Deep household debt might soon push Cambodia into a crisis as job losses caused by COVID-19 make it even harder for families repay loans, experts and debtors say.
While the country has officially only registered 122 coronavirus cases, thousands of garment workers lost their jobs when their factories closed. Thousands from the tourism or service sectors are also jobless or earning far less money than they were six months ago. For some, this crisis could have devastating consequences, including loss of family land, often a fast track to abject poverty.
Hy Sokhom, who drives a tuk-tuk, a three-wheeled motorized rickshaw, is one of millions of Cambodians who, on average, are the world’s most indebted borrowers. Usually his wife and adult daughter sell noodles at a school in Kandal province’s Kien Svay district, but the school closed mid-March as part of measures to contain the spread of the coronavirus.
The family lost $10 in daily income.
The couple’s two sons lost their jobs in Bavet city when the casinos closed under similar measures to contain the COVID-19 outbreak.
The family lost $300 in monthly income the sons sent home.
Covering the $400 monthly installments for their $18,000 loan --- for a new tuk-tuk, home renovations and the cost of their sons’ move six months ago to Bavet, near the Vietnam border --- seems impossible.
They also must make monthly payments to two microfinance institutions (MFI) of about $50 each, bringing their monthly total to $500.
One of the sons started a low-paying job as a security guard a few weeks ago, but that did little to alleviate the pressure on Hy Sokhom.
Tourism takes a hit
Tourism, a growth industry with foreign arrivals exceeding 2 million people per year in 2007 and 6.6 million in 2019, has ground to a halt. Before the coronavirus, Hy Sokhom brought home about $20 a day. Now, $7.50 is a good day.
“We don’t have money to pay the bank and not enough money to buy food,” said Hy Sokhom’s wife, Keith Mom. She believes the family deserves a break for never missing a payment before the coronavirus swept through the economy.
“I want [the bank and microfinance institutions] to help assist us with a two- to three-month moratorium,” Keith Mom, 48, said. “They could collect money from us as normal when [this] is over.”
But their bank, ABA, is insisting the family make the regular monthly installment, she said.
One of Cambodia’s biggest banks, ABA is backed by the National Bank of Canada. In an email statement ABA response to VOA, the bank said they could not address specific cases, added that loan forbearance required an investigation of “our customer’s income situation."
Late last month, 135 civil society organizations urged the government to ensure that microfinance institutions immediately suspend all loan repayments and interest accrual for at least three months. This, they said, was “necessary to ensure that people are able to survive this crisis without risking their health or homes.”
The Cambodia Microfinance Association (CMA) and the Association of Banks in Cambodia (ABC) said the nongovernmental organizations’ statement “does not reflect the real situation and is adversely affecting the banking and financial sector.”
Milford Bateman, the author of several books about microfinance, echoed the civil society organizations.
“If you give a grace period but add the unpaid installments to the total loan amount due, which some MFIs have said they will agree to do, you only delay the pain until the end of COVID emergency when the microloan is larger than ever,” he said.
Prime Minister Hun Sen in March advised credit institutes to allow delayed payments on loans and interest. The CMA said on its website it would assess the situation on a case-by-case basis.
The civil society organizations said a case-by-case assessment would be too slow to help borrowers in crisis.
ABC did not respond to a request for comment.
Listening to Hun Sen
With a lack of clear guidance from the government, villagers in Hy Sokhom’s village turn to Facebook to follow Hun Sen’s announcements about microloans.
“When he is live [on Facebook], we watch him, since we want to know about the credit issues,” said Pann Sopheak, Hy Sokhom’s neighbor.
Pann Sopheak, a 41-year-old widow raising three children alone since her husband died six months ago, holds home renovations loans of about $8,000 from three different microcredit institutes. Her monthly repayment is about $400.
A fruit seller, her income is down because fewer people shop in the market because they’re afraid of being in crowded public places during the pandemic.
Pann Sopheak told VOA Khmer that when she asked her lenders for three months’ grace, they refused.
“Please, Samdech [Hun Sen], help talk to the banks to give the borrowers a delay, a three-month moratorium,” she said.
In a similar vein, the civil society organizations urged the National Bank of Cambodia, as well as the government, to issue a sectorwide directive, mandating a three-month moratorium.
Various banks, including the National Bank of Cambodia, and the ABC did not respond to requests for comment.
Kaing Tongngy, the CMA spokesperson, told VOA Khmer that the association has worked to give some borrowers a moratorium since March. He added that CMA can't give all its clients a grace period.
"Some clients still have the ability to pay, so they still pay as usual,” he said. Those clients who have been “badly affected … have to show their impacts. There are choices as they don't have to pay for three to six months, depending on the negotiations and their impacted condition."
While the pandemic has affected borrowers worldwide, Cambodia is in a particularly vulnerable state.
In their statement, the civil society organizations said that 2.6 million Cambodians owed an average of more than $3,800 to microfinance institutes. This, they said, was “the largest amount in the world.”
According to a joint report released by the NGOs Licadho and Sahmakum Teang Tnaut, this amounted to more than $8 billion in total as of December 2018. The country’s GDP per capita was just $1,384 in 2017, according to the report.
The COVID-19 crisis is hitting the informal sector particularly hard.
Vorn Pao, president of the Independent Democracy of Informal Economic Association (IDEA), said the coronavirus crisis posed a real threat to the livelihoods of the 12,000 members. He said at least 80 percent of his members carried loans. And the members of his association, he said, represented about 10 percent of the total number of tuk-tuk drivers, motorbike and taxi drivers, and vendors.
“I am worried that if COVID-19 keeps on going, it will have hazardous impacts on their daily lives. They could face food shortage as their income continues to decrease,” he said.
Hout Ieng Tong, president of the Hattha Kaksekar microfinance institution, said that his company has granted a grace period to some borrowers, including those working in the tourism and garment sectors.
“We will investigate if [a client] is really impacted by this virus, and if [a client] is really incapable [to pay back the loan],” Hout Ieng Tong said. “It’s not that we will give them an automatic grace period.”
Meas Sok Sensan, Finance Ministry spokesman, said his ministry had set aside a budget of $350 million to “serve those people in the informal and formal economy.”
Many MFI loans are collateralized by land titles, leaving millions at risk of losing their homes and property should they default. Others could be forced to sell their land to cover their loans.
“Many clients submitted their land titles as collateral in order to get a microcredit, and some of the worst MFIs might try to sell off this land in order to repay a microloan, thus leaving the client in a very bad situation -- no land usually equals irretrievable poverty,” Bateman, the microfinance author, said. He added that MFIs have yet to promise they will not seize “the land and houses of those clients who cannot repay their microloans.”
To prevent seizures, the civil society organizations in their statement urged that land titles be returned to the debtors.
Hy Sokhom, echoing his wife, said he’s always made monthly payment on time, but this may not save him now.
“When we borrowed money from them, they asked us everything in detail. When we have problems [with COVID-19], they have not asked us anything. It’s only that we have to pay them money,” Hy Sokhom said. “It’s injustice for the debtors.”