KEAN SVAY, Kandal Province, Cambodia —

Five years ago, Lun Sam Ath took out a $12,000 loan to build a new cabin and pay off a previous loan he used to buy a motorcycle.

The 45-year-old mother of five owed $200 a month to Amret, one of the country’s largest microfinance institutions (MFIs), which she thought she could repay with her eldest daughter’s earnings from her job in a garment factory. Arrears. But then her husband contracted hepatitis, and treatment was expensive.

Lun Sam Ath worked in a garment factory earning about US$180 a month, but after her husband died, she fell behind on her payments. Therefore, she decided to sell their house and a 10 x 20 meter plot of land. But as Cambodia experiences a post-COVID real estate downturn, the property remains unsold.

MFI loan officers seeking repayment began to pressure Lun Sam Ath.

“They would come to my house with several people, three to five motorcycles, and the village chief,” she said in a recent interview with VOA in Khmer.

She couldn’t handle the pressure and shame. Last June, she gave up her home and rented a room for $40 a month to live with her three children, ages 9 to 14.

In February this year, she moved to the capital Phnom Penh and sold masks on the street. She says she blocks calls “because I’m afraid a bank agent will call me.” “them [the MFI] I can sell my land now to pay off the loan. “

Lun Sam Ath’s loan was one of nearly 2 million outstanding microfinance loans in Cambodia as of the end of 2023, according to the Cambodia Microfinance Association (CMA). Cambodia, with a population of about 16.5 million, has the highest rate of microfinance per capita in the world, researchers say.

The microfinance institution sector has been hailed as a key tool in helping Cambodian people escape poverty by injecting capital into small businesses or farms that are not suitable for traditional loans. Instead, thousands of Cambodians have found themselves trapped in a debt trap, taking out increasingly onerous loans to pay off other loans and taking increasingly extreme measures to escape the debt cycle. Numerous studies in Cambodia and other developing countries have found that while microcredit helps many people, especially women, it also makes life worse for people like Lun Sam Ath.

Supporters say Cambodia’s microfinance institutions often fail to clearly explain the risks of these loans to borrowers, who often lack financial literacy and use land as collateral.

Two local rights groups, Licadho and Equitable Kenya, released a report saying, Debt Threat: A Quantitative Study of Microfinance Borrowers in CambodiaAccording to a survey of 717 households in Kampong Speu Province, about 50 kilometers from Phnom Penh.

“Wide-spread over-indebtedness has led to a number of serious human rights violations,” the study said.

The survey found that 6.1% of households sold land to pay off debt, while about 3% of households with children dropped out of school due to loans, often to start work to help pay off debt.

The study, released in August, also found a surge in people borrowing more to pay off other loans. In 2012, 3.45% of loans were used to repay existing loans, and this proportion will increase to 34.8% in 2022.

Licadho operations director Am Sam Ath called on microfinance institutions and the government to urgently intervene to protect borrowers. But he said loan officers employed by microfinance institutions often perpetuate problems.

Rather than approving loans for income-generating activities, these institutions grant loans for home repairs, medical expenses, or repayment of other loans.

Am Sam Ath told VOA’s Khmer Service in January that Cambodia is seeing increasing reports of credit officers using intimidation or other unscrupulous tactics to force borrowers to repay their debts.

That month, the CMA released a study touting the “transformative impact” of microfinance.

Association spokesman Kaing Tongngy said there were more than 2 million borrowers nationwide, “so it is inevitable that some customers will be unable to pay.”

CMA Impact ResearchThe survey, conducted by development research organization M-CRIL, found that of the 3,200 microfinance borrowers surveyed, 31% experienced significant financial benefits and improvements in their lives, while 36% said they had improved.

According to the CMA report, while nearly 6% of borrowers reported selling some land in the past five years, 20% reported purchasing some land.

Licadho’s Am Sam Ath said the CMA study “mainly focuses on the positive work of MFIs but rarely on the negative aspects”. He and other like-minded advocates want to see “solutions and improvements to the industry.”

The growth of microfinance institutions is astounding. According to the CMA, the microfinance industry began in 1995 with approximately 50,000 clients and a total loan portfolio of more than US$3 million. By the end of 2022, the microfinance industry had provided loans to 2.1 million households and had a loan portfolio of US$9.4 billion. . This accounts for more than 30% of Cambodia’s estimated GDP of $29.96 billion.

Microfinance institutions often tout relatively high repayment rates as proof of the industry’s health. The National Bank of Cambodia reported in 2022 that the non-performing loan rate for the entire industry was only 2.5%. But researchers in Cambodia and Singapore say the obsession with “portfolio quality” masks the true costs for individual borrowers.

“These indicators mask how people use debt from informal lenders to repay loans. As a result, claims about the social impact of microfinance are based on a misunderstanding of household borrowing behavior.” their report saidreleased last year with funding from the National University of Singapore.

“Not only do lenders fail to measure the impact of their services, they also have conflicts of interest in reporting abuses resulting from their services. As long as repayment rates are seen as a metric of success, the risks associated with juggling debt are likely to increase,” it added.

according to a Report from the National Bank of Cambodiawhose officials impose fines or take other administrative measures against microfinance institutions that fail to comply with existing regulations.

Microfinance Industry in Cambodia Under investigation The Compliance Advisory Ombudsman (CAO), the regulator for the International Finance Corporation (IFC), launched an investigation after advocacy groups reported forced land sales and other human rights abuses.

The CAO is reviewing six of Cambodia’s top IFC-funded microfinance institutions, including Amret, which issued loans to Lun Sam Ath. The company declined to comment on her case in a March 16 email to VOA.