Micro loans put Cambodia on brink of debt crisis

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Micro Loans Put Cambodia On Brink Of Debt Crisis

The rapid rise of micro loans aimed at helping poor Cambodians to establish their own businesses has led to skyrocketing debt, with many borrowers forced to sell land, migrate or put their children to work, a report by human rights groups released on August 7 said.

With a median of $3,370 per loan, Cambodia now has the highest average for small loans in the world, according to a report by the Cambodian League for the Promotion and Defense of Human Rights and Cambodian civil society organisation Samakum Teang Tnaut. Altogether, nearly 15 per cent of the population – or 2.4 million – held at least $8 billion in micro loan debt at the start of the year, the report shows. The amount is up from $300 million a decade ago

More disturbingly, the average loan is more than twice the country’s GDP per capita of $1,384 in 2017, and the total outstanding amount is equal to roughly a third of the country’s entire GDP for 2018

What the rights groups call “reckless lending” in the fast-growing micro finance sector has led to coerced land sales, debt-driven migration, child labour and farmers eating less food. High interest rates, the use of land titles as collateral, and pressure to repay loans have led to a “predatory form of lending” by micro finance institutions, they said.

Micro lenders, as they currently operate, would pose “a direct threat to the land tenure security of millions of people in Cambodia,” the report noted, adding that “in most cases, the land that was lost was income-generating. Loss of land therefore jeopardises a family’s livelihood and identity.”

The World Bank, in a report earlier this year, warned of risks to the Cambodian economy from micro loans. In 2017, the United Nations said that “for many Cambodians, microfinance loans only serve to push borrowers further into poverty”.

In an effort to quell the rising debt, the government imposed an annual interest rate cap of 18 per cent, a measure the report said was “ineffective.”

The micro loan industry in Cambodia is dominated by nine lenders, of which the seven largest made more than $130 million in profit in 2017 for their mainly foreign shareholders and investors, the report stated.

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The rapid rise of micro loans aimed at helping poor Cambodians to establish their own businesses has led to skyrocketing debt, with many borrowers forced to sell land, migrate or put their children to work, a report by human rights groups released on August 7 said. With a median of $3,370 per loan, Cambodia now has the highest average for small loans in the world, according to a report by the Cambodian League for the Promotion and Defense of Human Rights and Cambodian civil society organisation Samakum Teang Tnaut. Altogether, nearly 15 per cent of the population – or 2.4...

Reading Time: 2 minutes

Micro Loans Put Cambodia On Brink Of Debt Crisis

The rapid rise of micro loans aimed at helping poor Cambodians to establish their own businesses has led to skyrocketing debt, with many borrowers forced to sell land, migrate or put their children to work, a report by human rights groups released on August 7 said.

With a median of $3,370 per loan, Cambodia now has the highest average for small loans in the world, according to a report by the Cambodian League for the Promotion and Defense of Human Rights and Cambodian civil society organisation Samakum Teang Tnaut. Altogether, nearly 15 per cent of the population – or 2.4 million – held at least $8 billion in micro loan debt at the start of the year, the report shows. The amount is up from $300 million a decade ago

More disturbingly, the average loan is more than twice the country’s GDP per capita of $1,384 in 2017, and the total outstanding amount is equal to roughly a third of the country’s entire GDP for 2018

What the rights groups call “reckless lending” in the fast-growing micro finance sector has led to coerced land sales, debt-driven migration, child labour and farmers eating less food. High interest rates, the use of land titles as collateral, and pressure to repay loans have led to a “predatory form of lending” by micro finance institutions, they said.

Micro lenders, as they currently operate, would pose “a direct threat to the land tenure security of millions of people in Cambodia,” the report noted, adding that “in most cases, the land that was lost was income-generating. Loss of land therefore jeopardises a family’s livelihood and identity.”

The World Bank, in a report earlier this year, warned of risks to the Cambodian economy from micro loans. In 2017, the United Nations said that “for many Cambodians, microfinance loans only serve to push borrowers further into poverty”.

In an effort to quell the rising debt, the government imposed an annual interest rate cap of 18 per cent, a measure the report said was “ineffective.”

The micro loan industry in Cambodia is dominated by nine lenders, of which the seven largest made more than $130 million in profit in 2017 for their mainly foreign shareholders and investors, the report stated.

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