Over‐indebtedness and microcredit in Cambodia: Moving beyond borrower‐centric frames

Abstract

Over the past two decades, Cambodia has experienced an unprecedented credit boom, a growth in lending so rapid that the International Monetary Fund (IMF) referred to it as "one of the fastest financial deepening episodes by historical crosscultural standards" (IMF, 2016, p. 4). This deepening has been driven by the expansion of microcredit. In tandem, over-indebtedness has increased among microcredit borrowers, and debt has become a significant political and economic concern. This article explores how over-indebtedness is understood and explained by stakeholders across microcredit value chains. To do so, we draw on interviews with microfinance institution (MFI) executives, investors, branch managers, partners, financial literacy trainers, loan officers and borrowers in Siem Reap and Phnom Penh. We find that across the sector, dominant framings of over-indebtedness privilege borrower-centric explanations, while discounting the structural drivers of excessive lending and borrowing. As a consequence, current efforts to limit over-indebtedness are unlikely to produce the kinds of solutions that are most needed to reduce the debt stress among borrowers. These arguments have implications across the Global South, particularly for contexts where microfinance is rapidly expanding. K E Y W O R D SCambodia, credit/debt, development, microfinance, over-indebtedness | O141 BYLANDER Et AL.

Sustainable Empowerment Initiatives among Rural Women through Microcredit Borrowings in Bangladesh

“…According to [58], after availing microcredit, the borrowers contributed to their family incomes much more significantly than non-borrowers. The study in [59], on the other hand, warns against the negative impacts of microcredit with regard to incurring unbearable levels of debt. Thus, to convert small borrowers into large borrowers for different types of ventures, it is very important to increase the loan quantum and enhance the knowledge and skill in management.…”

Regulating Over‐indebtedness: Local State Power in Cambodia's Microfinance Market

“…Critics must better attend to those varied institutional landscapes, underpinned by specific social norms and historical practices (Guérin and Kumar, 2017), in order to identify appropriate reforms likely to succeed in regulating microfinance. A first place to start would be to ‘move beyond borrower‐centric frames’ of over‐indebtedness (Bylander et al., 2019: O154), such as explaining multiple borrowing as an outcome of naïve decision making (Arnold and Booker, 2013). Such apolitical arguments, devoid of the diverse power relations that constitute microfinance markets, are likely to blame borrowers who are navigating economic transformations often stacked against them.…”

“…While the microfinance industry has lauded self‐regulation as an efficient, market‐based method to expand formal financial services, critical scholarship has demonstrated that self‐regulated microfinance markets have actually exacerbated problems of over‐indebtedness (Afonso et al., 2017; Bylander et al., 2019). The main problem is that compliance with consumer protection principles is entirely voluntary.…”

“…However, within months, reports indicated that MFIs had evaded the new rate cap by imposing fees for new loans and harsher penalties for late repayment. Rather than rebuke these practices of its members, the CMA encouraged MFIs to implement such fees in order to remain financially viable (Bylander et al., 2019).…”

“…These MFIs have since adopted the global Smart Campaign's client protection principles, a voluntary code of conduct that seeks to prevent over‐indebtedness. Smart certification requires MFIs to adopt such practices as providing transparent loan information and establishing consumer complaint mechanisms (Bylander et al., 2019).…”