Cambodia joins microloan clean-up

By Stephen Kurczy


PHNOM PENH - Impoverished Cambodia has emerged as a global microfinance leader, becoming the first Asian nation to hold lenders accountable to their original mission of poverty reduction. If a new global initiative aimed at promoting greater transparency over microfinance institutions (MFIs) recently launched here gains traction, the multi-billion dollar industry could be set for a shake-out.

It has long been assumed that microfinance ventures, launched in the 1970s as non-profit enterprises to bring cheap credit to the poor, prioritize alleviating poverty over maximizing profits. In recent years, celebrities such Robert Duvall, Natalie Portman and Yeardley Smith, (the voice of Lisa in animated television series The Simpsons), became official spokespeople for different MFIs such as Pro Mujer (Pro Women), Finca International, and the Grameen Foundation.

The United Nations Capital Development Fund has in recent years channeled millions of dollars in donor funds into MFIs. The International Finance Corporation (IFC), the private lending arm of the World Bank, says it has given more than US$600 million to more than 100 MFIs worldwide and maintains a commitment to double that investment to $1.2 billion by 2010, making IFC the largest investor in an industry servicing more than 80 million people around the world.

But so-called barefoot banking has come under growing criticism as MFIs reap huge profits. Reports have shown that many misrepresent their underlying loan fees, with some charging annual interest rates in excess of 100%. For instance, Mexico's Banco Compartamos, originally a non-profit institution, generated $458 million in an April 2008 initial public offering. Private investors piled into the offering because the bank charges its 1.4 million poor borrowers up to 128% annual interest.

Chuck Waterfield, a microfinance expert and Columbia University professor, has found that many MFIs, including Compartamos, advertise as pro-poor enterprises with 4% monthly interest rates but when additional hidden fees were added those rates often topped 10% per month.

Waterfield recently devised a platform for borrowers and international donors - who underwrite and provide cheap capital for many microcredit banks to on-lend - to view more clearly individual MFIs' true underlying interest rates. "Compartamos was a watershed for the industry. It takes a crisis to make you do what you should have done 10 years ago," Waterfield told Asia Times Online.

In mid-2008, he launched MicroFinance Transparency, a database of interest rates charged by individual microlenders that aims through publicity to refocus microfinance on poverty alleviation. The goal, he says, is to collect loan information from all microcredit lenders worldwide and publish their real annual percentage rates at his website, mftransparency.org.

"The organizations with the highest interest rates have the glossiest annual reports, with pictures of mothers with babies, and they talk about how they're helping those mothers while making boatloads of profits," Waterfield said on August 7 at a launch event in Phnom Penh. "So we put the prices up there and say, 'Nice annual report but you're charging twice the interest rate as anyone else to those mothers with babies'."

Waterfield hopes that all MFIs will openly join the initiative and prove they have nothing to hide. He first introduced the project in March in Peru, then in Bosnia in April, and this month in Cambodia before heading to another launch in Bangladesh. He acknowledges that he can't force microcredit lenders, many of whom bury hidden costs in the small print of their loan forms, to sign up to the initiative.

"We've got to build credibility and Cambodia helps us build credibility because it's a willing participant. The next country we go to will be a little less willing. And next year we'll go into the countries that are really reluctant to have us show up."

People over profits
While Cambodia is renowned for its endemic corruption and is often rated among the world's least transparent countries, Waterfield said he chose the country as the first Asian nation for his initiative because its registered MFIs rank among the world's top in terms of social performance, consumer protection and ethical practices.

Of the 12 Asian MFIs that have signed on to a social performance indicators program launched by the Washington DC-based Microfinance Information Exchange (MIX), a provider of MFI business information and data services, half hailed from Cambodia.

Five Cambodian banks are also included in MIX's ranking of the world's top 100 MFIs; only India, with six, claims more. In June, Angkor Microfinance Kampuchea was one of three MFIs worldwide to receive the first gold award for social performance reporting from the Michael & Susan Dell Foundation, the Ford Foundation, and Consultative Group to Assist the Poor.

"Cambodian MFIs have been at the forefront of industry reporting for many years," MIX's chief operating officer Blaine Stephens wrote in an e-mail in response to Asia Times Online questions. "My guess is that they will demonstrate as much commitment to reporting social performance as they have to reporting financial performance in an open and transparent manner."

Cambodian MFIs charge interest based on 30- or 31-day months. This may sound intuitive, but in Mexico and other developing countries most MFIs charge interest rates based on a four-week month, which effectively allows them to charge the borrower for an extra month every calendar year, Waterfield said.

