Cambodian NGOs slam World Bank division for “microfinance abuses”
The International Finance Corporation (IFC), the World Bank’s private development lending division, is faced with a complaint by two Cambodian non-governmental organisations (NGOs) for allegedly causing harm for clients of the country’s microfinance industry and violating its own standards of good governance by financing certain microloan providers.
The complaint was filed on behalf of affected borrowers by local community empowerment group Equitable Cambodia and the Cambodian League for the Promotion and Defense of Human Rights, according to a statement released on May 3.
It details how the IFC allegedly failed in its obligation to conduct due diligence and supervise projects to ensure compliance with its own performance standards.
“Grave harm” from microcredit loans to banks
“As a result, grave harms resulted from IFC loans and investments in six microfinance institutions and microloan-providing banks in Cambodia – ACLEDA, Hattha Bank, Sathapana, Amret, LOLC and Prasac – who together hold about 75 per cent of the country’s microloans,” the statement said.
The latest money glut of a total of $400 million provided by the IFC has further exacerbated the debt problem of Cambodian households reliant on microloans, it noted.
“There are nearly three million microloans totaling more than $14 billion currently held by Cambodian households, and a sector-wide audit of the country’s microloan industry is urgently needed to identify the scope and severity of harms associated with these loans across the country,” the statement said, adding that “the lack of due diligence regarding [the IFC’s] microfinance projects has destroyed lives and wrecked communities across Cambodia, and they must take steps to offer real relief to these borrowers.”
More misery instead of financial relief
“Reckless investments” by microfinance institutions have caused “serious human rights violations” and abuses involving child labour and violations of the land rights of indigenous people, the two NGOs went on saying.
In Cambodia, the average loan provided by microfinance institutions has ballooned sevenfold over the past decade to about $4,200 per household, almost three times the country’s average annual household income, data compiled by the Cambodia Microfinance Association show.
The infusion of capital has continued despite annualised interest rates that can top 100 per cent and aggressive debt-collection tactics that have left some borrowers homeless as the have been pressured to sell their homes to repay loans. Others were imprisoned or even driven into suicide to escape the debt nightmare, critics say.
“Channeling hundreds of millions of dollars earmarked for poverty alleviation to some of the most predatory lenders is wrong,” one rights advocate said, adding that “this has turned into a system that promises the poor a better life while often compounding their misery.”
The IFC has accepted the complaint and will review it internally by its compliance advisor ombudsman, the NGOs’ statement noted.
The International Finance Corporation (IFC), the World Bank’s private development lending division, is faced with a complaint by two Cambodian non-governmental organisations (NGOs) for allegedly causing harm for clients of the country’s microfinance industry and violating its own standards of good governance by financing certain microloan providers. The complaint was filed on behalf of affected borrowers by local community empowerment group Equitable Cambodia and the Cambodian League for the Promotion and Defense of Human Rights, according to a statement released on May 3. It details how the IFC allegedly failed in its obligation to conduct due diligence and supervise projects...
The International Finance Corporation (IFC), the World Bank’s private development lending division, is faced with a complaint by two Cambodian non-governmental organisations (NGOs) for allegedly causing harm for clients of the country’s microfinance industry and violating its own standards of good governance by financing certain microloan providers.
The complaint was filed on behalf of affected borrowers by local community empowerment group Equitable Cambodia and the Cambodian League for the Promotion and Defense of Human Rights, according to a statement released on May 3.
It details how the IFC allegedly failed in its obligation to conduct due diligence and supervise projects to ensure compliance with its own performance standards.
“Grave harm” from microcredit loans to banks
“As a result, grave harms resulted from IFC loans and investments in six microfinance institutions and microloan-providing banks in Cambodia – ACLEDA, Hattha Bank, Sathapana, Amret, LOLC and Prasac – who together hold about 75 per cent of the country’s microloans,” the statement said.
The latest money glut of a total of $400 million provided by the IFC has further exacerbated the debt problem of Cambodian households reliant on microloans, it noted.
“There are nearly three million microloans totaling more than $14 billion currently held by Cambodian households, and a sector-wide audit of the country’s microloan industry is urgently needed to identify the scope and severity of harms associated with these loans across the country,” the statement said, adding that “the lack of due diligence regarding [the IFC’s] microfinance projects has destroyed lives and wrecked communities across Cambodia, and they must take steps to offer real relief to these borrowers.”
More misery instead of financial relief
“Reckless investments” by microfinance institutions have caused “serious human rights violations” and abuses involving child labour and violations of the land rights of indigenous people, the two NGOs went on saying.
In Cambodia, the average loan provided by microfinance institutions has ballooned sevenfold over the past decade to about $4,200 per household, almost three times the country’s average annual household income, data compiled by the Cambodia Microfinance Association show.
The infusion of capital has continued despite annualised interest rates that can top 100 per cent and aggressive debt-collection tactics that have left some borrowers homeless as the have been pressured to sell their homes to repay loans. Others were imprisoned or even driven into suicide to escape the debt nightmare, critics say.
“Channeling hundreds of millions of dollars earmarked for poverty alleviation to some of the most predatory lenders is wrong,” one rights advocate said, adding that “this has turned into a system that promises the poor a better life while often compounding their misery.”
The IFC has accepted the complaint and will review it internally by its compliance advisor ombudsman, the NGOs’ statement noted.
