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In a recent interview with the Khmer Times, Sunniya Durrani-Jamal, the Asian Development Bank’s country director for Cambodia, noted that ever-growing household debt was approaching worrying levels. But she noted that the Cambodia Microfinance Association (CMA) has stated that “the sector is relatively under control and that the registered lenders have very ethical lending practices.”
Should the ADB be basing its assessments on the opinions of the CMA, an industry body whose 100-or-so members are microfinance lenders and whose board is composed of the CEOs of the country’s largest microfinance institutions? (Durrani-Jamal didn’t reply to my entreaties for an answer to this question.)
Ample media reports have documented the dire state of Cambodia’s microfinance sector, so I needn’t go into too much detail. But read any news article about it and chances are the CMA will either be quoted or have provided data. And the CMA has become something of a go-to source for international bodies.
In April 2020, the World Bank’s International Finance Corporation (IFC) pumped $50 million into two prominent microfinance providers in Cambodia, Amret and Hattha Kaksekar Limited, despite recent studies raising serious questions about the sustainability and ethics of the sector’s lending practices, mainly accusations that microfinance lenders have forced clients to sell land (their collateral) to pay off debt. After a protest from the rights group Human Rights Watch (HRW), the IFC replied in one follow-up letter on November 5 that, as HRW put it, “it had worked with the Cambodian Microfinance Association (CMA) to issue guidelines to CMA members that would limit any borrower from having more than three active micro-finance loans.”
The CMA is an interesting body that appears to skirt the borders between an industry group, lobbying organization, and apparent watchdog for the sector. It is, most clearly, an organization created in 2004 to represent the interests of its members, which now included just over 100 microfinance companies. (Member benefits, as stated on its website, include “Possible access to loans or funds from donors, investors, or lenders” and “Government lobbying and advocacy opportunities”.) Its chairman is Kea Borann, the CEO of AMK, Cambodia’s largest microfinance institution, while its vice-chairman, Sok Voeun, is CEO of LOLC (Cambodia), another major player. The rest of its board is composed of CEOs of the other large microfinance firms.
Moreover, its donors are mostly international groups that either fund or promote microfinance projects across the globe, from the French government’s Agence Française de Développement (AFD) to the Microfinance Information Exchange. Another listed donor is the central bank, the National Bank of Cambodia, which is actually supposed to regulate the microfinance sector and presumably also the activities of the CMA and its members. (Is it a problem that the regulator donates to an organization it is supposed to be regulating?)
As a study from 2015 on microfinance oversight across the world noted, “The Cambodia Microfinance Association exists as a liaison between MFIs and the government, but largely excludes issues of the clients themselves.” In other words, it represents the interests of the lenders, not the borrowers, which is a problem considering its appearance as some sort of sectoral watchdog. Nathan Green, a researcher on Cambodia’s microfinance sector, wrote in a recent paper of the CMA’s creation: “The largest seven MFIs in the country joined together to create the Cambodia Microfinance Association (CMA) in 2004 in order to coordinate the operational activities of the sector outside of government oversight.”
“The CMA is a lobby group that is entirely engaged in representing and promoting the interests of the CEOs employed at the top of the now mainly foreign-owned microcredit institutions,” Milford Bateman, an economics professor specializing in international development and author of the book “Why Microfinance Doesn’t Work? The Destructive Rise of Neoliberalism,” told me. He went on:
The CMA only produces PR material that celebrates and promotes the work of its key members and the donor groups…that finance them and partly own them. All very incestuous. Accordingly, whatever work the CMA produces is not a genuine study of the impact of their work; it is simply PR. Accordingly, because the CMA is a lobby group both the data and reporting of the activities of its leading members simply cannot be trusted to be fair and accurate.
