Cambodia’s COVID-19 Recovery Must Include Microfinance Reform

Cambodia’s government must avoid treating microcredit as a miracle cure or a substitute for an adequate social safety net.

In Cambodia, more than 2 million of the country’s 10-million-strong adult workforce hold a microcredit loan. Each of those loans comes to an average of $3,320, or twice the per capita GDP of the country. While microcredit was once considered a useful tool, without a national social assistance program, improved financial literacy and more stringent consumer protections, Cambodia may strangle itself with a system that once lifted many out of poverty.

Modern microcredit deployed on a significant scale is generally attributed to Muhammad Yunus, who launched the Grameen Bank in Bangladesh in 1976. The project began as an alternative for the poor, who often resorted to loan sharks when formal banks refused to extend credit to those judged unlikely to return the investment. The sharks, on the other hand, charged interest rates that ate up enough profits to permanently trap families in cycles of borrowing.

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