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MFI micro-credit can increase poverty, not help to solve it.

I have written the contents of this blog for the World Bank's Inspection Panel. They contacted me, to my surprise, in response to several of my Twitter postings where I complained about the World Bank's inaction. I am very pleased that they did. Most Tweets were in relation to the treatment of community activist Tep Vanny whose land disputes should have been resolved after an Inspection Panel's previous report. In fact she continued to be detained by authorities for maintaining her community's protest. Next to her case I criticized the way Micro-Finance Institutions were operating in Cambodia in increasing rather than alleviating poverty: “MFI's have lost their way”. By chance our journalist colleague David Hutt released an article this week making much the same points.

August 2019 - please see in-depth analysis by LICADHO on how and why MFI malpractice is posing a danger to so many poor Cambodians. The issue aroused more controversy in July 2020 when Acleda Bank and the Khmer Times weighed-in. (See updates below)

Discussion with World Bank on 25 September below. (Scroll down)

1  Background

Although it is quite easy to look up this topic as it is quite well-aired in the media, a good starting point is the 2014 conference: Microfinance’s Irresistible Story: Already mythic in scope, the next chapter’s under way as the 17th Microcredit Summit begins”. (This was attended by the World Bank.)

As with so much in international “#ForeignAid”, Cambodia is a pretty good indicator or microcosm of the subject as a whole, given the vast extent of the international community's efforts to rehabilitate it after the Khmer Rouge and Communist-era rules.

Cambodia's MFIs grew in much the same way and time as other earlier ones, with the lead taken to found them by INGOs such as Concern and World Vision as well as donors like the European Union. Today those MFIs they started now operate commercially as AMK; VisionFund, and PRASAC. Some are being bought out by mainstream banking groups (like VisionFund by Woori Bank, Korea). They have all moved a long way from their origins. The market leader in this respect is Acleda Bank whose history can be read here.

I was aware of MFIs from 1998 onwards in my capacity at a domestic human rights NGO and then working directly with or alongside them from 2003 to 2016 in both community development and human rights projects. Although my interest stemmed from the concern for poor people taking on loans they could not manage, and paying a heavy penalty for it, in 2017, a case actually cropped up in my Cambodian wife's family, with her ending up paying a lot for the folly of her brother. This was in one of Cambodia's highest profile MFIs.

"Have MFIs in Cambodia lost their way, at least in terms of serving poor people?"

This tweet was one of the first raised in social media for public debate and to question MFI's utility.

This case is significant because it involves the MFI Hattha Kaksekar Limited (HKL) headed by Oknha Hout Ieng Tong who is the President of the Cambodia Microcredit Association (CMA) and well-placed to establish best practice. The fact that he and other senior MFI leaders hold “Oknha” honorific titles shows just how far the sector has moved from its origins and in to the orbit of the ruling party.

Several of my former staff have since joined MFIs with one in a leadership role in Rangoon, Myanmar where as it happens he works on best practice.

Today in Cambodia you see literally dozens of MFI organisations and offices even for example in my provincial capital town of Takhmau, Kandal. CMA membership consists of 8 major organisations; 59 institutions and 19 rural credit associations. The larger ones have new expensive offices.

2  Contention

It is my contention that the growth of MFIs in Cambodia, most which are transitioning to banks, has outpaced capacity to operate effectively, embedding systemic weaknesses that are bound to lead to exploitation in a largely unregulated Cambodian sector with a national problem of weak rule of law. All donors must bear some responsibility including those that first allocated funds to NGOs to establish micro-credit and revolving-fund schemes. Major donors like the World Bank's IFC must bear much responsibility as its zero or low interest loans have been a major factor in the sector expanding rapidly and profitably.

Secondly this rapid growth was based on intimate, opaque even hidden relationships with authorities, especially commune authorities, that play two major roles that should be recognized as conflicts of interests. Firstly, because of their local knowledge of and “responsibility for” their residents, they take part in applications for loans as well as due diligence checks, to give references. Secondly they also exercise their control of “soft” land titles as collateral on behalf of MFIs/Banks, still the usual way to secure loans rather than “hard” titles issued by the Ministry of Land Management. (See below for more on this.)

