Press release

IDS response to reports criticising microfinance that are exploiting the poor

Published on 8 August 2019

In response to report from Cambodian human rights groups LICADHO and Sahmakum Teang Tnaut (STT) highlighting how microfinance loans designed to help the poorest in Cambodia are actually leaving them in greater debt or forced to sell land, IDS research fellow and microfinance expert Phil Mader said:

“These reports reveal deeply disturbing patterns of exploitation among distressed microfinance clients. The poorest are affected worst. More than a million people may be at risk of losing their land and livelihoods, owing to financial services that were supposed to help them.

The causes of this abuse lie in how the microfinance industry works. The industry is built on debt. Once a client is indebted, they can often not escape, and lenders are under pressure to push for repayments and even lend them more. These are not isolated cases. In India, dozens of microfinance clients were driven to commit suicide in 2010, and in Morocco clients have been imprisoned for protesting against microfinance.

Development donors and investors focus far too much money and attention on promoting financial inclusion, and not enough on ensuring that poor people can cover basic needs and have access to non-exploitative livelihood opportunities. Urgent action from governments, donors and investors is needed to understand the causes and extent of the abuses in Cambodia, establish accountability and open up escape routes for distressed clients and impose stricter regulations on the global financial inclusion industry.”