Microfinance has issues. I know it can be very effective for some communities, but there are also lots of challenges in Cambodia, with more than 2.6 million borrowers owing loans of more than USD$10 billion.
This has caused me to reflect on Human and Hope Association’s own microfinance program, which we began planning in 2013. A friend of mine had raised the USD$1,500 we needed to begin the program, and one of our Khmer friends who had previously run a microfinance program at a not-for-profit, held a workshop for our team to help nut out the program. Although I was involved in the very early stages of the program development, by the time it came to implement the program, I had handed the whole program over to Thai, HHA’s now Managing Director.
We had identified that that was a need for the program as there were members of our community who did not have what was required to borrow money from a bank, such as literacy, a credit history and the willingness to take a bigger loan than is needed. Initially, we placed a USD$150 limit on the loans, though a few months later it was increased to USD$200 after we received feedback from the borrowers.
We advertised the program by posting announcements on trees, telling our students and visiting the communities. The day of the initial information came in 2014 after months of planning, and anticipation was high. But no one showed up.
We waited. And waited. And waited.
Finally, forty-five minutes after the information session was due to begin, someone showed up. A few followed in the next thirty minutes. It was normal for Cambodians to be late, but our team had gotten used to punctuality, given it was one of our core values.
The information session began, and Thai and Salin (HHA’s now Education and Community Manager) provided the potential borrowers with the necessary knowledge related to the microfinance program and tips for business management. They then handed out application forms, and our team helped the borrowers to complete them. In total, three borrowers filled out forms. It was decided that one villager would not be provided with a loan as she simply had too much debt, and it was a high risk. We provided two loans; one to a woman who sold desserts at a stall on the side of the road, and one to a woman who had a food stall that we frequently bought our lunch from. They wanted to purchase furniture to ramp up the atmosphere for their customers and have money on hand for paying suppliers.
Before the borrower’s loans were dispersed, Thai ran a workshop with them on money management and child protection. He then followed up with them every week when collecting the repayments. At first, things were going well for both borrowers. Then, one day, it all went downhill for one of them. This woman’s landlord had become jealous of her success with her food stall (I can attest, she did make excellent fried beef), and evicted her so she could open up her own food stall. The borrower, deflated, got a job in town and her dreams of being a small business owner were shattered. She still stayed true to her contract and paid us back every week until the entire loan was repaid. I refused to buy from the new food stall out of solidarity with the borrower.
The second borrower continued to have success with her dessert stall. She even took out a second loan, and business continued to improve. As time went by, our microfinance program began to expand due to word of mouth. We provided loans for flower sellers, livestock, vegetable sellers, shop owners, food carts, and carpenters. Thai made the decision to stop providing loans for livestock, as most of the pigs died and most of the ducks escaped, leaving the borrowers with no way to pay back their loans. Quickly, our 100% repayment rate went downhill. Borrowers didn’t pay back their loans, and we were at a loss as to what to do. We didn’t want to get the police involved, and we didn’t have leverage to get the money back. Once, Thai was even chased off someone’s property when he went to collect money.
A few years later, the microfinance was disbanded, and we dealt with our losses of several hundred dollars, which in hindsight is quite small. To this day, I believe that one of the reasons it was unsuccessful is because the borrowers didn’t have personal relationships with us; they didn’t see what good we do for the community day in and day out, and therefore there was no urge to pay us back. Whereas our sewing microfinance program has maintained a 100% repayment rate since inception in 2013, since our students know and respect us.
Microfinance is a popular project to for donors to fund, and I totally understand why; however, with many people indebted to the system, the process of dispersing loans, whether it be through microfinance institutions or NGOs, needs to be scrutinised. I am not an economist, but if the program causes marginalised people to fall further and further into the poverty trap, is it achieving what it set out to do? I think not.
Some articles about microfinance in Cambodia to get you thinking about both the successes and challenges:
- Can Cambodia’s Looming Microfinance Disaster be Averted?
- Microfinance in Cambodia Has Lifted Millions of People out of Poverty
- Cambodians are Bingeing on Microfinance Loans
- The Evidence around Cambodia’s Microfinance Debate