It is my view that as well as as a more rigorous regulatory framework for all financial institutions – from informal small ones to the new banks – there should be codes of best practice to protect poor and vulnerable people. The National Bank of Cambodia is taking a greater interest but not from that particular perspective. The ruling party and legislators have taken little interest so far.

Institutions like the World Bank should in my view be more assertive in insisting upon better practice; standards, and safeguards. Indeed given the failings of its LMAP project – discussed below - the decision in 2016 to resume normal business in Cambodia must remain highly questionable, doing so despite little or no action on its Inspection Panel's report and Board of Directors resolutions,

3  Signs of the emerging problem.

I was working in an advocacy and development project with poor disabled people and was resident in Kampong Chhnang from 2003-5. My project, multi-donor funded, did establish our own micro-credit fund based on the “Grameen” concept with community self-help groups. We did give much more power to the groups, we required to be corporately-run and fully-transparent, backed up by a federated body a “Governing Council” directly-elected by their members. Their role as more experienced and better-trained members was to mentor and supervise community groups. One recurring approved use for our loans was to relieve poor beneficiaries of the burden imposed by “loan sharks” - almost every village has one or more. There is no limit on interest to how much loan sharks charge but 10% per month was quite common. Our groups charged 2% per month for short-term emergency loans, although 3% is common in rural credit schemes. Many poor families rely on such credit in the event of medical expenses after illness or accident and for funeral-costs, i.e. unanticipated expenses. Another form of prohibitive loan charges, in the form of both cash and calculating the value of agricultural inputs and outputs, still common today, is levied on poor farmers by suppliers; buyers, and middle-men. Some years, with some crops, farmers are doubly-penalized because the market price of crops falls considerably, as for example, it did with Cassava from 2008 and up to 2016 - farmers having been persuaded to change from mono-culture of rice.

A community self-help group meeting to discuss finances.
Photograph taken for my article on "Sustainability".
Over that three year period we encountered more applicants seeking loans to pay off MFIs and ACLEDA Bank (the only bank then in Cambodia with extensive rural outreach) as well as suppliers; buyers and middle-men. A familiar pattern emerged in many cases. Many loans had been arranged by agents, either direct sales people employed for that purpose, or similar-looking smart “professional” people acting as intermediaries. Due diligence was conducted with commune or village officials not by neighbours in the way it operated in self-help community groups. Basically the process of obtaining loans evolved to be done increasingly by people from outside the community. Most had some kind of formal arrangement with local authorities – the commune chief and village chiefs. Literacy and numeracy skills were lacking in many families, so – as stated above – these people often played conflicting roles in both “endorsing” applicants as well as the acting “on their behalf” in explaining formal documents and obtaining/witnessing their approval through the use of thumb-prints. We often saw the same officials acting in concert with the agents to enforce contracts after defaults. Most worrying was to see people resorting back to loan sharks to pay off MFI loans.

In this sense, evidence was building up that MFIs were actually increasing poverty rather than helping families to emerge from it.

Cambodia's National Bank did in fact order a cap on interest charges to alleviate the problem, although MFIs and others insisted that this was no long-term solution and would even lead to reduced availability of credit.

Prime Minister Hun Sen before Cambodia's 2017 Commune Elections issued orders to try clear up what he felt was a misconception that MFIs were integrated with government. However, although banners were posted outside commune halls to announce this (pictured below), no formal changes were made to operating arrangements. The fact is this remains an important form of supplementary income for low-level officials on very small salaries. (US$222 per month for commune chief, $40 for village chief.)

The banner showing MFIs posted outside all Commune Offices

4  Witnessing at close-hand how MFIs operate.

4.1 We observed our neighbour in Takhmau over the years take out MFI loans, sometimes more than one at a time, and unable to meet repayments. Eventually she borrowed from a “loan shark” to pay off the MFI. She was also unable to pay her off and as a result two large parcels of land were taken from her. The story is narrated in my blog scroll to “Mrs Luck Un”.

