Critics of a critical report that spotlights “predatory” lending and rights abuses in Cambodia’s microfinance sector have called out the report’s authors — and journalists covering it — over news coverage “coordination” allegedly meant to harm the industry’s image, supposed socialist leanings and broad brushstrokes.
A National Bank of Cambodia (NBC) official on Thursday questioned the veracity of the report, while microfinance industry leaders went into crisis management mode by copy-and-pasting the positive outcomes of the sector into their press statements, and leaving the cons out.
The report, released on Wednesday by rights groups Licadho and Sahmakum Teang Tnaut (STT), said the country’s microfinance debt has led to “serious and systematic human rights abuses” against borrowers and poses a “significant threat” to indebted families’ land holdings.
“Collateral Damage: Land Loss and Abuses in Cambodia’s Microfinance Sector” features 28 case studies of households that “suffered multiple and/or serious human rights abuses as a result of MFI debt,” including unethical lending practices, coerced land sales, child labor, debt-driven migration and other issues.
The report’s authors say rights abuses are essentially built into the industry’s profit-driven business model, while critics point fingers at the research’s use of cherry-picked “bad apple” cases and its small sample size, which the authors acknowledge is not meant to be “statistically representative” of the country or all MFI clients.
Chea Serey, NBC’s director-general of central banking, condemned unethical practices by financial institutions in Cambodia, and vowed to investigate allegations and “take necessary actions,” but also said she wished “there were more facts in the report than hearsay.”
In a public Facebook post on Thursday, Serey said she had to “admire the coordination between these major international media … to publish a story intended to DAMAGE Cambodia’s financial sector image, on the SAME day, based on the SAME report by a small local NGO, with the SAME wordings (academic would call it plagiarism), WITHOUT fact checking.”
Her post cited news outlets Reuters, Bloomberg, Nikkei and Al-Jazeera and included screenshots of headlines of the outlets’ articles about the Licadho and STT report, which were published on Wednesday. One headline (“Tiny loans lead to bigger debts, land losses in Cambodia”) was published by the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, which has editorial operations that are separate from the Reuters news agency.
The rights groups provided the report under embargo in advance of its release date on Wednesday to the four outlets and others, including VOD.
As standard practice in the news media, embargos mean journalists have agreed not to publish or share publicly specific information until a predetermined time and date. Three of the four outlets cited by Serey, plus VOD, quoted representatives of the Cambodia Microfinance Association (CMA), thus respecting the journalistic principle of the “right of reply” by giving a subject of criticism the opportunity to respond. Bloomberg attempted to contact a government spokesman.
In February, Serey said news outlets, specifically business publications, “should take fake news seriously by using various innovative and creative tools to address the problem at all cost so as to maintain a continued and consistent flow of reliable business news reports,” according to the Khmer Times.
Serey said outlets should continue investing in reporters’ knowledge.
“At the same time, I would like to encourage reporters to seek clarification from us when they are not clear so as to avoid any misinterpretation,” she said, as reported by the Times.
Serey did not immediately respond to requests for comment from VOD late on Thursday.
In her Facebook post, the bank official questioned the rights report’s “carefully selected” sampling of 28 cases, citing the microfinance sector’s millions of borrowers.
“Anyway, I supposed that the clarification coming from the CMA won’t get that much attention,” she added.
On Wednesday, CMA, which represents nearly 100 microfinance institutions (MFIs) and other credit providers, issued a statement, claiming the report’s case studies presented “an inaccurate picture that does not reflect the true state of MFI lending that has benefited hundreds of thousands of Cambodians.”
CMA went on to paint a rosier picture of the industry.
Quoting an “October 2018” World Bank policy note on microfinance (which was actually from February 2019), CMA said in its statement: “Growth in microcredit is having positive financial and welfare impacts for households in Cambodia.”
However, on the same page of that report, the World Bank says: “Risks are increasing for MFIs and for the Cambodian economy in general, partly reflecting looser lending practices.”
This risk assessment is absent from CMA’s statement. The latter does highlight the World Bank’s finding that access to microfinance credit has helped lower the percentage of people borrowing from informal lenders — who typically charge high interest rates — from 32 percent in 2004 to 6 percent in 2016.
