Interior Ministry Operation to Target Unlicensed Lenders

Interior Minister Sar Kheng on Monday said plans are under way for a nationwide probe into unregistered money lenders after an investigation in Battambang province found that low-income borrowers there owed more than $280 million in loans with interest rates of up to 30 percent.

Speaking at the Ministry of Interior, Mr. Kheng said the extent of the problem was uncovered during a survey led by Deputy National Police Commissioner Sok Phal in Banan district, which was then expanded.

“His Excellency Sok Phal went to get information from the district…and from there we started investigating this throughout the province,” Mr. Kheng said.

The provincial figure came in at $283 million, which he said highlighted the threat rogue lenders were posing to poor Cambodians, who struggle to repay the loans.

“From information gathered throughout the country, people have borrowed $3.5 billion from microfinance institutions. Some of them are registered with the regulator, which is the National Bank of Cambodia [NBC], but some are not,” he said.

Mr. Kheng likened these lenders to pawnshops for ransoming the country’s poor by offering them loans they will struggle to pay back and requiring their land or homes as collateral, which they may have to forfeit as a result.

He also repeated criticism issued last month by the Ministry of Finance and the NBC, which condemned unnamed NGOs for peddling microfinance services under the misleading guise of humanitarian organizations.

“They are pawnshops. They have no intention of reducing poverty, as they charge high interest against a guarantee—customers pawn their land, their houses, and then can’t pay back loans as they are charged 22 to 30 percent a year,” he said.

To deal with the problem, Mr. Kheng said plans were underway to clamp down on rogue lenders and assist communities exploited by them, which could be finalized by March.

General Phal said Monday that his officials were still computing the figures of unregistered microfinance institutions in Battambang.

“It is useless for me to tell you an incorrect figure,” he said.

There is a growing belief that widespread access to credit provided by microfinance institutions and private lenders is exacerbating socio-economic conditions for Cambodians living under the poverty line, instead of alleviating it.

“[It] is threatening the livelihoods of the economically most vulnerable,” said Jan Ovesen and Ing-Britt Trankell, writing last year in The Asia Pacific Journal of Anthropology.

A recent report by the University of Zurich warned of “a looming over-indebtedness crisis that might not be detected until it is too late.”

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