Today MFIs in Cambodia have kickstarted the hire purchase industry with two AEON and AmK competing to give fast easy credit. 

4.2 My most insightful observation of MFIs in Cambodia occurred after my Cambodian wife received a visit from her Father to tell her that he was being chased for non-payment of a loan taken out by her youngest brother and his wife. He was pressing her (and me) to make the payments, fearing that he would lose his own property – as a pensioner and former state employee his income was much too low.

HKL Branch Takhmau
I was aware that the younger brother had taken his one fifth share of their late mother's inheritance to build a house in Prey Hor not far from us in Takhmau. Apparently he and his wife borrowed more money from MFI Hattha Kaksekar Limited (HKL) to extend the building to add rooms to be rented out to workers at a local garment factory. I was astonished as to how the MFI could approve such a loan to them – a cursory due diligence check would show neither had a record of regular employment – and how and why the MFI regarded it as appropriate to pressure wider family-members not involved in the arrangement to take it over. They were led to understand that the whole of the property including their late Mother's share would be forfeited.1

I therefore wrote to HKL and after prompting CMA to ask them for a reply, we were invited to HKL HQ. The story was slightly more complicated with another brother having already agreed to take over the payments with documents issued and signed – not my wife, although she and he somehow believed that he could do this on her behalf, from her one fifth share of the inheritance that he held.  HKL explained that this was a better solution for them than fore-closing or pursuing the brother and his wife. She was estranged living in Kampong Cham. It seems the money was used to help her start a karaoke business and he used it for a brand new motor-cycle and other personal purchases. HKL also claimed that they had carried out “thorough checks” of their character and ability to repay the loan. They claim that the brother was “an electrician” in regular work and the wife had a “steady job” in the garment factory. They were not aware that the brother had failed to attend school; was illiterate, not a qualified electrician and had been in trouble with the Police. They appeared not to check that the factory employment could also have been very recent as the wife too had never held regular employment.

It was and remains my opinion that the HKL coerced the wider family in to assuming responsibility for the loan instead of accepting that it had been negligent. Furthermore in my view it compounded this folly at the end of the loan when all repayments had been made. I asked them to give a final statement to be used to protect my wife's interest in the property – the loan repayments made on her behalf including capital and interest. They refused as “we can not provide loan information of any client to third party as it is protected by the law”. (They insist that the borrower must give permission.)2

An HKL branch with Acleda Bank next door
The question is how were references obtained to satisfy HKL's loan approval procedures? Were informal payments (bribes) paid? How could the local Commune Chief validate credentials given that both borrowers, husband and wife, had not lived in Prey Hor for very long? Or is the truth simply that as the loan was secured on the strength of the “soft [land] title” that they knew they held the upper hand so no need to worry about the risk of defaulting? The soft title refers to the record of land ownership and transfers kept and processed by Commune Councils (in contrast to the hard-title issued by Cadastral Commissions/Land Ministry). In effect it meant that the landowner cannot sell the land and property without the Commune Chief's approval. His office's record would have a record of the MFI's interest or stake in it, to be observed until the loan had been paid off and they had certified it accordingly.

One more factor emerged. HKL was charging a rate of interest working out at 19. 4% per year. It explained that this high rate was “essential” due to the extra risk involved in relying on the soft title as collateral.3

5  Relevance to World Bank's remit and portfolio in Cambodia and ill-fated “LMAP” project

The World Bank suspended official bilateral assistance to Cambodia in 2011 after serious problems with its major land reform project with the Cambodian government. In 2016 it resumed assistance with grants of US$130m, despite the issues causing the suspension not to have been fully addressed and resolved. They have not been resolved to this day in 2018.

During that suspension, as the links to IFC/AIDA advances to MFIs show this instrument of funding continued throughout the period presumably as it was not direct assistance to the government.

