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CMA dismisses report citing abuses in microfinance sector

Taing Vida / Khmer Times Share:
Sok Voeun, CEO of LOLC Microfinance and a member of the board of directors of the Cambodia Microfinance Association, speaks to Khmer Times. KT/Mai Vireak

The Cambodia Microfinance Association yesterday dismissed a report by two human rights groups noting abuses in Cambodia’s microfinance sector, saying they relied on flawed methodology to paint an unrealistic picture of MFI lending.

Issued yesterday, the report “Collateral Damage” from rights groups Licadho and Sahmakum Teang Tnaut said the rapid rise of small loans for poor Cambodians has led to more debt, with many rural families forced to sell land, migrate or put their children to work.

High interest rates, the use of land titles as collateral, and pressure to repay loans have led to a predatory form of lending by microfinance institutions, the report said.

“This predatory form of lending, which has led to immense profits for MFIs and their foreign lending partners, has negatively impacted the land tenure security of Cambodians, especially vulnerable communities,” the report said.

“MFI employees ordered clients to sell land and threatened legal action if they did not, a threat that was taken seriously by clients due to the fact that MFIs physically take possession of their land title,” it added.

The report featured seven case studies of abuses, chosen from the 28 MFI clients the two groups had interviewed in 10 communes in Kandal, Kampong Cham, Tboung Khmum and Prey Veng provinces, as well as Phnom Penh.

In a statement, CMA said the report does not present anything close to the full picture of MFI lending in Cambodia, noting that out of the close to two million loans currently on the books of the country’s MFIs, only 28 case studies were presented.

In its statement, the CMA noted that the report’s authors acknowledged in their methodology that they had selected their sample of 28 case studies based solely on negative outcomes from MFI borrowing, presenting an inaccurate picture that does not reflect the true state of microfinance lending.

Kea Borann, CMA chairman and AMK CEO, said the association takes very seriously any report of unethical or predatory lending practices and it will work with its members to investigate the case studies presented in this report.

“But we are extremely concerned that the report relies on such a small sampling of MFI borrowers in Cambodia and also that none of our members, or the association itself, were contacted by the report’s authors during the course of their work,” he said.

“We strongly question the unrealistic and negative portrayal of MFI lending in Cambodia where our members are bound by some of the most advanced and stringent risk analysis and mitigations procedures and some of the most rigorous client protection measures in the major microfinance markets in the developing world,” Mr Kea added.

He cited World Bank data that microfinance has been an integral part of Cambodia’s economic growth and has contributed to a reduction in poverty levels from 47 percent of the population in 2007 to 13.5 percent in 2014.

In its statement, the CMA acknowledged that the ratio of debt to GDP had grown in the last few years. It also noted that the deposit portfolio at Microfinance Deposit Taking Institutions had grown 39 percent while the loan portfolio had only grown by 32 percent last year.

Many of the larger microfinance institutions in Cambodia are licensed by the National Bank of Cambodia to take customer deposits as well as issue loans, the statement noted.

According to a central bank report last month, Cambodia has 81 microfinance institutions of which seven are deposit-taking.

Ek Tha, spokesman for the Council of Ministers, yesterday said the government did not know how accurate the report is, adding that it is too early to make a judgement.

“In this respect, the concerned institutions and the stakeholders need to look into the complex situation of the MFIs and the financial supporters and borrowers… before a conclusion and recommendation should be made,” he said.

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