The annual interest rates charged by MFIs in Cambodia are among the lowest worldwide at between 24% and 36%. While higher than normal rates on commercial consumer loans
, microloans are inherently more expensive because the lender receives less return while incurring overheads and transaction costs similar to those for larger loans.

"Here in Cambodia, we are committed to making sure that the financial services provided to the poor come as tools for their empowerment rather than shackles for their exploitation," Cambodian National Bank director general Tal Nay Im said on August 7. The National Bank has recently issued a legally binding sub-decree for MFIs to advertise their real effective interest rates.

Cambodia is the only country to outlaw flat interest rate loans, a credit structure where monthly interest is paid on the total loan amount even as the borrower pays down the principal - which means the borrower is effectively paying interest on money already paid back. In comparison, every MFI in Mexico charges a flat rate and only one microcredit bank in impoverished Bangladesh, the Grameen Bank, charges borrowers a declining rate where they pay less and less interest as the outstanding amount owed is paid down.

The Grameen Bank was founded in the 1970s by Muhammad Yunus, who was awarded the Nobel Peace Prize in 2006 and the US Presidential Medal for Freedom this week for his efforts to provide low interest loans to the poor. While many microcredit institutions claim to take inspiration from his example, Yunus has publicly lamented the industry trend towards profit maximization over uplift of the poor.

He, for one, has strongly endorsed Waterfield's new Microfinance Transparency initiative. "Microfinance emerged as a struggle against loan sharks, so we don't want to see new loan sharks created in the name of microcredit," Yunus told BusinessWeek at the time of the project's launch.

While Cambodia's 18 MFIs have agreed to submit their loan data to MicroFinance Transparency, the Bangladeshi government is drafting a law that will require all their MFIs to submit data to the initiative. In Bangladesh, banks do not at present advertise their true interest rates, Waterfield said, and there is the risk of a consumer backlash if published interest rates suddenly appear to double overnight.

Leaky lending
Not all MFIs are equally excited about Waterfield's transparency initiative, particularly those whose reputation would take a hit through greater disclosure. One of mftransparency.org's features will show, in graphical form, the relationship between loan size and interest rates charged. That presentation will show more clearly where MFIs' priorities lie.

Many MFIs had been so profitable that hedge funds, venture capital firms, and other big private equity investors have sought ways to enter the business. In Cambodia, private equity fund Leopard Capital announced in March that "we are currently evaluating several options to invest in the sector, including participating in any pre-IPO [initial public offering, or sale of shares to the public] capital raising by a leading MFI, acquiring an existing MFI or merging an existing MFI with a smaller commercial bank."

Despite Cambodia's lead on MFI transparency, the sector has been facing financial troubles wrought by the global economic crisis. The industry-wide at-risk portfolio for the nation's 1 million microloan borrowers rose from 0.5% in mid-2008 to 3.39% in mid-2009. That's exposed flaws in previous client screening.

Mai Yop, a 55-year-old salt farmer in southern Cambodia's Kampot province, admits to having lied to get a $1,000 loan three years ago from microfinance bank Acleda. While microloans are extended solely for business purposes, such as the provision of new cattle or farming tools, Mai Yop says she used the money to pay for her husband's stomach surgery.

"I had to lie, or I wouldn't get any money," said Mai Yop, who now lives on a budget of $5 a day. In order to pay back her first loan, she took loans from two other microlenders, and finally from a high-interest charging informal moneylender who eventually seized her farmland due to non-payment.

Some borrowers say they'd be in a better situation today if they'd never taken on a microloan. "We are poorer than ever," said Oum Siv, a 50-year-old grocery vendor in Kampot. Earlier this year, she said she owed $10,000 to a private moneylender after taking out a series of microcredit loans for her husband's construction business, which failed to get off the ground amid the economic slowdown.

Cambodia's MFIs say they have since adopted more rigorous screening processes for potential borrowers. But the toll from years of lax screening has only now become apparent. The situation is similar in several Cambodian provinces, with tens of thousands of Cambodians unable to repay their microloans and now at risk of losing their homes and farmland.

Despite these challenges, Waterfield said that Cambodia remains a relative microcredit success story. Elsewhere, when it comes to openness and transparency, "some of these [lenders] say, 'We've been lying for 20 years for some legitimate reasons, so it's not so easy to start telling the truth.' Here, it was like, 'sure, what do you need, we'll give it to you.' There was no resistance, no nervousness. We'll never see that again ... anywhere we go."

