Land to lose: Coronavirus compounds debt crisis in Cambodia

SIEM REAP: As dark clouds approached her village in northwestern Cambodia one afternoon in July, Set Sreylon prepared for the monsoon that threatened to flood her new family home.

"What's the end result? You run out of letters and you have to sell your land," Sreylon told the Thomson Reuters Foundation.Microfinance was pioneered in the 1970s by Nobel laureate Muhammad Yunus to give low interest credit to poor or rural people to set up businesses, but the fast-growing sector has been invaded by predatory lenders who can strip people of everything.

The model has been credited with helping drag millions out of poverty by funding farming equipment or small businesses, but activists and academics said it has driven a rising number of borrowers to sell land, migrate or put their children to work.About one in two Cambodians were landless in 2016, up from a third in 2009, the latest state data shows. It is unknown to what extent this rise was fuelled by the microfinance industry.

A spokesman for the finance ministry said Cambodia had a contingency plan for a potential microfinance crash, but did not give details and referred further questions to the central bank. But activists said lenders responded by imposing new loan fees, covering their losses as debts continued to soar. A woman and her daughter wearing facemasks, amid concerns over a spread of the COVID-19 coronavirus, in Phnom Penh on Mar 14, 2020.

"Microfinance has done more harm than good. The problem is only getting worse and I don't see how it can be solved." Cambodian human rights groups have this year called for a freeze on loan repayments due to the virus and for lenders to return more than one million land titles held as collateral. He said reports of microfinance institution staff pressuring borrowers or facilitating land sales were overblown. He pointed to various industry standards – which members are encouraged but not bound to follow – and a helpline set up to respond to complaints.Criticism of the sector was unfair, he said, as it was based on outdated perceptions of a model that had evolved massively.

Serey, of the National Bank of Cambodia, said the number of borrowers falling behind on repayments had fallen in July, after almost doubling to 2.72 per cent from January to June.

Source: Loan Digest (loandigest.net)

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