Microfinance institutions in Cambodia, accused of predatory lending, are pivoting to green bonds while borrowers, burdened by debt and climate impacts, struggle to survive.
When Davuth fell behind on his microfinance loan earlier this year, a credit officer visited his home in Ratanakiri province almost daily. The officer pressured him to borrow from neighbourhood lenders or sell his farmland – his main source of income and livelihood, he said.
“I replied that if I sold my land, which includes my cashew and cassava crops, I’d rather die,” Davuth, a Kachok Indigenous man, said in August. He requested a pseudonym, fearing reprisals.
He claimed the credit officer, representing microfinance institution LOLC Cambodia, threatened and intimidated him until his first suicide attempt in March. His wife intervened just in time to save his life.
Davuth is not the first to report such threats. LOLC is currently under investigation by the International Finance Corporation (IFC)’s watchdog over unethical lending practices, as previously reported by Dialogue Earth.
Despite these allegations, in June, LOLC was selected for the Cambodia Sustainable Bond Accelerator programme, designed to assist with issuing sustainability bonds on the Cambodian Stock Exchange. Green bonds issued through the programme – now in its second phase – are intended to fund projects such as solar plants and green buildings.
LOLC plans to issue a USD 50 million sustainability bond for “green” and “social” projects, backed by partners like the UN Economic and Social Commission for Asia and the Pacific (UNESCAP). UNESCAP, which has previously tried to alleviate the debt burden of Cambodian borrowers, is now supporting the very institutions accused of exacerbating it.
UNESCAP declined to comment when Dialogue Earth reached out for a response. Two other programme partners, the Securities and Exchange Regulator of Cambodia and the Global Green Growth Institute, did not respond to requests for comment.
Davuth knows first-hand the environmental threats Cambodian farmers face, as rainfall becomes more unpredictable and flooding and droughts become more common. He is not optimistic about this year’s crops. “If climate change leads to a poor harvest, I have no idea how I’ll pay back my loans,” he said.
Microfinance was designed to lift people out of poverty. Instead, for Davuth and many others, it has become a trap. “I feel desperate about the debt; I can’t even feed my family well,” he says. “All the money I make goes to repaying the loan.”
Cambodian microfinance: a fraught history
Cambodia has the highest microfinance debt-per-capita in the world, with borrowers across the country falling victim to predatory lending. Researchers and NGOs have documented cases where lenders pressured borrowers into selling their land or taking on high-interest loans from neighbourhood lenders. Many indebted Cambodians leave their homes to work in cities or other countries, while children drop out of school and families cut down on food just to stay afloat.
Now, as criticism mounts, microfinance institutions are shifting their focus, presenting themselves as agents of climate adaptation. This pivot coincides with a broader trend within the financial and development sectors, with institutions like the UN and World Bank rolling out green bond programmes. The Asian Development Bank, whose trust fund is a partner in Cambodia’s green bond accelerator programme, labels itself as “Asia and the Pacific’s climate bank.” Microfinance institutions have embraced this opportunity, using green bonds as a new way to fund their operations, while pledging a commitment to sustainability.
“The green agenda and climate change has been a kind of ethical shot in the arm for a lot of these institutions,” said Laurie Parsons, senior lecturer in human geography at Royal Holloway, University of London. “They’ve been able to greenwash a lot of their operations and resell them as a form of adaptation.”
Parsons warns that green bonds issued by microfinance institutions could fuel some of the same abusive lending practices, including threats and intimidation from loan officers.
“How do these institutions continue to grow when every single person in the country has already got a loan and you’re already the most over-indebted country in the world?” he says. “I don’t know exactly how these institutions will manage to find enough uptake without the aggressive tactics that they’ve been famous for in the case of microfinance loans.”
Sreyna (a pseudonym), another villager from Ratanakiri province, says she faced similar harassment from LOLC loan officers in July. After falling behind on payments due to heavy rains that destroyed her soybean crops, a credit officer posted a warning letter on her one-room home, where she lives with her husband and four children. The officers suggested she sell her land, her only remaining asset, to cover the debt.