Stephen Kurczy is a journalist roaming across Asia. He may be reached at kurczy@gmail.com. Read more!

A further 160 families in Cambodia face forced eviction

A further 160 families in Cambodia are to be forcibly evicted from their homes without being given adequate alternative housing or just compensation.

Two lakeside villages in the Cambodian capital Phnom Penh received an official notice on Monday, giving them seven days to dismantle their houses. A private company is due to redevelop the site for tourism and commercial use.

Around 4,200 families living on or around Boeung Kak Lake in central Phnom Penh are affected by this re-development, which is the outcome of an agreement reached in 2007 between the Municipality of Phnom Penh and the private company. The company started filling the lake with sand in August 2008, in preparation for building.

The agreement was made without any prior consultation with the affected families, who since learning about the deal have repeatedly protested and voiced concern about the plans. At least two villagers have been arrested for their peaceful protests.

Company workers and security forces have intimidated and harassed many others, while the rising water levels caused by the filling of the lake, have flooded and destroyed many homes around its shore, forcing people to move.

The inhabitants of Village 2 and Village 4 were offered three options by the notice signed by the Daun Penh district governor: compensation of 8,000 USD plus an additional two million riel (approx 500 USD) to cover the cost of dismantling the houses; a flat at a resettlement site some 20 kilometres away plus two million riel; or new housing on-site but with temporary relocation.

The resettlement site at Damnak Trayoeung has no adequate shelter, water, electricity, sanitation, sewerage, health care or job opportunities.

The offer of on-site development is welcome as it demonstrates that the authorities are exploring alternatives other than eviction. This is also the option favoured by most of the 160 families.

However, according to the notice, they still have to dismantle their homes within seven days and accept relocation to a site far away from their work places and schools for an undetermined period, with no formal assurances that they will be able to return to secure tenure at Boeung Kak.

Last month, security forces forcibly evicted 60 low-income families from their homes in an area of central Phnom Penh called Group 78. The families in Group 78 had been living under the threat of forced evictions for three years, with the Cambodian authorities following none of the safeguards required under international law.

The Cambodian Government has consistently failed to guarantee the right to adequate housing and to protect its population against forced evictions. In 2008 alone, Amnesty International received reports about 27 forced evictions, affecting an estimated 23,000 people.

Amnesty International is reiterating its calls on the government to end forced evictions and introduce a moratorium on all mass evictions until there is a legal framework in place which protects human rights.

Amnesty International has urged the Cambodian authorities to halt immediately any plans to forcibly evict the families living in Villages 2 and 4 in Boeung Kak.

The organization also urged them to reconsider the plan to move the community to the resettlement site at Damnak Trayoeung and called on the authorities to hold genuine consultations about the onsite development plans, including clarifying the time frame for temporary relocation and a guarantee of security of tenure at Boeung Kak.

Moreover, Amnesty International is demanding that the authorities uphold Cambodia's obligations under international human rights treaties prohibiting forced eviction and related human rights violations. Read more!

Cambodian HIV Villages Draws Controversy

25 kilometers outside of Cambodia's capital Phnom Penh, lies a village built by the government for HIV-infected patients and their families.

Come to be known as the "AIDS colony", in the past two months the government has relocated 47 families to live in its metal and wooden sheds.

With inadequate sanitation and no running water, the area is not a health sanctuary for HIV-infected patients, who require personal attention and care.

The government maintains it is taking care of patients by building new homes and offering healthcare and ownership rights previously unavailable.

But HIV-infected people living in the village say they have not received any official recognition of ownership rights nor government compensation for their old homes.

40-year-old HIV patient Chheang Toma says even with free medical treatment, he has no real means of earning a living in the colony.

[Chheang Toma, HIV Patient]:
"I feel sluggish in my arms and on my legs everyday and I cannot walk well. I will hang on, until the day I need to go to sleep in the hospital. I wanted to go now, but I have no money to spend for food, although they give treatment free of charge."

With little prospect of work in the area due to the distance from the city, people say they must survive largely on donations from the government and NGOs.

[Suon Davy, HIV Patient]:
"I face great difficulty for my family day to day, because we live far away from the hospital, far from any job opportunities and it is very hot here."

Local human rights activist Dr. Kek Galabru says the government actions are discriminatory while the conditions could pose health risks to already vulnerable patients.