If true, this is a major problem, considering that journalists and international organizations depend on the CMA for information and data regarding the state of Cambodia’s microfinance sector. In the past two years, it has certainly been keen to refute negative reports about the sector, starting something of a feud with the local rights group LICADHO in 2019. That year, LICADHO published a damning report on the effect that microloans have had on ordinary Cambodians. Bun Mony, CEO of Vithey Microfinance and CMA’s vice chairman, attempted to smear LICADHO by telling local media that it appeared to prefer a “socialist economy.”
CMA also went on the attack after LICADHO published another study, “Worked to Debt: Over-Indebtedness in Cambodia’s Garment Sector,” last June. It responded with a statement claiming that the report paints “an inaccurate picture that does not reflect the true state of MFI lending that has benefited hundreds of thousands of Cambodians.” It went on to question the “real intentions” behind a report that it described as “biased,” before presenting a more optimistic image of the sector, using cherry-picked quotes from a World Bank report it misdated.
Worse, CMA appears to see itself as some kind of watchdog. “We ensure that clients are aware of their rights and responsibilities while we are holding MFIs accountable for their services,” Kaing Tongngy, CMA’s Head of Communications Department, told me. It wrote in a reply to HRW in May: “CMA has been working with members and stakeholders on the prevention of over-indebtedness for a years [sic] and has rigorously monitored practices to comply with self-regulatory Lending Guidelines.” Do bear in mind that it doesn’t represent all microfinance lenders, only the 100 or so that are members.
In October, In Channy, chairman of the Association of Banks, and CMA chairman Kea Borann published an opinion article in Reuters in response to an report from the news-agency, which carried the headline, “Microfinance in Cambodia has lifted millions of people out of poverty.” “We are looking closely at this issue,” the authors wrote, referring to collateralization of debt using land titles, “and have started gathering data from our members on the number of land titles that are currently held and the rate of foreclosures on these titles.”
They also asserted: “We will share widely updates from this data survey to underline our firm belief that, contrary to some of the reporting we have seen, neither the Cambodian microfinance industry nor the banks are systemically involved in an unethical and disproportionate land grab that preys on unwitting borrowers.”
International experts have argued for years that Cambodia’s microfinance sector needs far greater oversight, either by the government or an actually independent body, yet this is a task often granted to the CMA, as seen by the examples above. In 2013, the CMA did launch the Smart Campaign certification program to self-regulate the sector. It then introduced its Lender Guidelines Initiative in 2017 to define best practices for microfinance lenders. But as has been pointed out, “both the Smart client protection principles and CMA’s lender guidelines are voluntary codes of conduct with little oversight to ensure compliance.”
A lack of government oversight is rather normal for Cambodia, where the government has generally favored a laissez-faire attitude to the markets. Yet, the CMA appears to have actively fought back against any formal oversight of the sector. “The CMA has advocated for continued self-regulation of the industry,” Green asserted in a recent paper. As far as I can tell, no member has ever been kicked out of the CMA for breaking its own rules, even though, as Green notes, “MFIs regularly violate Smart client protection principles because there is no state law to enforce compliance.”
More than that, the CMA is accused of openly flouting the government’s only real intervention in the sector, when in 2017 it imposed a cap on the interest rates that microfinance lenders could charge. A publicity campaign was organized by the MFIs and the government partly backed down, but kept the caps in place. But within months, Green notes, “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.” Kaing Tongngy, the CMA spokesman, said that while fee charging is common in the industry, CMA doesn’t promote it.
He describes the CMA as “the industry body representing and overseeing holistically the microfinance sector.” “From the supply side, CMA promotes the understanding of the microfinance sector in Cambodia while financial education and financial inclusion are core of works for the demand side,” he added. “By simply alleging CMA as a biased institution, one would lack the opportunities to the sector knowledge/insights CMA has and led to a shallow understanding of the microfinance sector.”
Indeed, just because the CMA is funded and run by Cambodia’s largest microfinance outlets doesn’t necessarily mean its data and reporting is wrong. It does, however, mean that its data and reporting isn’t impartial. And it should indicate that CMA isn’t an oversight or watchdog group, nor an impartial regulator of the sector.
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