An “alarmingly high” number of Cambodians have had to sell their homes to repay credit card and small loan debt, a study of Cambodia’s microfinance sector has revealed.
The study, commissioned by the German government’s Federal Ministry for Economic Cooperation and Development (BMZ), surveyed households, held group discussions with villagers, and interviewed local authorities in 24 Cambodian villages.
It found that many of the indebted households had taken out small loans with an 18 percent interest rate, and about half had trouble repaying.
Of the households that reported difficulties, 13 percent reported selling their homes over the past five years. When extrapolated for the entire country’s population of borrowers, “[this] would mean 33,480 debt-driven land sales per year, or roughly one sale every 16 minutes,” the study said.
Some borrowers tried to lower their debt burden by eating less, and others took their children out of school so they could work to help repay the family debt, the report found. Borrowers in some rare instances suffered from food insecurity or were forced to work in inhumane conditions, or put their children to work to such an extent that it constituted human rights abuses, it said.
The study shows the challenges faced by Cambodians who borrow money, Eang Vuthy, executive director at the Phnom Penh-based Equitable Cambodia NGO, told RFA’s Khmer Service.
“When [the microfinance institution] holds land and house titles, they charge an interest rate that doesn’t reflect the ability of each family to make income each month,” he said. “They consider the interest rate based on the value of the land.”
He urged the government and microfinance firms to forgive the debts of poor people who have no hope of ever making enough money to pay it off.
“This is a financial crisis. We have to have a national policy to allow time for people to pay off their debts rather than forcing them to pay or confiscate their land,” he said.
RFA was unable to reach National Bank of Cambodia Director Chea Serey for comment.
In Channy, president of the local Acleda bank, told RFA that 18 percent interest rates are relatively low compared to the rates credit companies in other countries charge.
Acleda provides loans based on its evaluation of a prospective borrower’s eligibility, but sometimes, people lie in their loan application forms while others misuse the loans, he said.
“There shouldn’t be any customers losing their land because they are taking loans, unless they misuse the loans,” In Channy said.
Kaing Tongngy of the Cambodia Microfinance Association, said Cambodians sell their homes to raise capital for their businesses or because they want to relocate, not because they cannot pay their loans.
However, Kaing Tongngy said that some loan officers are unscrupulous and that his institution will provide more training to loan officers. Debtors should discuss their circumstances with their lenders if they cannot pay their loans, he said.
“Microfinance companies consider people as clients. People have the right to ask and bargain,” said Kaing Tongngy. “We urge people to talk about finding solutions to reduce tension”
Forced to sell
Sources in the country told RFA that they had no way to repay their debts other than to sell their homes.
Vann Voeun of Kampong Speu province said that he and his brother sold their homes to repay debt they owed in 2019. He said that their creditors would not allow them to make late payments, and threatened to confiscate their properties, so he sold their land and cows to pay the interest on time.
“The most delay they could give us was only one week, otherwise they threatened to foreclose on the properties. We were afraid so we borrowed more money from neighbors even though they charged more interest,” he said.
He said that he didn’t misuse the loan but his business failed. He said that the loan led to his brother’s divorce.
“A micro financer threatened me. I hurried to sell my land. The land should have sold for U.S. $20,000 but I sold for only $10,000,” Vann Voeun said.
In Banteay Meanchey province, Prin Chhoy sold two lots of her land to pay off her debt. She no longer has her house, but instead lives in a small shelter on her farm. She said her child dropped out of school because the debt became too much.
During RFA Khmer Service’s call-in show on Friday, Sok Meng from Takeo province said that he took out a loan for $20,000 to start a business, but he is unable to generate enough money to repay the bank.
“I bought supplies for my business but I’m not making any profit,” he said. “My business doesn’t work. I can’t make any income due to inflation. It is hard to live, I am making $20 dollars [each day], it is hard to pay the loan. I spend more than I can make in income. I will sell my business and sell my land. Things are so hard.”
Translated by Samean Yun. Written in English by Eugene Whong.