Cambodia Has a Big Problem With Small Loans
By Philip Heijmans
October 1, 2018, 6:00 PM EDT
As the sun rises beyond the Mekong River over the village of Ta Skor near Cambodia’s capital, 60-year-old farmer Sophal and his wife are hard at work trying to revive their flood-damaged corn crop.

Sophal said his harvest was once the lifeblood of his family, providing them with enough food and income to survive, but after a few bad years he began taking out small loans from various microfinance institutions (MFIs) to cover his losses. Now, he doesn’t know if he will ever clear the debt of $2,000.
“This month again has been hard because there is a lot of flooding in the farm and now I will not have the money to pay back my loans,” said Sophal, his shirt drenched in sweat. Without the help of his friends and a son who works across the river in Phnom Penh, he could lose everything.

Stories like that of Sophal, who only gave his first name, are now common in a country where an ever-expanding field of MFIs and loan sharks jockey for business among millions of poor Cambodians, pushing household debt to an all-time high. Economists worry that at best the debt could put the brakes on economic growth, and at worst could fuel social unrest as inequality rises.

Assets and credit at MFIs in Cambodia have risen more than 10-fold since 2010, according to the World Bank. The average loan size in Cambodia is now among the highest in the world, growing from $200 to $1,000 in the decade to 2014 -- twice the pace of per-capita income. About 2 million borrowers owed a record $2.8 billion at the end of 2017, National Bank of Cambodia data shows.

As many as 10 percent of borrowers can’t pay their debts, said Ou Virak, director of Phnom Penh-based think-tank Future Forum. “While incomes have risen in the past 10 years, an economic decline could create an unsustainable environment while people are losing their jobs.”

The average loan size of MFIs that focus on the poorest clients in Cambodia stood at 70 percent of median annual income in 2016, according to a report by consultancy group Microfinance Index of Market Outreach and Saturation (Mimosa) that was commissioned by the Cambodia Microfinance Association.

This puts Cambodia among the leaders in developing nations in terms of the percentage of people who borrowed money from a financial institution, according to the World Bank. By comparison, the bank estimates only 3.6 percent held savings at a financial institution in 2016. Outstanding MFI loans amount to a staggering 12 percent of gross domestic product.
https://www.bloomberg.com/amp/news/arti ... has-a-loan

It is sad that microfinance companies focus on making money, and dont care if they destroy the lives of poor Cambodians.

https://www.ledgerinsights.com/oxfam-bl ... e-farmers/

Blockchain seems like it can be an answer to all kinds of problems for Cambodians.

On the less odious end, just getting rid of Wing would save them lots of money.

The trust/rating built into blockchain systems seems like a perfect way to connect charitable- and respectable-lenders with those who need cash, and it can keep the lenders from being abusive.

$8 Billion of Personal Loans Push Cambodia to Brink of Crisis
By Philip Heijmans
August 6, 2019, 7:01 PM GMT+2
Millions are now at risk of losing their homes due to debt
Country’s outstanding loan average now highest in the world
Skyrocketing micro-finance debt in Cambodia has left millions of people at risk of losing their homes, leading to fears of a potential political and economic crisis.

With a median of $3,370 per loan, Cambodia now has the highest average for small loans in the world, according to a report from the Cambodian League for the Promotion and Defense of Human Rights and Samakum Teang Tnaut on Wednesday. Altogether, nearly 15% of the population held at least $8 billion in micro loan debt at the start of the year, the data show.

"It is a big issue and it’s one that could have political ramifications," said Ou Virak, director of Phnom Penh-based think-tank Future Forum. "Since there is no personal bankruptcy protection, delinquency could and will likely lead to the repossession of homes or family farms."

The question is, Virak said, "would the government stand with the banks or the people."

Predatory Lending
Loan sizes have grown four times faster than household incomes in recent years, while the country’s poorest suffer a culture of predatory lending practices, the ‘Collateral Damage’ report found. Unable to pay back high interest rates, borrowers are often coerced into land sales, child labor and debt-driven migration.

"Microfinance debt in Cambodia, the majority of which is collateralized by land titles, poses a significant threat to land tenure security for indebted families and has led to serious and systematic human rights abuses in the country," the report states.

