Predatory lending by microfinance institutions in Cambodia is driving land dispossession and human rights abuses against Indigenous communities, Human Rights Watch said in a report released today. The financial backers of the Cambodian lenders implicated in these harms include private investors, state development banks, and the International Finance Corporation, the World Bank's private investment arm.
The 120-page report, "Debt Traps: Predatory Microfinance Loans and the Exploitation of Cambodia's Indigenous Peoples," documents that over-indebtedness among Indigenous communities in Cambodia's northeastern provinces has led to coerced land sales, debt-driven suicides, food insecurity, and loss of access to health care and education. Cambodian microfinance institutions (MFIs) have routinely issued loans to Indigenous borrowers through credit officers and loan documents using Khmer, a language many Indigenous people do not understand, for amounts far exceeding their ability to repay.
"Cambodian lenders have marketed microfinance loans as a pathway out of poverty, but they have pushed Indigenous families into over-indebtedness," said Bryony Lau, deputy Asia director at Human Rights Watch. "These loans have cost many people their land, their health, and sometimes their lives."
Microcredit is designed to provide access to capital for people living in poverty, in particular to develop their small businesses, with funds that would otherwise be difficult or impossible to obtain. In their original form, beginning in the mid-1970s, microfinance loans were group loans based on mutual trust and accountability and did not require collateral. In Cambodia, as in many other countries, MFIs that began as non-profits founded by donors and nongovernmental organizations have in recent decades become highly profitable businesses for national and international investors.
Human Rights Watch between February and October 2024 interviewed more than 50 Indigenous villagers affected by microfinance over-indebtedness in and near Cambodia's Ratanakiri province. Their accounts were corroborated where possible with civil society groups, journalists, industry experts, and credit officers from multiple Cambodian microfinance institutions, as well as with written documentation including microfinance sector reports, internal microfinance industry data, and the borrowers' loan documents and credit reports.
Indigenous borrowers described credit officers pressuring or coercing them to take out informal loans or to sell land or property to service their debts, in some cases through repeated visits or threats of legal action or involvement of local authorities. Borrowers said that they did not fully understand loan repayment, reasons for fees, or how interest rates worked prior to receiving their loans.
The microfinance institutions have accepted so-called "soft titles"-an informal but commonly used document issued by a local authority- overlapping with Indigenous collective land titles as collateral, despite protections for such land under Cambodian law. The use of Indigenous land as collateral without free, prior, and informed consent risks violating collective land rights, especially when loans are secured by land that is customary or communally held, or in the process of being registered as such.
The acceptance of these soft titles as collateral undermines the application process for collective land titles, as the process requires community members to collect all such soft titles and give them to Cambodian government officials. That is not possible if these titles are being held as collateral.
Indigenous borrowers reported pressure from credit officers to sell their land and in some cases selling some or all of their land, fearing retaliation from lenders. These predatory lending and collection practices undermine Indigenous identity, livelihoods, and survival.
Human Rights Watch found gaps in Cambodian government oversight of the microfinance sector and failures by foreign investors to conduct human rights due diligence, in contravention of their own investment standards and the United Nations Guiding Principles on Business and Human Rights.
As early as 2015, the International Finance Corporation acknowledged the risk of over-indebtedness and weak consumer protection in the Cambodian microfinance sector, yet it continued to invest in the sector. Between 2016 and 2021, it invested over US$438 million. In 2022, Cambodian human rights organizations filed a formal complaint with the Corporation's Compliance Advisor Ombudsman, triggering an investigation.
All stakeholders-including international investors, Cambodian regulators, and the microfinance institutions themselves-should ensure access to remedies that include debt forgiveness and substantive debt restructuring, as well as recovery of Indigenous land obtained through coerced land sales, Human Rights Watch said.
Efforts to provide remedies should extend beyond current actors to include investors and shareholders who profited from predatory lending and have since exited without addressing their legacy of harm. These stakeholders should provide funding for an independent grievance mechanism that follows the guidance set forth in the UN Guiding Principles on Business and Human Rights.
"Cambodia's microfinance sector has been propped up by the International Finance Corporation and international development banks and private investors who have disregarded mounting evidence of harm and repeated calls by Cambodian groups and borrowers for action and assistance," Lau said. "The International Finance Corporation and other funders should ensure that Indigenous peoples are no longer suffering so that investors can profit."
Selected Quotes, Accounts:
An Indigenous Kouy cashew farmer, 62, in Ratanakiri, March 6, 2024, described how she was pressured 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, I can barely see across the street, so I don't understand any of my loan documents. I told them that I no longer wanted to borrow, but they said, "How will you pay off your other loans if you don't borrow more?"
An Indigenous Kachok farm laborer, in Ratanakiri, February 21, 2024, described how credit officers threatened her-without legal basis-with criminal prosecution for failing to repay her loans:
They read the letters back to us to pressure us to pay. They would tell me that I would face legal consequences if I did not pay … that I would have to go with them to court.… I do not know the law, I just am afraid that I would be taken to the police station and that I would be pressured to pay the money. I was worried that I could be put in jail for this.
An Indigenous Jarai cashew farmer in Ratanakiri described how the credit officer's threats physically and mentally affected him:
I told the credit officer, "When you threaten me and speak to me like that, I feel weak and I have a heart condition, my arms and legs feel weak and I get dizzy and I cannot handle the stress." The credit officer would reply, "If you have land, sell it. Whatever possessions you have to sell to pay us back, if you need to borrow from family or sell your land do it so you can pay us back."