The project in question was the “Land Management and Administration Project” (LMAP) intended to modernize and establish how land and property changed hands and was documented in Cambodia. The project was the subject of an internal evaluation by the World Bank as well as by its Inspection Panel whose findings were then endorsed by the World Bank's Board of Directors.

To most people in Cambodia the LMAP project, what it set out to do, and any work with MFIs are intricately-linked. For the purpose of this paper, I wish to concentrate on the most relevant one.

The bone of contention that led to the complaint and investigation by the Inspection Panel was the provision for prior consultation; legal representation and calculation of adequate compensation for people adversely affected by land development. Indeed there was a specific budget line for this in the approved project – however the government as the implementing partner had chosen not to apply the provisions. It is a moot point as to whether officials were solely to blame, although it was clear then and remains today that they generally side with developers who are invariably connected with the ruling party or have a beneficial interest. The NGOs active in this area, both legal and human rights ones, providing assistance to vulnerable groups, refused to accept direct funding channelled through the government. The objections are twofold. Firstly to accept and to be seen to accept government funding would compromise their reputations and neutrality. Secondly the reality in Cambodia is government officials would expect a rake-off, a share of the disbursement or a kick-back. In this sense, in not accepting the reality of working in Cambodia, the design of the project was flawed. The net effect was that vulnerable people were not adequately-served as intended. This flaw has had a lasting effect.

Tep Vanny has been incarcerated for leading community protests against loss of land around Boueng Kak Lake, a case that festered on since 2010 when it was decided arbitrarily to fill it in and displace long-time residents, As stated above the World Bank's Inspection Panel found government and its officials had been at fault.

The flaw remains intact today. Whether it is involuntary or agreed land transactions, expert help is not forthcoming for most people. Legal aid has actually declined since 2011 as international donors have reduced funding. It is only wealthy people like developers who can afford private legal fees. This means that the only assistance to the poor comes from local authority officials who are, as stated above, beholden to the ruling party and its interests, and for whom such formal and informal duties are essential supplementary income.

It all means that there is a grossly unequal relationship between the “ haves” and “have nots” in Cambodia6

It manifests itself in the processes practised by MFIs. It is inherently unfair to ordinary people who have little recourse to independent expert help. It means that they are easily exploited.

Donors like the World Bank cannot claim to have “pro-poor” development policies while this imbalance persists.  Similar points are made by Stefan Ehrentraut in his examination of World Bank policies on Cambodia's indigenous people: the policy not only fails to translate into effective protection [of indigenous communities] but leads to outcomes diametrically opposed to its objectives” and contributes to the marginalization of indigenous peoples in Cambodia and under-mines the institutional, cultural and natural resources upon which their empower-ment and participation depends.”

My Cambodian wife and I have been subjected personally to the same unfair processes, of developers associated with local officials, as one has had designs on our land in Takhmau. They wanted to confiscate a large share of it without compensation, and almost certainly if it was not for me, they would have succeeded. Even today they are pressuring us to leave or to sell very cheaply. This saga is fully documented in another of my blogs.

6  Representations

Over the years I have made representations to donors as well as working with my human rights and development NGO partners in their advocacy campaigns on related issues. I have been heavily involved in land issues affecting poor rural people – loss of lands and forestries – especially indigenous peoples.

A cursory examination of my twitter account, search “lowriejohn MFIs” will show the issues I have pursued. My main recommendation has been for MFIs in Cambodia to adopt an ethical code of conduct, that should be self-regularity. However where it does not work MFI customers should have recourse to external advice such as an “Ombudsman” as well as the National Bank invoking its regulatory powers.

25 September 2018 - Discussion with World Bank Inspection Panel.

Robert Patrick Doherty<rdoherty1@worldbank.org> and : Dilek Barlas <dbarlas@worldbank.org>

Basically they maintain interest in cases like Boueng Kak Lake that they have inspected but say their brief means that once they have handed their report to Management (Board of Directors + Country Director), it's for them to decide policy and what to do. As we know they decided to re-engage with the Cambodian Government despite it refusing to address the original key land issue failures of no proper consultation; legal representation, or compensation for poor people affected. At some point a new complaint would need to be made for them to re-inspect.

