In an alarming report released by Human Rights Watch, it has come to light that predatory lending practices by microfinance institutions (MFIs) in Cambodia are wreaking havoc on Indigenous communities. These financial firms, backed by international investors, are aggressively marketing loans to these vulnerable populations, often using the value of their ancestral land as collateral. The consequences have been dire: coerced land sales, crippling debt, and even tragic instances of suicides among those unable to cope with the financial burden.
The report, titled “Debt Traps: Predatory Microfinance Loans and the Exploitation of Cambodia’s Indigenous Peoples,” spans 120 pages and details how over-indebtedness has led to severe repercussions for Indigenous communities in northeastern Cambodia. The findings indicate that many Indigenous borrowers, often unfamiliar with the Khmer language, are misled into taking out loans that far exceed their ability to repay, thereby plunging them into a cycle of debt.
“Cambodian lenders have marketed microfinance loans as a pathway out of poverty, but they have pushed Indigenous families into over-indebtedness,” said Bryony Lau, the deputy Asia director at Human Rights Watch. “These loans have cost many people their land, their health, and sometimes their lives.” Originally, microcredit aimed to provide access to capital for impoverished individuals to foster small business development without the need for collateral. Unfortunately, in Cambodia, many MFIs have transitioned from altruistic beginnings to profit-driven enterprises, prioritizing financial gain over social responsibility.
Human Rights Watch conducted interviews with more than 50 Indigenous villagers affected by these lending practices between February and October 2024. These accounts were corroborated by various civil society groups, journalists, industry experts, and credit officers, along with a wealth of documentation, including microfinance sector reports and borrowers’ loan documents.
Indigenous borrowers reported being subjected to pressure tactics from credit officers, who coerced them into taking out informal loans or selling their land to service existing debts. In some instances, borrowers faced repeated visits, threats of legal action, or intimidation from local authorities. Many expressed confusion regarding loan terms, repayment schedules, and interest rates, highlighting a severe lack of transparency in the lending process.
A particularly concerning aspect of these practices is the acceptance of so-called “soft titles” as collateral—informal documents issued by local authorities that overlap with Indigenous collective land titles. This not only undermines the legal protections established for Indigenous land under Cambodian law but also risks violating their collective land rights. The use of such titles as collateral often occurs without obtaining free, prior, and informed consent from the Indigenous communities, further compounding the risks of exploitation.
Moreover, the acceptance of soft titles as collateral complicates the process for securing collective land titles, as community members must collect all such titles to present to Cambodian government officials. If these documents are being used as collateral, this fundamental step becomes impossible.
Indigenous borrowers have reported feeling immense pressure from credit officers to sell their land, often out of fear of retaliation from lenders. These predatory lending practices have not only led to financial ruin but are also eroding the cultural identity and livelihoods of Indigenous communities.
The report also highlights significant gaps in the oversight of the microfinance sector by the Cambodian government and the failure of foreign investors to conduct adequate human rights due diligence. This negligence contradicts their own investment standards and the United Nations Guiding Principles on Business and Human Rights.
Despite acknowledging the risks associated with over-indebtedness as far back as 2015, the International Finance Corporation (IFC), the private investment arm of the World Bank, has continued to invest heavily in the Cambodian microfinance sector, to the tune of over $438 million between 2016 and 2021. Following a formal complaint filed by Cambodian human rights organizations, the IFC is now facing an investigation regarding its role in perpetuating these harmful lending practices.
Human Rights Watch asserts that all stakeholders—from international investors to Cambodian regulators and the MFIs themselves—must ensure that remedies are available to affected communities. These remedies should encompass debt forgiveness, substantive debt restructuring, and the recovery of Indigenous land obtained through coercive sales.
Efforts to provide redress must extend beyond current actors to include those investors who have profited from predatory lending but have since exited the sector without addressing the resulting harm. These stakeholders should contribute funding for an independent grievance mechanism that adheres to the UN Guiding Principles on Business and Human Rights.
“Cambodia’s microfinance sector has been propped up by the International Finance Corporation and international development banks and private investors who have disregarded mounting evidence of harm and repeated calls by Cambodian groups and borrowers for action and assistance,” Lau remarked. “The International Finance Corporation and other funders should ensure that Indigenous peoples are no longer suffering so that investors can profit.”
The report features harrowing accounts from Indigenous individuals affected by these lending practices. One Indigenous Kouy cashew farmer described being pressured to take out additional loans despite her illiteracy in Khmer: “I told them that I no longer wanted to borrow, but they said, ‘How will you pay off your other loans if you don’t borrow more?’”
Another borrower, an Indigenous Kachok laborer, shared her fear of legal repercussions for failing to repay her loans: “They would tell me that I would face legal consequences if I did not pay … I do not know the law; I just am afraid that I would be taken to the police station and that I would be pressured to pay the money.”
These testimonies underscore the urgent need for reform and accountability within Cambodia’s microfinance sector to protect the rights and livelihoods of Indigenous communities. As the world watches, the responsibility falls on both local authorities and international stakeholders to ensure justice and support for those who have been victimized by this exploitative system.
