The Danger of Microfinance

Small loans in Cambodia drown the poor and buoy the rich.

On her bank’s loan sheets Ban Sophear looks like an ideal borrower. At forty-seven, she runs a small business buying fish on the southern edge of Cambodia’s Tonle Sap Lake and also owns some farmland. In the past Sophear borrowed a small amount of money—a microloan—to build up her business. She managed to pay it back in full, qualifying her for larger microloans, which are issued by banks that have turned lending to the poor into a lucrative business. In 2022 Sophear borrowed $3,000. She used the money for her business and to pay her son’s school fees. The interest rate is 18 percent—standard for microloans in Cambodia.

We met Sophear in July 2022 at her home in the floating village of Chhnuk Trou in Kampong Chhnang province. A plank connects her shop-house to a pair of large wooden platforms covered with scales, baskets, and ice-filled coolers. Sophear sleeps in the back of the shop-house and runs a store from the front, selling everything from aspirin and eggs to gasoline and nail polish. Bags of candy and potted plants hang from the rafters. Despite her business acumen, Sophear was finding it difficult to make her payments of about $150 a month. To repay the loan, she would have to keep making them without fail every month for two years—a daunting prospect amid her financial insecurity.

For those who make a living on the Tonle Sap Lake, one of the largest freshwater fisheries in the world, it has never been harder to get by. A generation ago, fish were so abundant here that they could be scooped from the water with a basket. But crucial fish migration pathways to the lake, which sits on a tributary of the Mekong River, have been blocked by upstream hydropower dams that also change how water flows in and out. And now that more people than ever live on the Tonle Sap, the pressures on its diminishing number of fish have grown. Global warming, meanwhile, has caused worsening floods and droughts, with effects both on fish habitat and the lake’s hydrology. “Before, I could make $25 to $50 a day,” Sophear told us. “Now it’s about $12. It’s really impacted my family and my financial situation too.”

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