By the end of last year, Cambodians collectively owed $3.1 billion to microfinance institutions (MFIs), according to a World Bank report, a figure that would not have escaped the notice of the ruling Cambodian People’s Party.
The CPP has, in the months leading up to this Sunday’s nationwide commune council elections, run an extensive campaign to distance itself from the debts that have left many in dire straits.
From forcing MFIs to change their logos to look less governmental to capping annual interest rates at 18 percent, and in March even replacing outgoing dial-tones with a message that MFIs are private bodies, it has done all it can to dissociate itself from the toxic problem.
The same World Bank report pointed out that 88 percent of Cambodia’s debts were held by households in the more impoverished rural areas of the country – places like Kandal province’s Sa’ang district, which has one of the highest instances of debt in the country.
And despite the government’s intensive messaging campaign, it has failed to convince many of Sa’ang’s residents, who said in interviews yesterday they believed the debts could lead to a serious backlash against the CPP at Sunday’s vote.
“Everyone in this village has loans from the state. I sell bananas along every road in this village and I have asked them about it,” said Suon Tang, 42, in front of her home in Prek Ambel commune’s run-down Peam Prachum village, explaining she would vote CNRP.
Tang interchangeably referred to her debts as owed to “the state” and to “microfinance”, and said she was unaware MFIs were private firms. In any case, she said her debt – with an annual interest rate of 42 percent – had left her struggling to afford to eat.
“I borrowed $1,000 . . . and pay a 3.5 percent [monthly] interest rate. I had to borrow the $1,000 to run my banana business, but bananas are too cheap,” Tang said, adding the CPP commune chief had little interest in her plight but was happy to authorise new loans.
“When we cannot pay for one microfinance debt we go to borrow from another microfinance [institution] to pay for it,” Tang explained. “The commune chief does not care. When he signs the papers, he receives 10,000 or 20,000 riel [about $2.50 to $5].”
Demand for bananas, which typically sell for less than $1 a bunch, was less than she expected. And her creditor, which she called “the state”, had been ignoring the new 18 percent annual interest rate cap and she received little help from the commune officials.
“The majority of this village want to change, because he takes no responsibility,” she added.
Khun, the commune chief, said by telephone most of his constituents with debts ended up that way from “gambling” or from a recent crackdown on illegal fishing that took away their incomes. Ultimately, he said, there was little that he could do to help as a public official.
“What can we do, since we are all in charge of our own economic situations?” Khun said, before denying that he personally profited from MFI loans.
“I have never received any commissions from the MFIs,” he said. “They force me to take money for coffees, and it is only 2,000 or 3,000 riel [about $0.50 to $0.75] . . . and when the MFIs want to repress or confiscate [collateral], I stop them and protect people.”
Khun won Prek Ambel at the 2012 commune elections after the CPP received 5,354 votes to the opposition’s combined 4,339 – giving the ruling party seven seats on the council to the opposition’s four – but many residents said yesterday they believed he was on the way out.
Mean Nith, a barber who said he was in his 20s, repeated Tang’s claim that there was no one in the village who wasn’t struggling with debt, and said he believed it would prove the decisive factor on Sunday – even though most people now know MFIs are not from the government.
“Everyone in this village has debts,” Nith said. “Everyone wants change.”
He said that he believed the government’s telephone dial-tone messages earlier this year saying it did not own MFIs had only made it seem like they had decided to shirk the crisis entirely.
“That sound made things worse,” he said, predicting a routing of the ruling party. “I hope the Cambodia National Rescue Party takes over from the Cambodian People’s Party. If we were talking about a cockfight, it would be eight [cocks] against two.”
Other residents of the commune yesterday also claimed, like Khun and Nith, that every single resident of the community had a microfinance debt they were struggling to repay – unless they had fled to Thailand to find work and escape from their debt collectors. Their claims may not be so far-fetched.
A March 2013 report funded by three international microfinance foundations – Blue Orchard, Incofin and Oiko Credit – and based on data from Cambodia’s eight largest MFIs, found that MFI market penetration in Peam Prachum village was 116 percent. There were 268 households in the village, and 311 loans.
Across Cambodia, it said, MFI market penetration was such that for every 100 households, 49 loans existed – before the growth of the last few years – but it did not indicate the size of the loans.
Yet a “special circular” produced in June last year for the Cambodian Microfinance Association by the Mimosa Project – which studies microfinance over-indebtedness in developing countries – provides some indication of Cambodia’s loan sizes.
Of Cambodia’s adult population, 9.7 percent hold MFI loans up to $1,000, with AMK the biggest lender; 8 percent have loans from $1,000 to $3,000, where Prasac and Amret dominate; and 5.4 percent have loans of $3,000 to $10,000, where Sathapana and HKL reign. Acleda prevails for the 2.3 percent with loans above $10,000.
The circular said that the size of the loans granted by MFIs in the decade from 2004 to 2014 had grown at a rate four times the rate of the growth of incomes of the debtors receiving loans, a phenomenon it described as dangerous and unique to Cambodia. “When it comes to growth in loan sizes, there is simply no country that comes even close to Cambodia,” it said. Mimosa has said it is “deeply alarmed” by the situation in Cambodia, and gives the country a score of six–the worst possible – on its index comparing MFI market saturation with a market’s capacity to repay.
About 30 minutes from Peam Prachum village, in Khpob commune – which the CPP won at the 2012 commune elections with 3,064 votes to the opposition’s combined 2,675, giving it a slim majority of five seats to four on the commune council, some predicted rampant indebtedness could swing the election on Sunday.
Leading reporters away from the busy main strip to the privacy of her house, Soy Sarun, 57, said that taking out an MFI loan a few years ago had turned her and her husband’s lives upside down, and that they remained upset they received little support amid their struggle.
“I had to borrow $2,000 to treat my sickness for high blood pressure . . . and I now have to pay $140 per month for the interest rate, so my husband picks mangoes for others,” Sarun said, adding he earned about $8 a day and could sometimes only afford to eat rice for dinner.
She said she voted for the CPP in the 2012 commune elections but was disappointed in the commune chief’s attitude when she sought help. “They do not care about us . . . [and say] everyone’s business is their own, and we need to solve our own issues.”
“Some people say they vote for the party to keep the peace – these are the ones who have not borrowed money,” Sarun said, demurring when asked if she was considering switching her vote to the CNRP on Sunday. “I would be happy with change but I cannot say yet.”