MICRO credit programs are failing the rural poor in Cambodia by contributing to landlessness
rather than mitigating the problem, a report by OXFAM UK has suggested.
The report, "Where has all the land gone?", is the result of a study into
the connection between ongoing developmental efforts by various micro credit agencies
and the growing problem of landlessness in the Kingdom.
According to the report, over the past decade landlessness has increased proportionately
to a simultaneous increase in public access to micro finance services.
"The mini case study [on credit and landlessness] identified 39 families in
two sample districts (Cheung Prey and Battambang) who have sold or pawned land and
used the proceeds to repay loans from the credit organizations. A large proportion
of the interviewees believe that the loan from the credit organizations had been
a crucial factor in the decision-making process leading them to sell or pawn their
land,'' the report said.
The Association of Cambodian Local Economic Development Agencies (ACLEDA) and Support
Programme for the Agricultural Sector in Cambodia (PRASAC), the Kingdom's two leading
micro finance institutions have dismissed the findings.
ACLEDA and PRASAC say the Oxfam UK study was flawed by a focus on a minuscule aspect
of overall micro credit programs that continue to benefit thousands of families.
"It's like saying the entrepreneurial spirit adds to poverty," retorted
PRASAC Co-Director Manfred Hans Staab. "To justify that statement one can always
find at last 20 per cent among those starting new businesses who fail and, thereby,
are actually rendered poorer.''
While the OXFAM report does in fact attribute factors other than micro credit to
Cambodia's worsening rural poverty, the report blames micro finance schemes for compelling
villagers to sell their land to repay micro credit loans.
Even more damaging to the credibility of the Kingdom's micro finance organizations
was the report's finding that poor villagers perceived private money lenders who
charged 30% annual interest on loans as "more flexible" than agencies like
ACLEDA with interest rates of only 4%.
The report documented numerous instances in which villagers were forced to utilize
agricultural or business loans on medical fees, forcing them to sell or pawn the
land that they'd used as loan collateral.
Chhoun Pouch, a 34-year-old woman in a family of seven is a typical example cited
in the report. Since losing her land after defaulting on her fourth ACLEDA loan,
Pouch has taken a fifth larger loan using her house as collateral. Thirty per cent
of her defaulted loan was directed to daily expenses, 60 per cent for medical fees
and the remainder for repaying old debts.
Much Thon, 45, has so far taken four PRASAC loans of US$50 each. A full 30 per cent
of the money from the latest loan was used to repay another debt from a private money
lender, an additional thirty percent for treatment of her sick child leaving only
40% of the loan for the agricultural development it was intended.
"[These] findings are important because they suggest that credit organizations
may have an opportunity, through changing their policies and practices, to reduce
the incidence of landlessness," the report states. "As a matter of policy,
formal lending institutions should work hand-in-hand with institutions and agencies
providing extension information and training and small business development advice...
lending funds without assuring that the borrower can gain the skills and expert advice
needed to use the funds profitably is shortsighted and is likely to exacerbate the
process of land sale to repay loans among a vulnerable sector of credit seekers."
A senior ACLEDA official admits there have been cases of villagers selling their
land to repay loans, but insists it has never been due to pressure from ACLEDA. The
agency, he says, had to take over the collateral (land) in only 0.01 per cent of
cases in seven years.
Ian Channy, who oversees ACLEDA's micro credit program, says the real and measurable
benefits of micro credit - improved living standard for rural villagers - far outweigh
"In a nationwide scheme, it is difficult to avoid some cases that are unable
to draw benefit from the scheme due to sickness in the family, business failure or
consumption," Channy said. "...the conclusions you draw depend on the aspect
you are looking at."
PRASAC co-director Staab is even more adamant about the benefit micro credit programs
have provided the rural poor of Cambodia.
"If not [for] micro credit agencies, what options do the villagers have, private
money lenders who are known to charge up to 200 per cent interest?'' he asked.
Staab further insisted that PRASAC had no policy which could compel the villagers
to sell their land to repay loans and, in fact, did not even deal with the individual
borrowers, "but we have to stress that every credit program needs a well defined
repayment system as it can not survive without repayments''.
According to Staab, PRASAC's NGO status made its loan repayment methods "extremely
soft" that had been instrumental in eliminating the private money lenders from
Shaun Williams, Program Coordinator of OXFAM UK's Phnom Penh office maintains that
the OXFAM UK report on micro credit was not intended to undermine the efforts of
micro credit agencies but rather prompt a re-examination of their strengths and weaknesses.
"Micro credit and development programs [are] actually a very complex and under-researched
area that needs more targeted research," Williams said. "But since the
study's release I'm glad to say that considerable work has been down in improving
the approach [to micro credit]."