indebted Cambodians will have little choice but to take on more debt from micro-loan providers,” said Phil Robertson, Asia Director at Human Rights Watch. “The government should immediately end coercive practices that result in people losing land and housing, and effectively regulate microfinance lending to ensure financial institutions act to benefit their clients rather than plunge them further into debt.”