Hit by climate change, farmers in Cambodia are risking everything on microfinance loans
Published Mon, Dec 26 2022
Crop failures due to erratic weather and wildfires are leading farmers to take out loans to survive, with their land — and therefore livelihood — as collateral, a new report highlights.
Microfinance institutions have long been championed by development agencies as a way for unbanked communities to access small working capital loans.
But NGOs and journalists have charted a host of problems as the sector has ballooned and become more commercialized, with some of the world’s poorest people becoming trapped in debt ladders.

The “microfinance” industry — long touted as a way to help poor, rural communities in developing countries — is pushing tens of thousands of farming families into debt traps as they attempt to adapt to a changing climate, according to a report.

The study, conducted by researchers at a group of U.K. universities, looked at a range of case studies in Cambodia, where it found easy-access loans had caused an “overindebtedness emergency” that was undermining borrowers’ long-term ability to cope with their new environment.

Modern microfinance institutions (MFIs), which are generally small, locally run organizations with a variety of funding sources such as international investors, banks and development agencies, emerged in the 1970s and grew rapidly in the early 2000s. They were promoted as a way to provide financial services, typically small working capital loans but also savings accounts and insurance, to the traditionally unbanked — such as women and people on very low incomes.

The establishment of hundreds of MFI branches since the early 2010s, which can be seen advertising services along roadsides around the country of 17 million people, has often harmed rather than helped those affected, the report published in September found.

In its survey of around 1,800 borrowers, roughly half cited feeding their family as their primary motivation.

But the authors say the loans are increasingly being taken up to service existing debt from a mix of formal and informal sources, rather than being put toward climate-adaptive investments. The loans are also seeing farmers put assets including their land up as collateral, even when the loans are high-interest and have short repayment windows.

NGOs estimate around 167,000 Cambodians have sold their land to pay microfinance loans over the last five years.

The level of microfinance indebtedness in Cambodia at the end of 2021 was $4,213 per capita, more than double gross domestic product per capita. Around 2.6 million people have taken out microloans.
https://www.cnbc.com/2022/12/27/facing- ... loans.html

More "climate change" nonsense pushed by western media. Anybody heard of crops destroyed here by wildfires or " erratic" weather?

canucklhead wrote: ↑Tue Dec 27, 2022 2:09 pm More "climate change" nonsense pushed by western media. Anybody heard of crops destroyed here by wildfires or " erratic" weather?

Wake up. Heads up. Devastating floods and droughts are a real problem for Cambodian farmers right now, and this is probably related to climate change.
Despite mass migration to Phnom Penh and other urban areas, the rural population in Cambodia was still estimated at approximately 75% of the total Cambodian population in 2021: https://www.statista.com/statistics/760 ... opulation/

Floods destroy Cambodian food, feed crops
26 October, 2022, PM
Farmers in Cambodia are facing losses as severe floods submerged thousands of hectares of rice, cassava, and mixed crops in 22 provinces in early October. Due to this, farmers had to sell fresh cassava at USD 50/ton, 50% lower than September’s price as the quality has been compromised.
https://www.asian-agribiz.com/2022/10/2 ... eed-crops/

the-barnyard/drought-cambodia-destroyin ... 39875.html
https://cambodianess.com/article/heavy- ... n-cambodia
https://www.voanews.com/a/in-coastal-ca ... 97948.html

Flooding in Cambodia is nothing new. Also is mostly caused by filling in of drainage canals and lakes and daming rivers by the competent authorities.
Check out the global warming in NE USA. It snowed in Florida yesterday!

No doubt there is a major problem with micro loans here. My point is it has nothing to do with climate.
What is a "climate adaptive investment" ?
More buzzwords.

While there is a generic rise in temperature over the last decades it is very far from being the primary issue facing local farmers.

The issues at hand can be prevented by better canalization, proper upstream dam management and coordinaton, a easily accessible registry of areas that have previously been affected by floods (which in turn can tell the farmers which crops are more suitable for an area at risk of temporary floods) and a number of other factors.