“They even told me to stop sending my children to school,” Sreyna said. “Even though I’m poor, I’m prepared to make sacrifices for their education.”
Her husband, unable to bear the pressure, signed a new loan in July, locking the family into deeper debt. “We spend all our time trying to find the money to pay them back,” she said. “We’re trapped.”
Her story is not unique. LOLC loan officers have been accused of pressuring borrowers to sell their land. One debtor reportedly died by suicide after credit officers encouraged him to take out additional loans to repay his existing one with them. In response to these allegations, Cerise+SPTF, an international standards developer, asked that LOLC’s client protection certification be placed under review.
In an email, an LOLC Cambodia spokesperson said the microfinance institution has a “robust complaints mechanism and an internal audit system that has not encountered accusations of this nature.” The spokesperson added that the National Bank of Cambodia and the Cambodia Microfinance Association also have complaint mechanisms. “Given this, we have every reason to believe that the statements provided do not accurately reflect the experiences of our customers,” the spokesperson noted.
Green bonds tainted by controversy
Other companies participating in Cambodia’s green bond programme are also mired in controversy. Amret PLC, chosen in 2023 to issue a $50 million sustainability bond, is also under investigation by the IFC’s watchdog. The chairperson of real estate company Golden Tree Co., which received support for a $25 million green bond, was arrested for fraud in August in relation to an investment fund where he served as board member. Additionally, two enterprises of the Cambodian conglomerate Royal Group, Wing Bank and Royal Group Phnom Penh SEZ, have also received support for a collective $60 million in sustainability bonds. Royal Group’s owner, tycoon Kith Meng, has been linked to illegal logging and environmental destruction.
NGOs Licadho and Equitable Cambodia filed a complaint to the IFC’s watchdog in 2022, accusing six microfinance institutions, including LOLC and Amret, of engaging in predatory lending practices, involving coercion and threats. The watchdog’s initial investigation found “preliminary indications of harm” to borrowers.
Despite the ongoing investigations, some officials argue that green finance offers a path forward. Munho Choi, senior investment specialist at ADB’s Credit Guarantee and Investment Facility (CGIF), a partner in the green bonds programme, acknowledged the investigation but said CGIF decided to participate because one of its key mandates is to provide guarantees for green and social bonds.
“The main objective for this programme is to support future green or sustainability bond issuances in Cambodia,” he said. “Of course, if we provide the guarantee, we need to conduct due diligence on these issues as well as part of our process.”
Programme partner GuarantCo said in a statement it is providing technical capacity-building support and may provide a credit guarantee for the bonds issued “subject to full due diligence, credit committee and other internal approvals.” GuarantCo, funded by the governments of the UK, Switzerland, Sweden, the Netherlands, Australia, Canada and France through their development finance institutions and various trusts, did not respond to further questions.
In an email, Cambodia Microfinance Association spokesperson Kaing Tongngy stated that the association has “zero tolerance for any malpractices by its members,” which must comply with its code of conduct and lending guidelines. He added that LOLC holds a gold certificate in client protection, demonstrating “its commitment to the international standard with strong social performance management including client protection principles”.
Some researchers have urged the international development community to shift climate finance towards grants rather than loans. They recommend funding member-owned credit unions or publicly owned community development banks which have a proven track record of promoting sustainable development.
Even though the green bonds programme sets out to support projects with environmental and social benefits, some are sceptical of its potential to help. Rajom Sang, a community representative from Ratanakiri, explained that microfinance loans have left people in his village saddled with debt, forcing them to migrate in search of better-paid work. Families have sold their land and reduced their food intake, he noted.
“If these international agencies fund microfinance institutions to tackle climate change, I doubt it will bring positive change,” he said. “If this programme turns out to be the same [as previous projects], borrowers will still face over-indebtedness.”
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