Cambodia Has a Big Problem With Small Loans
Posted: Tue Oct 02, 2018 8:42 pm
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
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