Microloans also aren't new and people are often looking at the problem completely upside down, in particular foreign consultants that prefer to look at stats than running their own research.
Before microfinances were common their role was performed by local loan sharks, often lending with the system of "i give 100$ today and next week you give me 110$, if 2 weeks 111$ and the next week 112$ and so on". So 10% interest for the first week and 1% for every week after that for a total of 62% interest for an year. And at times it could be way worse with even higher rates.

By capping the interest rates at 18% (more like 22% with fees) for microfinances, as it has been done, compared to rates going up to 30% previously; thinking that such a law would have helped the poor, the final outcome is that microfinances have increased the minimum loan that can be requested to avoid having loans for which the overall operation costs (client acquisition and management + adjusted cost of risk).
Often the minimum loan is 2000$ or 5000$ while previously loans from 500$ to 1000$ where common.

This forces the farmers into the difficult choice of borrowing an amount that is higher than necessary and for a very long term leading to much more debt than they can afford or to go to loan sharks (in particular if they do not qualify for a microfinance loan with the new credit terms) which will fleece them far more than any microfinance would have ever done.

Overall instituting strict caps on interest only works if loansharking is rare and if the microfinance companies can still operate at a profit with those terms and service all the clients.

However it is no secret that pawnshops are not subject to the same cap and loansharks follow no rules.

Ultimately the solution to this issue is MORE microfinancing and with more flexible terms, an open and fair foreclosure system and above all flood and drought prevention trough infrastructure.

Western Investors Are Losing the Ability to Shape the Future of Cambodian Microfinance
The industry’s foreign financial backers are now aware of the scale of the country’s over-indebtedness – but they have lost the ability to do much about it.
By David Whitehouse
February 02, 2023

Western microfinance investors worried about over-indebtedness in Cambodia are losing the ability to shape the practices of an industry whose rapid growth they helped to foster.

Microfinance in Cambodia started in the 1990s as a form of foreign aid aiming to help rebuild a country recovering from war. It has since grown into a profitable industry, with the number of microfinance borrowers increasing from 175,000 in 2000 to 2.6 million in 2020. The country now has one of the world’s highest rates of microfinance debt relative to personal income.

In Cambodia and elsewhere, microfinance lenders commonly present anecdotal evidence about relatively well-established small businesses benefiting from credit as proof of their “impact.” Academics argue that there is no statistically robust evidence that microfinance lending does any good overall. It is, in fairness, hard for anyone to prove whether or not the success stories would have happened without microfinance. But focusing on the successes ignores the failures, and the human costs to those who are struggling to service their loans.

The average microfinance loan size in Cambodia reached $4,213 in December 2021, according to University of London research, about double the country’s annual GDP per capita. Rather than helping people to escape poverty, the research argues, the loans are often the catalyst for harmful “coping strategies” that are necessary to ensure repayment. These include borrowing and/or working more, eating less, selling assets, and leaving farming to work in brick kilns or as low-skilled migrant laborers in Thailand.

“Most impact investors are concerned about the situation in Cambodia,” says Patrick Goodman, co-founding partner at Innpact, a Luxembourg-based firm which provides advisory and third-party management services to microfinance investors. “Not all microfinance institutions (MFIs) in Cambodia have the client protection principles (CPPs) which ensure lending is done in a responsible way. This is something we are particularly sensitive to.”

Innpact’s largest client is the Microfinance Enhancement Facility (MEF), set up in 2009 by the World Bank’s International Finance Corporation and German state-owned development bank KfW. The MEF reduced its exposure to Cambodia from 11.3 percent of its portfolio in September 2019 to 6.2 percent as of September 2022.

Full article: https://thediplomat.com/2023/02/western ... rofinance/

From tuk-tuk owner to luxury Ford owner in just 5 minuets.

https://www.khmertimeskh.com/501282025/ ... n-payment/