Dear Milford,
Thank you very much for taking time to answering me so extensively. Now that you clarify that your assertions relate to specific locations, not the whole country, I do agree with you that there are worrying signs. Financial history is littered with credit bubbles. While it is worthwhile to try to spot them and deflate them before they burst, I don't think they can be wholly prevented. They owe a lot to human nature: greed, short-termism, etc. Even if there are sober heads at some MFIs who recognize the danger, it is very hard for them to slow down if the other MFIs around them are growing and making profit at eye-catching rates.
Personally, I think that how MFIs treat defaulted clients is at least as important as preventing over-indebtedness. Regarding "debt farming", I have not come across any example of MFI confiscating lands of defaulted clients, bundling them and selling them on to property developers myself, but one possibility to spot this practice would be to look at the balance sheet of Cambodian MFIs, a publicly available information, pick up those MFIs with significant real estate on their assets side, and find out what these real estate assets are.
Good luck to your research. I look forward to hearing from your results in this forum.
Mingyee
From: "milford bateman milfordbateman@yahoo.com [MicrofinancePractice]" <MicrofinancePractice@yahoogroups.com>
To: "MicrofinancePractice@yahoogroups.com" <MicrofinancePractice@yahoogroups.com>
Sent: Monday, November 9, 2015 3:23 PM
Subject: [MFP] Re: Microcredit-driven financial inclusion in Cambodia is destroying
Dear Ming-yee
Thanks for this comment. My own reading of the situation was based on a combination of the newspaper report, the NIS report, a recent report by the researcher Liv Dannett, a number of other reports from various institutions, plus a recent study (MIMOSA) which found that Cambodia is the 2nd highest country in terms of the level of microcredit saturation.
First off, I think there is some talking at cross-purposes here. In particular, your comments attempt to focus the discussion on the impact at the national level, while others, including myself, point to the specific impacts in those locations actually subject to the onslaught of the microfinance industry – the newly 'saturated' areas and poorest areas of Cambodia. I think that looking at those locations where the poor are concentrated and subject to the microfinance industry most of all, is a more useful way of looking at the impact. Otherwise, we lose track of what is going on. So, for instance, your desire to focus on the national level would have found no problem in Andhra Pradesh state in India prior to 2010, since the appalling situation there would have been largely hidden had studies brought in other non-microfinance saturated states in India and insisted on reporting an average for India. So I think this is a faulty methodology, and it probably obscures far more of importance than it reveals. In many other countries, the microfinance-driven crisis it is often specific to particular locations, and I think the same is in Cambodia. Second, with no figures for the median it is difficult to make any solid conclusion as regards anything in the data collected. Third, there are no figures for several important issues concerning the poor, such as to fund migration, which is in reality one of the commonest uses for microcredit (see the work of Maryann Bylander, for example)
Having said, that the NIS survey does reveal more important data about the problems that have arisen in Cambodia thanks to the constant profit-driven expansion of microfinance. On the level of debt issue, the overall figure quoted in the NIS is indeed what you say. However, this has to be offset by the rise (mainly outside of Phnom Penh) in the average loan amount (page 97, Table 8), which suggests a smaller number of households are in debt, but by much more per individual household. Moreover, total average indebtedness has increased by more than 60 per cent in the 3 years from 2011 to 2014, which is a very worrying figure. In terms of the new debt incurred to service old debt, the average level of household debt accessed in order to service or repay existing debts has increased by more than 300 per cent, going from around $US470 to $US1,500 between 2001 and 2014. Yes, this is a small percentage overall nationally, but such rapid growth is a worrying sign. Going further, with migration and mobility in Cambodia very high indeed, as noted, and with some studies showing that this arises because the poor are migrating from their communities after having lost family land forfeited to repay a defaulting microloan, this might also be a factor in the most recent figures being somewhat lower than in earlier years. Another indicator of a worsening situation is that (NIS, page 101, Table 12) the average time it takes to repay a microloan has been steadily rising since 2009, shades of 'extend and pretend' one might hypothesize.
Drilling down to the sub-national situation, we find things are much worse for the poor, for whom microcredit is supposed to be making things better. Consider on this geographical point the important survey by Liv Dannet (2013)
This survey found that around 9% of villages in Cambodia, mainly the poorest villages, are effectively saturated with microfinance. The recent increase in average loans might be even more cause for concern in such villages, given that the data collected by Dannet largely refers to the period up to December 2011; in other words, the data was collected prior to the latest spurt in microfinance expansion. Now the NIS figures show that multiple lending is bad if Cambodia is the subject, but very worrying indeed if the poorest regions are the subject. The Dannet survey (page 14) found that in saturated villages 28 per cent have accessed microloans from 3 MFIs, and 15 per cent from 4 or more. These are very dangerous figures, not least because they cannot be linked to any economic development or poverty reduction progress – that is, so much of this over-indebtedness is effectively being racked up with no real net impact. The objective debt measurements (page 38) show that servicing micro-debt for the very poor does indeed take up a very high percentage of their incomes, perhaps as much as the 45% figure calculated by Grant Knuckey – CEO of ANZ Royal Bank, which is a major supporter of microfinance in Cambodia – a figure he got from his reading of the NIS study.
I appreciate your additional comments, but they are peripheral to the fact that the situation remains very worrying and the potential for meltdown gaining ground daily. The high figure for consumption spending (@30%) as the reason for taking out a microloan is particularly worrying. And especially when we cannot find any reliable indication that this wall of micro-debt is having a positive impact on poverty and local economic development – supposedly the whole point of the exercise – it increasingly looks to be about nothing more than a situation where the main MFIs are simply keen to continue making eye-watering returns no matter what level of over-indebtedness is racked up.
Milford
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Posted by: Hsu Ming-Yee <mingyee0706@yahoo.fr>
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