The National Bank of Cambodia (NBC) on Thursday slammed a report on predatory lending in the Kingdom by local human rights NGOs Licadho and Sahmakum Teang Tnaut (STT), which was released on Wednesday, as “flawed”.
The report, entitled Collateral Damage, claimed that increasing levels of debt caused by taking loans from microfinance institutions (MFIs) is forcing rural families to sell off their land.
The Cambodia Microfinance Association (CMA) said the report on predatory lending paints a distorted picture and ignores significant contributions to poverty alleviation and financial inclusion by MFIs.
On Thursday, NBC director-general Chea Serey said: “We have issued many rules and regulations on responsible lending and have taken an active role in promoting financial literacy to empower consumers.
“We agree with the CMA that there are flaws in the report. The practice cannot be generalised to the whole industry based on such a small sample size.”
While the NBC did not reject the report in its entirety, she stressed that: “The report’s claims do not reflect reality and needed to be reinvestigated.
“Nonetheless, this doesn’t mean that we will ignore the 28 [MFI clients interviewed for the report who were] affected if it is found to be true.
“We would appreciate it if the authors of the report and the organisations who compiled it would come forth with evidence of such practices so that we can take the necessary action.”
The findings were compiled from 10 communes in Kandal, Kampong Cham, Tbong Khmum and Prey Veng provinces, as well as Phnom Penh, with 28 MFI clients interviewed.
The CMA said with only 28 case studies presented out of close to two million loans currently on the books of the Kingdom’s MFIs, the report does not represent anything close to the full picture of MFI lending in Cambodia.
“The CMA takes reports of unethical or predatory lending practices very seriously and we will work with our members to investigate the case studies presented in the report.
“But we are extremely concerned that the report relies on such a small sampling of MFI borrowers in Cambodia and also that none of our members, or the association itself, was contacted by the report’s authors during the course of their work,” CMA chairman Kea Borann said.
The Cambodian microfinance sector has proven to be one of the most successful models for financial inclusion worldwide, said the CMA.
The World Bank’s Cambodia Microfinance Policy Note published in October states that growth in microcredit is having positive financial and welfare impact for households in Cambodia, said the CMA.
It said expansion of the microfinance sector has made it possible for borrowers to shift from informal to formal sources of credit, especially among the poor.
Licadho monitoring manager Am Sam Ath told The Post on Thursday that despite the small scale of the study, it presents evidence that should urge the government and MFIs to control lending and guarantee that it does not abuse human rights.
“The report is not suggesting that microfinance institutions stop lending to people. It just wants to ensure that lending is transparent and in line with the government’s development plans to eradicate poverty,” he said.