Cambodia has the most microcredit debt per capita anywhere in the world — debts held mainly by people living in poverty who receive loans to help with small businesses and emergency expenses. In 2024, some 3.8 million households held over 3 million of these microloans, totaling $18 billion.
A new report by Human Rights Watch shows how Cambodian microfinance institutions backed by international investors have aggressively marketed loans in Indigenous communities. Predatory lending and debt collection practices by Cambodian microcredit institutions have resulted in Indigenous people losing land titles, families going hungry, children being forced out of school into the workforce, and several apparent debt-driven suicides.
Many of the people taking out these loans cannot read, speak, or write Khmer — the official language of Cambodia. Yet, as documented by Human Rights Watch, they signed documents handing over their land title. A 62-year-old Indigenous Kouy cashew farmer told Human Rights Watch about the pressure to take out more loans: “I don’t know how to read or write in Khmer or any other language. Even my vision is not good … so I don’t understand any of my loan documents. I told them I no longer wanted to borrow, but they said, ’How will you pay off your other loans if you don’t borrow more?’”
Microfinance in Cambodia
In the 1970s, microfinance institutions began as nonprofits founded by donors and NGOs that aimed to help people living in poverty in low-income countries to access capital. Individuals who met certain criteria could obtain group loans without collateral to run small businesses. But over the years, microfinancing practices have drastically changed.
In addition to using the money for small businesses, many Indigenous people in Cambodia now borrow money because they need funds quickly for emergency expenses, such as health care costs. Once in debt to MFIs, they fall into cycles of loan juggling and indebtedness. Microfinance companies are now highly profitable enterprises for national and international investors.
Private investors, state development banks, and the International Finance Corporation, or IFC, the World Bank’s private investment arm, have invested in Cambodian microcredit programs even after concerns were raised about the levels of debt and predatory loan practices as far back as 2016.
IFC has invested more than $400 million in Cambodian microfinance providers over the last decade. This has contributed to the soaring levels of over-indebtedness, and to creating one of the world’s most severe microfinance crises — as stated in a Bloomberg investigation, “Cambodia is a poster child for what can go wrong.”
The opportunity at the World Bank Group annual meetings
In 2020, IFC communicated with Human Rights Watch, saying that it recognized "there are legitimate concerns about indebtedness" and "overdebtedness" in Cambodia’s microloan sector. IFC referred to several steps taken by the Cambodian government or institutions to address these issues — but civil society found the steps taken were ineffective. IFC also failed to specify how it dealt with noncompliance.
The World Bank Group’s annual meetings in Washington, D.C., held from Oct. 13 to 18, are an opportunity to discuss the issue of Cambodia's predatory MFI practices.
At these meetings, World Bank leaders and board members should commit to recognizing borrowers as affected people, to applying its safeguard policies, and to providing remedies for the victims of predatory loan practices in Cambodia affected by its investments.
A tenuous avenue for accountability
In 2022, two Cambodian human rights groups filed a complaint with the Compliance Advisor Ombudsman, IFC’s internal watchdog. The ombudsman will release its findings in the coming months.
So far, IFC has sought to distance itself from the harm to borrowers, claiming its safeguard policies do not apply. In a letter to Human Rights Watch, IFC said that “[r]isks and impacts related to consumer protection are not managed through IFC’s” requirements.”
In 2023, IFC management filed a formal objection asking its board of directors to stop the ombudsman’s investigation before it even began. IFC claimed that impacts suffered by microfinance borrowers or “sub-borrowers” were outside the scope of IFC’s sustainability policies, and therefore, the ombudsman would have no mandate to investigate.
The ombudsman rejected this argument, and IFC withdrew its objection before a vote by its board, so the ombudsman investigation proceeded.
If the ombudsman finds harm and violations of IFC policy, then IFC needs to decide whether to provide an effective remedy to the borrowers or whether the banks and microfinance institutions across the developing world benefiting from access to public funds will be let off the hook.
IFC and its board of directors will ultimately vote on the response or plan of action submitted by IFC management to respond to the ombudsman’s investigation.
The remedies should include compensation, debt relief, and land restitution for borrowers who were misled or coerced into loans that jeopardized their livelihoods. IFC should also establish a grievance mechanism that is independent of Cambodian financial institutions, industry bodies, and government entities.
The meetings of the World Bank Group this week are a chance for IFC to commit to recognizing the findings of the ombudsman investigation when it is released and to provide an avenue for remedies. This is just the start of a long process, which will intensify once the ombudsman releases its report.
People in developing countries who are affected by projects funded with public foreign investment have few avenues for accountability. They have the right to have their concerns heard fairly and thoroughly. Standing up for that right will benefit everyone, including IFC and the people affected by its projects.