In an effort to quell the rising debt, the government imposed an annual interest rate cap of 18%, a measure the report said was "ineffective." It also became an issue in the lead up to the 2018 general elections as Prime Minister HE sought to distance his government from the private MFIs amid growing anger from the public.

A government spokesman did not immediately respond to requests for comment.
https://www.bloomberg.com/news/articles ... -of-crisis

Cambodia's MFIs are under scrutiny, as reports accuse them of abusing poor people to make enormous profits. Many borrowers have little education, and do not fully understand the terms of the loan. It is estimated that around two million Cambodians owe money to MFIs.
Another instructive article on Cambodia's debt problem.

Cambodia's micro-loans accused of 'predatory' lending
Report by rights groups details cases of 'coerced' land sales, child labour and forced migration due to indebtedness.
by Andrew Nachemson
17 hours ago
Phnom Penh, Cambodia - Two prominent civil society groups in Cambodia have released a report detailing predatory practices by local microfinance institutions (MFIs), including coerced land sales.

The joint report, released on Wednesday by human rights group, Licadho, and land rights group, Sahmakum Teang Tnaut (STT), spans 10 communities in four provinces and the capital, Phnom Penh. The report includes cases of abuse, which paint an unflattering image of MFIs.

While microfinance loans were meant to be a social enterprise to lift Cambodians out of poverty, the report argues that instead micro-loan entities are taking advantage of borrowers while making massive profits.

There are roughly two million Cambodians with microfinance loans.

Of the 28 families interviewed, 22 experienced "coerced" land sales, while 13 turned to child labour to pay off debts and 18 had at least one family member forced to migrate for work.

Two anonymous micro-loan executives quoted in the report admitted that it is common practice to "regularly pressure clients to sell land" and use local authorities to "increase that pressure when necessary".
Full article: https://www.aljazeera.com/ajimpact/camb ... 31552.html

18% is credit card interest rates. Paying off an 18% !loan at minimum payments of $100 ( 2% of balance a month) will take you 94 months. Your interest on a $5000 loan will cost you $4731 in interest.

Isaanbarang wrote:18% is credit card interest rates. Paying off an 18% !loan at minimum payments of $100 ( 2% of balance a month) will take you 94 months. Your interest on a $5000 loan will cost you $4731 in interest.

Miss a payment or two or pay late and that credit card rate typically jumps to 25%.

File for bankruptcy and the credit card loan problem disappears.

Even in bankruptcy, there are pay day loans, title loans, and other forms of irresponsible borrowing to be had.

How does a system make financially irresponsible people be responsible?

newkidontheblock wrote: ↑Thu Aug 08, 2019 6:41 am

Isaanbarang wrote:18% is credit card interest rates. Paying off an 18% !loan at minimum payments of $100 ( 2% of balance a month) will take you 94 months. Your interest on a $5000 loan will cost you $4731 in interest.

Miss a payment or two or pay late and that credit card rate typically jumps to 25%.

File for bankruptcy and the credit card loan problem disappears.

Even in bankruptcy, there are pay day loans, title loans, and other forms of irresponsible borrowing to be had.

How does a system make financially irresponsible people be responsible?

I was referring to 18% interest being equal to interest rates of credit cards not suggesting that poor Cambodian farmers are in credit card debt. However the repayment at 18% interest would be just as onerous. Do you for a second think that Cambodian farmers can just declare bancruptcy and their debts will disappear? As to irresponsible people not learning their lesson, I have read some of your previous posts and [Admin edit: no need to get personal]

I’m referring to the problem as not just a plague to Cambodia. Westerners fall into the same trap as you have alluded to. With plenty of companies willing to take advantage of them.

[Admin edit: re personal attack from above post]

Cambodia has the highest average microloan debt per borrower in the world at around $3,370 -- a figure more than double the country's GDP per capita -- according to 2017 Mix Market figures. Next is Peru, at $2,471.

While the sector continues to grow, expanding by about 30% in 2018, there is increasing concern about its fragility. In October last year, the International Monetary Fund warned the "growing systematic importance" of microfinance institutions "pose risks to financial and macroeconomic stability".

https://asia.nikkei.com/Business/Busine ... my-at-risk