[Dr. Kek Galabru, President, Lacadho NGO]:
"It's regretful that city hall sent 40 families to Tuol Sambo village. This is a discriminatory act because by putting them together like this, everyone will know this is an AIDS community."

The "AIDS colony" is one of a number of forced evictions in Cambodia, where the government has faced escalating criticism about its mandatory relocations.

Many HIV-infected people living in Tuol Sambo previously resided in squatter areas in the Borei Keila area of the capital, forced out as the government took over the land to build high-rise buildings.

Last month, the World Bank urged Cambodia to halt the forced evictions from disputed land, saying it threatened the livelihoods of thousands of urban dwellers. Read more!

Webb Visiting Government Officials in Laos

U.S. Sen. Jim Webb (D-VA) arrived Thursday in Vientiane, Laos to meet with a number of high-level government officials and industry leaders to advance U.S. interests in the region. His visit to Laos is part of a two-week, five-nation tour of Asia that also includes Burma, Thailand, Cambodia and Vietnam.

Webb, who has long experience in the region, serves as chairman of the East Asia and Pacific Affairs Subcommittee of the Senate Foreign Relations Committee.

“It is vitally important that the United States re-engage with Southeast Asia at all levels," says Webb. “Our relations with Laos have never been fully repaired since the end of the Vietnam War more than 30 years ago. I look forward to working with Lao officials in order to bring our two countries closer together economically, culturally, and diplomatically.”

Webb’s schedule in Laos includes meetings with representatives from the Ministry of Foreign Affairs and Ministry of National Defense as well as the Ministry of Industry and Commerce which is responsible for Laos' bid to join the WTO.

Webb will also meet with the Mekong River Commission and business leaders to look at investment opportunities for the United States in Laos and ways to expand cooperation between the two countries.

Webb has enjoyed a continuous personal involvement in Asian and Pacific affairs that long predates his time in the Senate. In addition to his more recent visits as a member of the Senate Foreign Relations Committee, Webb has worked and traveled throughout this vast region, from Micronesia to Burma, for nearly four decades, as a Marine Corps officer, a defense planner, a journalist, a novelist, a Department of Defense executive, and as a business consultant.

Webb served as an infantry Marine in Vietnam, and later as assistant secretary of defense and Secretary of the Navy in the Pentagon. He also served as an Asia-Pacific regional military planner in Guam, has written extensively on local, national and international issues in Japan, Thailand, Vietnam and the Philippines, and in the 1990s worked as a consultant for companies wishing to do business in Vietnam. He has served on the Senate Foreign Relations Committee since joining the U.S. Senate in January 2007.

As chairman of the East Asia and Pacific Affairs Subcommittee, Webb oversees U.S. relations with countries in East Asia, Southeast Asia, the Pacific Rim, and Oceana. The subcommittee also oversees regional organizations such as the Association of Southeast Asian Nations and the Asia-Pacific Economic Cooperation.
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India, Southeast Asian Nations Sign Free Trade Agreement

By Heda Bayron, Bangkok


India and the Association of Southeast Asian Nations have signed a free trade agreement after more than six years of negotiations.

Indian Commerce Minister Anand Sharma and his counterparts from the Association of Southeast Asian Nations sealed the agreement in Bangkok Thursday. They met on the sidelines of the annual ASEAN Economic Ministers Meeting.

The agreement creates one of Asia's biggest trading areas and integrates India's fast growing economy with 10 of its neighbors.

Trade between India and ASEAN amounts to $40 billion each year. Under the pact, India and ASEAN will eliminate tariffs on various goods by 2016.

"India has got the market of 1.1 billion in population and ASEAN of 550 million," said Krisda Piempongsant, the spokesman of Thailand's Commerce Ministry, host of the meeting. "The size of the two combined will be much, much bigger than China, Japan and South Korea put together."

India has been playing catch up as other large economies in the region - China, Japan and South Korea - have already entered into agreements with ASEAN. Australia and New Zealand also have trade pacts with the grouping.

With these agreements, ASEAN stands at the center of what could become an even bigger free trade area, involving all six trading partners and ASEAN.

"All six countries are in one way or another have an FTA with ASEAN. The ASEAN plus six is a possibility," said Piempongsant.

The agreement comes at a time when global trade liberalization talks under the World Trade Organization have stalled, largely because of disputes between developed and developing nations over state subsidies on agriculture and trade in manufactured goods.

ASEAN comprises of Thailand, Singapore, the Philippines, Indonesia, Malaysia, Burma, Laos, Brunei, Vietnam and Cambodia.


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