Since the 1990s, Cambodia has used microloans as a way to help poor families improve their lives. Yet over the years, reports have emerged of borrowers losing their land, their health, and even their lives because of mounting debt. How did this happen?

Microloans are small loans offered to low-income borrowers. Because they are loans rather than charity, and lenders must account for the risk of default, interest rates tend to be relatively high. In 2017, Cambodia capped annual interest rates on new microfinance loans at 18%, but even this can be a heavy burden for poor families. Ideally, borrowers use the money to start a business and gradually repay the loan as their income grows. In Cambodia, however, many borrow to cover basic expenses such as healthcare and education, which do not directly generate income. As a result, debts can accumulate and create a vicious cycle.

Many microloans are secured with land as collateral, leaving borrowers who cannot keep up with repayments at risk of losing it. Anonymous executives in the industry have acknowledged that some lenders regularly pressure clients to sell their land. The microfinance industry has defended the use of property as collateral as a way to reduce lending risk.

Researchers have argued that Cambodia also needs stronger public healthcare and education systems, along with higher household incomes, so that people do not have to rely on loans to meet basic needs or risk losing their land because of debt.

Prayer

Heavenly Father, You see the Cambodian people burdened and oppressed by microloan debt, and You grieve with them. Comfort them and bring relief to those weighed down by debt, renewing their strength in Christ. May local churches be salt and light, reaching out to these families, walking alongside them in hardship, and showing them the love and hope of Christ. May Cambodia’s banks develop healthier and more just lending practices that truly help people manage financial needs, plan wisely, and cope with unexpected hardship. Give the government compassion and wisdom to address the deeper causes of this problem by strengthening healthcare and education and helping people increase their incomes, so that they no longer have to take on crushing debt simply to meet basic needs. In the name of Jesus Christ our Lord, Amen.