Cambodia’s financial sector czar’s yesterday (Aug 29) joined forces to pour cold water over a recent report which claimed that the country’s micro-finance sector was dragging its inhabitants into an inescapable debt trap.
With just a few words Sok Touch, president of the Royal Academy of Cambodia (RAC), crystallised what thousands of words of explanation by others had failed to do.
Asked how many samples he would need to achieve with a high degree of accuracy and certainty an indicative representation of the Cambodia micro-finance sector he replied: “2,000”.
Mr Sok, an academician, said that with 2.1 million micro-finance customers holding loans of some $6 billion … with Cambodia’s population at about 16 million … a sample of 2,000 is required”.
Addressing a weekly media briefing hosted by the Office of the Spokesperson for the Council of Ministers (CoM), Mr Sok said the RAC was currently in the process of surveying micro-finance users, with 1,300 surveys already completed.
Different users, different needs
Mr Sok said preliminary data had shown micro-finance clients made different use of the facility depending on specific needs.
The RAC had identified the different uses, which were able to be identified by geographic regions. Those in coastal regions had different needs and issues than those in predominantly agricultural or industrial regions, he said.
Adding support to claims that the August 7 report by the Cambodian League for the Promotion and Defence of Human Rights (Licadho) and Sahmakum Teang Tnaut (STT) painted a distorted view of the Cambodia micro-finance sector was Rath Sovannorak, assistant governor and director for general banking supervision at the National Bank of Cambodia (NBC).
“Twenty-eight micro-finance clients does not represent 2.1 million borrowers in the Kingdom”, he said, demanding that the two NGOs provide proof that the micro-finance sector had harmed borrowers as claimed.
Mr Sovannorak said that the NBC had for a long time operated hotlines in 21 provinces, in addition to Phnom Penh, where people could obtain financial assistance or report problems.
In its report, Collateral damage: Land loss and abuses in Cambodia’s micro-finance sector, Licadho claims that an upsurge in micro-finance debt has lead to increasing incidents of land loss and human rights abuses. It put the amount of money borrowed from micro-finance institutions at the beginning of 2019 at no less than $8 billion – almost one-third of the Kingdom’s 2018 GDP.
The report consisted of just seven case studies drawn from 28 micro-finance customers living in four provinces, plus the capital, Phnom Penh. Cambodia has 25 provinces.
Micro-finance report fake news
CoM spokesperson Phay Siphan said the NGOs report effectively put the debt burden of each micro-finance borrower in Cambodia at about $3,370. “This would be the highest amount in the world. It’s fake news”, he said.
Despite the high debt to borrower ratio depicted in the study and the tiny sample pool, the report was leapt on following its release and used to discredit the government and portray the sector as hurtful to borrowers.
The claims have clearly bristled the Cambodia government and the Cambodia financial sector. Mr Phay said he intends to invite all affected parties to discuss the report in a closed-door meeting.
In 2017 Prime Minister Hun Sen ordered a ceiling of 18 per cent placed on the annual interest rate that micro-finance institutions could charge borrowers. Previously rates were as high as 30 per cent per year.
At the time it was claimed the move could lead to the collapse of the micro-finance sector. It hasn’t.
According to Mr Sok a study by the RAC had found that only one per cent of people affected by the rule did not benefit.
In the same year the Cambodia government ordered all micro-finance institutions with logos, signage, wordage, or names which could in any way be interpreted as being representative of the government be removed and changed.
While “80 per cent of people understand how micro-finance work”, Mr Sovannorak said, some people were still under the impression that they are a part of the government. The central bank had, he said, asked the Ministry of Education Sport and Youth (MoEYS) to include financial literacy in study programmes.
Feature photo John Le Fevre
- Government Spokesperson Calls LICADHO and STT to Clarify Citizens Debt Report (Fresh News)
- NGOs to be grilled over MFI report (Khmer Times)
- Microfinance to dry up? (The Phnom Penh Post)
He has spent extensive periods of time working in Africa and throughout Southeast Asia.
He has covered major world events including the 1991 pillage riots in Zaire, the 1994 Rwanda genocide, the 1999 East Timor independence unrest, the 2004 Asian tsunami, and the 2009, 2010 and 2014 Bangkok political protests.
In 1995 he was a Walkley Award finalist, the highest awards in Australian journalism, for his coverage of the 1995 Zaire (now Democratic Republic of Congo) Ebola outbreak.
Prior to AEC News Today he was the deputy editor and Thailand and Greater Mekong Sub-region editor for The Establishment Post, predecessor of Asean Today.