Health emergencies are a major cause of Cambodians falling into debt, and the Covid-19 pandemic has only exacerbated that. Photo: AFP / Tang Chhin

In my Diplomat column on October 9 (“Can Cambodia’s Looming Microfinance Disaster be Averted?”) I pointed out some of the more nuanced problems found in the solutions already pitched to solve Cambodia’s microfinance crisis. According to some feedback, I was being more destructive than prescriptive; pointing out faults without stating any alternatives.

So here are seven ideas that, I believe, could go some way toward correcting the sector and bringing it back to its original ambitions and ideals, which still exist beneath the layers of greed and jobbery that have suffocated the microfinance system in recent years.

They are not overly radical, and would protect the short-term interests of debtors struggling during the pandemic-induced economic crisis as well as the long-term interests of microfinance institutions (MFIs). They are by no means extensive or comprehensive (there are perhaps two dozen decent ideas floating about of how the sector can be reformed) and I doubt if there is the political will to implement most. But here goes:

1. Immediate relaxation of a significant number of loan repayments before the end of 2020, including write-offs for at least 10% of debtors most affected by the pandemic-induced economic crisis and least able to repay their loans. Also, the restructuring of repayment plans to expand the lifetime of the loan and necessitate lower payments throughout 2021.  This could be coupled with interest-rate cancellation on a proportion of loans.

2. Widespread institutional reform in 2021, ideally mediated between MFIs and international development agencies. The most urgent reforms must be the greater controls on how MFIs accept land and property as collateral/security on loans, in order to prevent landlessness amongst the poorest. The rate of landlessness rose from 32% in 2009 to 51% in 2016, says The Economist.  

Greater restrictions should also be placed upon one borrower taking out more than one loan, and more oversight that loans are provided for economically productive activity and not unessential consumerism.

3. The formal separation of microloan categories between credit for “economically productive activity,” such as loans to open or expand a business, and credit for “urgent expenses,” such as unexpected medical bills. A good deal of microcredit in Cambodia is taken out to pay for medical emergencies, given the poor quality of state-provided health care.

Loans for urgent expenses should be provided with lower interest rates and longer-term repayment plans, and MFIs should be required to partner with poverty-relief organizations so that information about these urgent-expense debtors can be shared more easily.

3. Establishment next year, with oversight from development agencies and civil-society groups, of an independent commission to investigate the problems of the microfinance sector. Testimony should be collected from microfinance borrowers as well as expert opinion from international microfinance researchers.

By the end of 2021, the findings of the investigatory commission should be published openly and freely to all Cambodians, and be used in the forthcoming years to determine policy regarding the microfinance sector.

4. The creation of an independent ombudsman in each province to deal with grievances from debtors as well as to mediate formal complaints against MFIs.     

5. Representatives of microfinance borrowers should be allocated seats on the boards of microfinance institutions, ideally though the creation of organizations setup by debtors. A Microfinance Borrowers Association of Cambodia (or a similarly named group) would be able to lobby MFIs directly as well as the government.

6. The creation of an independent Microfinance Council with seats given to government officials, MFI executives, borrower organizations and civil-society groups. It would meet bi-annually to discuss recommendations for sectorial reform. This would be based on the model of the Minimum Wage Council, setup to mediate discussions of minimum wage increases between industry bodies, trade unions and government officials.

7. A tacit agreement by both the ruling Cambodian People’s Party (CPP) and the now-banned but active-abroad opposition Cambodia National Rescue Party (CNRP) not to exploit the microfinance crisis for their own political benefit. Rare for Cambodia, this isn’t chiefly a political issue.

Of course, one can blame decades of underfunding and mismanagement of the health sector by the CPP government as a reason so many poor Cambodians take on microfinance debt to pay for urgent medical bills. Yet to employ a tired cliché, the microfinance issue must not become a political football.

David Hutt is a political journalist based between the Czech Republic and Britain. Between 2014 and 2019, he was based in Cambodia, covering Southeast Asian affairs. He is Southeast Asia columnist for The Diplomat and a regular contributor to Asia Times, including the column Free Thoughts. He reports on European political affairs and Europe-Asian relations. Follow him on Twitter @davidhuttjourno