Dear Milford,
I am following most of your posts, critical comments, contribution and warning bell to the micro/rural finance sector. Although, most of the concerns you raised are correct but what will be the best alternative or way forward. As most of us know that still millions of poor are outside reach of financial services. Informal sources of finance is more costlier and not accessible to all. As far as I know, nobody want to be over-indebtedness or die with the debt. If we don't provide financial services to the poor, they may be compel to seek for more expensive sources. After all they need to pay cost of living, education, health and investment in livelihood activities.
Cooperatives could be better options as their services are cheaper and client-friendly than most of the micro-finance institutions, however, cooperatives are also not successful to address the concerned you raised. I have seen many cooperatives members borrowing from multiple sources and obtaining new loan to pay old loan/s.
We may need to device more appropriate mechanism to lift the poor out of poverty. Intervention such as financial literacy, skill training, market linkage empowerment and changing attitude and behaviors of the poor may be helpful. My little experience tell me that enhancing self-efficacy and self-concept of the poor is equally or more important than other intervention such as access to finance and others.
Micro-finance and cooperative are becoming more commercial and they are forgetting their novel purpose of bridging the gap created by state and private sector. Either we need to re-enforce/ remind the social mission of micro-finance and cooperative through their networks or regulation or seek for alternative solutions. And we together should explore the better alternatives.
Nav Raj Simkhada
Microfinance and Cooperative Specialist
Email: navraj.simkhada@ymail.com,
Tel: 977-1-9841-425366 (M), 977-1-4356501 (O )
From: "milford bateman milfordbateman@yahoo.com [MicrofinancePractice]" <MicrofinancePractice@yahoogroups.com>
To: "MicrofinancePractice@yahoogroups.com" <MicrofinancePractice@yahoogroups.com>
Sent: Monday, 2 November 2015, 17:07
Subject: [MFP] Re: Microcredit-driven financial inclusion in Cambodia is destroying the lives of the poor
In this week of FI2020, it is appropriate to step back a little from the egregious PR and have a look at the growing number of country examples where the financial inclusion movement has indeed achieved its goal, and everyone is able to access as much microcredit (and other financial services) as they want, and disaster has ensued. Cambodia would appear to be one such country.
It has long been known that the huge and growing level of microcredit-driven among Cambodia's poor has inflicted serious damage on their lives and future prospects. Very few micro-businesses have succeeded in the artificially-created hyper-competitive local markets, and the very many micro-business failures have all too often plunged their hapless owners into even deeper poverty. One of the worst aspects of all has been that failed micro-business owners often have to forfeit long-held family land to repay their unrepayable microdebt, especially around the capital city of Phnom Penh. Indeed, some of the main MFIs are now the owners of significant property assets as a result of defaulted clients simply handing over their land as full and final repayment of their microdebt, which they then bundle up into a larger bloc and sell on to property developers at a very high price. There is much talk on Cambodian websites and in local newspapers that this phenomenon is a deliberate accumulation strategy being adopted by some of the major MFIs in Cambodia, and elsewhere in the region (such as in Myanmar) – it is known as 'debt farming' – which would be pretty scary if true. I have only come across partial evidence for this phenomenon, but maybe someone else has strong evidence of this taking place?
Of course, this encroaching disaster is water off a duck's back for the senior managers and equity shareholders in the main microcredit institutions in Cambodia, notably ACLEDA and AMK, who have long been doing very well in recent years thanks to high salaries and bonuses for managers, and generous dividends and share capital appreciation for equity holders. However, according to the latest survey by the Ministry of Planning's National Institute of Statistics conducted in collaboration with the Swedish International Development Cooperation Agency, the extent of the damage inflicted by microcredit sector on Cambodia's poor would now appear to be reaching a crescendo. This survey revealed, first of all, that a whopping 45 per cent of Cambodian households are spending up to 45 per cent of their income on microdebt servicing. This is hardly a scenario associated with poverty reduction and sustainable progress for Cambodia's poor. Second, and even worse, more than ever the principal reason for taking out a NEW microloan is simply to repay a bundle of EXISTING microloans. This would appear to suggest that the microcredit sector in Cambodia has now reached the final stage of the boom-to-bust financial cycle under capitalism described by the great US financial economist, Hyman Minsky – the famous 'Ponzi stage', where new debt is largely taken on simply to cover the installments due on existing debt. One might therefore speculate that the end for Cambodia's microcredit sector cannot be too far off. So before they push other developing countries down the same damaging 'universal financial inclusion' trajectory as in Cambodia, the FI2020 folks might first provide an explanation for why things are going so seriously off the rails there and what might be done about it?
A good local article on the issue is this one:
The original NIS report produced by the Ministry of Statistics can be found here:
If anyone has any further insights into the deteriorating situation in Cambodia, please get in touch (I'm preparing a report for one of the international development agencies on microcredit-driven over-indebtedness and Cambodia is one of the countries I was asked to look at)
Milford
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Posted by: Nav Raj Simkhada <navraj.simkhada@ymail.com>
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