I explained why I linked land and MFI issues due to the way land titles are used for collateral.

I said that the original LMAP project's objectives are laudable and remain relevant. They should be part of an integrated modern national planning system covering urban and rural land use. The current system works only for the rich and powerful, people with money - indeed there is no money to be made from saying "No!" to development. In reality fees should be levied when applications are made, and those fees should cover adequate means for people affected to be consulted, represented, and compensated. In my blog "Going up in the World" I set this out with reference to the UK system.


2 October 2018 

Good article here by Philip Heijmans "in Cambodia where everyone has a loan." He is also the author of "Cambodia Nation of Debtors".

Alex Wilemyns and Mech Dara in the Phnom Penh Post in June 2017 also picked up the same story "Kandal drowning in debt". Takhmau is the provincial capital of Kandal and is located on the outskirts of Phnom Penh. It is the home of Prime Minister Hun Sen and his garrison bodyguard.

26 December 2018

All's well in Cambodia's MFI sector of 80 institutions.....officially according to this report. Meanwhile the market-leader ACLEDA - the most successful business-model that all others emulate in Cambodia's copycat culture and aspire to - has branched out in to higher education. Mighty Oaks....indeed! Still no corporate logo after the government ordered it and other MFIs to remove theirs due to resemblance with an official one, at the same time as the order to distance commune councils from MFIs.

10 January 2019

Is former MFI PRASAC's great success built on the failures and miseries of its customers? It was originally an European Union funded operation and has enjoyed capital injections from institutions on very good terms including low interest charges.

6 February 2019

Another article delving in to some detail of the woes created by MFIs in Cambodia by Maryann Bylander and Eula Bliss.

8 August 2019

As mentioned at the start of this blog LICADHO issued a report with 28 cases that are broadly similar to the one I describe here.  The report received much coverage in international and local media. Both the Cambodia Micro-Finance Association and National Bank denied its contents. A list of them with links is given below.

June 2020

Astonishing. The World Bank has approved a new landownership project for indigenous people placing trust in the exact same authorities that have not only been involved in the drastic loss of their traditional lands over decades but who were most responsible for the "LMAP" project to fail.

July 2020

The onset of Covid19 and the dramatic lock-down on economies has hit Cambodia as hard it has for all countries if not harder than most. Its largest work-forces are in the garment and hospitality sectors with incomes lost or vastly reduced. Many families took on MFI loans on the strength of these earning and they now face loss of land having deposited their titles as collateral. A good overview is given here by David Hutt.

Acleda Bank, supported by the Cambodia Microfinance Association and National Bank of Cambodia, have weighed in again to the debate accusing LICADHO and partner organisations of misrepresenting the situation. Their argument was taken up by the Khmer Times that is heavily pro-government. At heart the difference is over how typical and widespread are the difficulties across the country? LICADHO is speaking up for poor people in financial difficulty, with case studies. Its response can be seen here. Loss of income due to restrictions brought in to counter Covid 19 and resultant loss of income have made matters worse. The bank, its industry's association and the regulator are desperate to maintain confidence in the sector at all costs. They fear a mass organised default that could prompt a run on the banks.

To follow my comments go to Twitter and search @lowriejohn MFIs.

The debate in Cambodia rages on in the usual polarised way. A helpful academic study has been released by Royal Holloway and associated researchers reminding participants that the issues are also both historic and international. Local Think Tank Future Forum  issued its survey findings: Covid-19 Economic Impact Study.

September 2020

Very good update by two respected longtime reporters in Cambodia, Mech Dara and Ananth Baliga.  They confirm the previous concerns about the burdens MFI debt is having on families but add the Covid19 dimension. The Cambodia government with help from donors has a scheme to give modest financial relief to those suffering most, means-tested, but instead of the aid being used for food or other essentials, it has to go to pay off MFI debts first.