Yet, a February 2019 “Impact Study on Credit Reporting in Cambodia” from the World Bank Group’s International Finance Corporation noted the development of the nation’s “informal” financial sector, consisting of unlicensed money lenders, pawn shop lenders, property development lenders and some rural credit operators.
“It is our understanding that these organisations represent a growing percentage of lending in the economy and that many of them do not provide data to the credit bureau,” the bank report says.
CMA also criticizes the NGOs’ report for its use of a “misleading” figure for the average microloan debt per borrower, about $3,370, based on 2.4 million Cambodians holding at least $8 billion in total debt.
CMA says most MFI loans to individuals are less than $1,000.
But the World Bank says “average loan size has grown faster than household income,” jumping by 80 percent from 2015 to 2017, citing Credit Bureau Cambodia data.
The CMA statement goes on to tout more MFI benefits, leaving out that in the past five years, “the average loan size increased more than tenfold, as did the share of loans for consumption needs and the portfolio-at-risk,” according to the World Bank.
The CMA statement also says six of Cambodia’s top microfinance deposit-taking institutions (MDIs) were “certified by the Smart Campaign, a global certification program for financial institutions that requires them to follow strict Client Protection policies aimed at combating over-indebtedness and demonstrate fair and respectful treatment of their clients.”
Missing is the fact that a seventh MDI — Prasac — became Smart-certified in 2015, but is no longer listed on the Smart Campaign’s website as having an active certification. In fact, Prasac “greyed out” in November 2018, according to the website of global rating agency MFR, a licensed certifier of the Smart Campaign.
CMA representatives had earlier told VOD that any abuses documented by Licadho and STT were rare exceptions caused by “bad apples” in the industry, which had various policies and guidelines in place to avoid the abuses claimed in the report.
Bun Mony, an oknha, CEO and director of Vithey Microfinance and CMA’s vice chairman, said Cambodia had a free market economy and profit incentives were necessary to attract investment.
“In exchange for development, the poor have to pay fees [for loans],” Mony said in an email on Wednesday. Borrowers “pay interest in exchange for development, nothing is given for free.”
Mony said Licadho and STT appeared to prefer a “planning economy” or “socialist economy” and called the report’s recommendations to the government “stupid.”
In response to questions about criticisms from Serey and Mony, Naly Pilorge, Licadho’s director, said the groups behind the report hoped the central bank would consider and CMA would address the report’s suggestions for policy changes and reforms.
Other institutions, including the World Bank, IMF, and academic researchers, had raised similar criticisms of the MFI sector in recent years, Pilorge said in a statement, adding that Licadho planned to continue interviewing and researching Cambodians affected by debt later this year.
“Our only concern is protecting the human rights of all Cambodians, including microfinance clients,” she said.
Daniel Rozas, a microfinance researcher and consultant for the CMA, said the sector in Cambodia was “facing serious challenges” and its growth rate was concerning.
“Cambodia is showing classic signs of an overheated credit market, and this applies both to banks and to MFIs, though in different ways,” Rozas said in an email on Monday, prior to the report’s release.
Still, the amount of wealth visible in Cambodia’s rural communities today — from motorbikes and cars, to farm machinery and houses — is “vastly greater” compared to 15 years ago, he said.
And while most of that wealth has resulted from macroeconomic growth (Cambodia’s annual GDP growth has been about 7 percent since 2011), Rozas said “MFIs’ unmatched ability to help families to pool together resources to fund a business venture or build a new home” should not be ignored.
“That too has been a factor” in poverty reduction, he said.
Having been provided a summary of the Licadho and STT report’s findings before its release, Rozas said the authors seemed happy to paint the microfinance sector and its lending institutions — which offer various size loans, from a few hundred dollars to tens of thousands — with a broad brush.
He also criticized the practice of using embargoes, or “pre-releasing” reports as a means to “drum up attention without undergoing any review, rigorous or not.”
“By the time the report itself is published and knowledgeable individuals are able to review it, the media follow-up is unlikely to get anything close to that level of attention the report itself will receive,” Rozas said.
“It’s a sign that the report is meant to advocate more than inform.”
Additional reporting by Michael Dickison