Report: MFI loans force land sales, increase in child labour

A report from local human rights NGOs Licadho and Sahmakum Teang Tnaut (STT) claimed that the increasing levels of debt caused by taking loans from microfinance institutions (MFIs) is forcing rural families to sell off land.

The study also claimed that the sharp rise in debt had led to migration and human rights abuses such as child labour exploitation.

However, Bun Mony, the deputy chairman of the Cambodia Microfinance Association slammed the report. He denied that MFIs forced debtors to sell off assets, and warned that people were at risk from unscrupulous unlicensed money lenders.

The report said: “This form of lending has significantly boosted revenue for microfinance institutions and their foreign loan partners, but it has negatively impacted the security of people’s land ownership, especially in vulnerable communities.”

The report was conducted in 10 communes in Kandal, Kampong Cham, Tbong Khmum and Prey Veng provinces, as well as Phnom Penh, with 28 MFI clients interviewed.

Supreme National Economic Council senior adviser Mey Kalyan said the research was narrow in its scope and did not reflect the reality of the Kingdom’s financial sector.

“In general, the information will not be accurate if a study is only conducted in certain areas,” he said.

The Licadho-STT report also claimed that an interest rate cap of 18 per cent per year did not reduce interest rate volume.

In March 2017, the National Bank of Cambodia (NBC) announced a policy requiring all MFIs to lend at rates no higher than 18 per cent per year. The move came following an order from Prime Minister Hun Sen.

Licadho monitoring manager Am Sam Ath said that of the 28 debtors interviewed, 22 had been forced to sell land or take out credit with private lenders at higher interest rates to repay earlier loans.

“I think this is risky and dangerous for rural people whose lives depend on their land for farming. If they are forced to sell their farmland, they will lose their livelihoods.

“Our report found that [MFIs] did not seriously look into the debtors’ ability to repay loans,” Sam Ath said.

‘Never force people’

Most of those interviewed said they had taken out loans for running small businesses and for farming purposes, he said.

However, Mony, who is also the president of Vithey microfinance, maintained that MFIs never forced people to sell off assets to repay debt.

“Around two million Cambodians have taken loans from MFIs but only two per cent are late in making repayments. If they can’t make payments on time, we help them solve the problem and never forcibly seize land or homes,” he said.

Mony said people remained vulnerable to private lenders. “They are unlicensed private lenders . . . they cheat people,” he stressed.

Crackdown on illegal lenders

The NBC announced last week that it was looking to collaborate with relevant stakeholders to crackdown on illegal lenders.

Speaking at its first-half results meeting last week, Kith Sovannarith, the NBC’s deputy director-general of banking supervision, said the public was being alerted to the dangers of taking out cash loans from unfamiliar sources.

He said the NBC was currently warning the public of Phnompenhloan, an illegal online lender using pictures of the national bank’s management to advertise loans on social media.

“The National Bank of Cambodia calls on people to be aware of Phnompenhloan, which is providing online loan services without a licence from the NBC,” he said.

NBC figures show there are 81 licensed MFIs in the Kingdom, of which seven are microfinance deposit-taking institutions (MDIs).

A Credit Bureau of Cambodia report said that non-performing loans after 30 days reached 1.24 per cent as of March, a slight increase on the 1.18 per cent recorded at the end of December.

Approximately 1.14 million Cambodians had applied for consumer loans as of the end of March this year – up 5.3 per cent from the end of December – with a loan portfolio of $6.7 billion, which is an increase of 7.4 per cent, the report said.

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