Similar report and findings from Chanel News Asia.

January 2021

One more good article by David Hutt in the Diplomat.  This time he examines the role of the Cambodia Microfinance Association.

2 April 2021

MFIs and the problem of debts has been accentuated by Covid 19 that has seen many families unable to keep up loan repayments.  Naly Pilorge of LICADHO debates the issue with the German Ambassador in Phnom Penh.  Both sides agree on the problem if not the causes nor solutions.

2 August 2021

"The evidence around Cambodia's Microfinance debate" in the South East Asia Globe by Sango Mahanty and W Nathan Green concludes "emerging evidence of local lending practices and social risks are acknowledged, both by government and microfinance institutions instead of taking a defensive stance."

September 2021

A good letter from my colleague Naly Pilorge LICADHO and a studious article from Sangeetha Amarthalingham on contrasting perspectives and fortunes from Microfinance. 

October 2021

One of the most intensive studies (b on the subject examining also the role of major institutions like ILO.  We have pointed out for years the shortcomings in its "Better Factories" project that has in practice led to few real improvements in the working, living and transport conditions of factory workers as I keep seeing daily around Takhmau. ILO ought to have ceased supporting microcredit schemes when they went from community-based self-help schemes to commercial bank products. The UK is of course a major funder of the big international agencies including of the International Finance Corporation of the World Bank. (See 2015 ICAI critique.) 

April 2022

An important development has taken place with an international investigation in to microfinance practices in Cambodia after a referral from LICADHO and Equitable Cambodia.  The background to this as well as vivid descriptions of how this impacts severely on families and whole communities is in this excellent report by Jack  Brook in the South East Asia Globe.

September 2022

Two studies released within a few days of each other. Both do confirm findings from previous studies and the harm done by microfinance as now provided in Cambodia.  The first does manifest obvious methodology failings* and also enables critics and supporters alike to cherry-pick findings.  The second, is more rigorous with empirical evidence-based case studies, but links the subject tenuously in my view to climate-change. That could end up being counter-productive at least as far as indigenous communities and the environment are concerned.

* Here is just one, I think resulting from using students as field researchers instead of people with social scientific training who would no doubt have followed-up with more questions. From a very small sample size the author states that more pressure came from families to sell land to pay off loans than from the micro-credit providers or local authorities.  Of course this is the case as they do directly pressure wider families to take responsibility, as indeed I described above with my wife's family: "Witnessing at close-hand how MFIs operate."

December 2022


1 Anecdotally, I have heard that this is common. Cambodians refer to “keeping things in the family” hence they feel under a sense of obligation towards family-members in trouble that would not pertain in other societies, one that officials are keen (and find worthwhile) to enforce. 

2 I am happy to provide the World Bank with all correspondence in confidence.

3 HKL's Chen Boranchanborath 17 Jan 2017: “In terms of currently pricing of the loan, you may know well the development of micro-finance in Cambodia as you are one of the advisors dealing with micro-finance almost from its inception. Annual 19.2% interest charge is a market rate now to cover the high cost of fund from overseas lenders and preserve for higher risk of loan due to accepting soft property title to safeguard loan, decreasing from MONTHLY 5% interest charge with flat rate when its start”.

4 See for example: IFC announcement AMRET February 2016; PRASAC April 2015; PRASAC June2015.

5 Sent via the IFC portal: https://disclosures.ifc.org/#/inquiries It would help if this portal returned an email copy of the message sent.

6 Cambodians in Khmer may refer to the Rich as “mean” literally to have, and poor as “min mean” to have not.

Articles published around the world in relation to the original LICADHO report on MFIs in Cambodia. ( Please see updates above for later reactions and reports.)


  1. April 2018 - Article from "Organic without Boundaries" gets back to basics and commonsense when it comes to micro-finance. https://www.organicwithoutboundaries.bio/2018/04/18/pgs-cambodia/?platform=hootsuite

  2. ‏@Spigzy Anthony Perkins Retweeted John Lowrie
    This is a very worthy read, thanks John