Transactions of the Institute of British Geographers

A Crisis in Cambodian Microfinance

By W. Nathan Green, University of Wisconsin-Madison

Cambodia is in the midst of an over-indebtedness crisis. The culprit? Microfinance. In the past 15 years, the number of Cambodians who borrow from a microfinance institution (MFI) has increased five-fold, with household debts to MFIs now three times greater than per capita national income. The situation has become so dire that in 2017 a coalition of microfinance investors commissioned a nationwide study into the problem of over-indebtedness. With one-in-three borrowers found to be objectively over-indebted, however, the results were too shocking to publish. The industry buried the report, which was only recently leaked to a handful of researchers and journalists.

Many people think that microfinance alleviates poverty; certainly it is not supposed to cause it. That ideal was lost, however, when the microfinance industry went down the path of neoliberal financialization in the 1990s. Since then, the problem of economic justice has shifted from financial exclusion to financial inclusion. Globally, most people borrow from an MFI to meet basic needs like healthcare and home improvement, not engage in entrepreneurial activity. It is for this reason that Ananya Roy has dubbed microfinance the new subprime frontier of financial capital.

The annals of critical research on microfinance largely support Roy’s argument. Scholars across the social sciences have demonstrated that microfinance often erodes community solidarity, leads to greater financial exploitation, and requires that women alleviate household poverty on their own. In some cases, microfinance is even a driver of land dispossession and forced labor.

It is no accident that these outcomes sound surprisingly similar to the conditions of Harvey’s accumulation by dispossession. Microfinance is one of the most successful technologies for introducing capitalist social relations into new spaces in the Global South. Its success is due largely to international capital investment, a well-known moral discourse of individual responsibility, and a public relations strategy that pulls at philanthropic heartstrings.

In my Transactions article, I argue that microfinance in Cambodia has also grown rapidly because of another popular technology of development: the land title. Since the early 2000s, when the Cambodian government titled many areas of the country for the first time, the largest MFIs in the country have made a land title an essential requirement to access a loan. Land titles provide collateral on risky loans, which industry proponents have argued is necessary in order to include more people into formal financial markets.

In this sense, Cambodia’s over-indebtedness crisis is the outcome of two globally-hegemonic development technologies that reinforce one another. As the country emerged from nearly three decades of conflict in the 1990s, its national leaders were cajoled into adopting neoliberal reforms to restructure their economy. To reduce poverty in rural areas at that time—where 90% of the country’s poor lived—the government, its donors, and economic advisors championed land titling programs and microfinance side-by-side. The government continues to support these development technologies. At the launch of a major new titling program in 2012, for example, Prime Minister Hun Sen declared that Cambodians could deposit their new land titles in banks in request for loans to develop their livelihoods.

It is important to identify hegemonic ideas of development in order to capture global trends and map connections between disparate sites of accumulation by dispossession. However, the purpose of my research is to analyze through ethnographic methods the more subtle, quotidian practices that explain how microfinance and land in Cambodia are assembled together to allow financial capital to accumulate unevenly.

My motivation for understanding microfinance in this way came from riding on the back of a credit officer’s motorcycle through the rice fields of southern Cambodia. For five weeks in early 2017, I interned with Cambodia’s largest provider of microfinance loans, ACLEDA Bank Plc. During this time, I conducted participant observation with young men—and they are almost always men—in one branch office’s credit department. During this research, I became convinced that credit officers are crucial actors in the creation of new land and financial markets.

Credit officers play two key roles in assembling land and finance together. Importantly, they are among the first people to assign a monetary price to rural Cambodians’ land. In my article, I demonstrate this valuation process by describing the interaction between one credit officer, Dara, and his new client named Tiang. In assessing Tiang’s loan request, Dara had to price the value of Tiang’s agricultural land in order to determine the size of loan for which Tiang was eligible. Not only did this valuation process require Dara to draw upon a vast social network of market information, it also laid bare the different ways that Dara and Tiang valued the land. Dara saw square meters and monetary price. In contrast, Tiang spoke of his land in terms of non-monetized, agricultural labor relations. In other words, Dara and Tiang viewed the land from two different regimes of land value.

In addition to land valuation, credit officers like Dara also link land and finance together by threatening their clients with land seizure in order to coerce them into repaying their loans. Taking land titles as collateral is ultimately about minimizing the risks of financial investment so that investors can appropriate a share of surplus value produced by borrowers’ labor. This financial accumulation requires disciplining the economic behavior of Cambodians like Tiang and his family. This discipline is achieved through the threat of land seizure—backed by the power of contract, collateral, and community leaders. For this reason, I argue that assembling microfinance and land together rests upon turning land itself into a technology of control.

In sum, the Cambodian microfinance industry has grown rapidly in large part because credit officers like Dara have turned land into a financial asset. However, like in most situations where land becomes enrolled into financial markets, the Cambodian microfinance industry has built-in contradictions that will likely undermine its continued growth. Already there are rumblings of a double movement, as industry leaders and civil society activists alike publicly acknowledge the problem of over-indebtedness.

If Cambodia were to see an economic slow-down, perhaps by losing favorable trade status with its largest trading partners such as the European Union, then the microfinance industry may face a situation of large-scale default. Unfortunately, as previous financial crises have shown time and time again, it is rarely those who profit that will suffer the consequences. Better recognition of how collateralized microfinance fits into this picture is but a first step in preventing such a calamity.

About the author: W. Nathan Green is a PhD candidate at the Department of Geography, University of Wisconsin. Follow Nathan via: @WNathanGreen1

Green, WN. (2019). From rice fields to financial assets: Valuing land for microfinance in Cambodia. Trans Inst Br Geogr.  Advance Online publication, 1– 14.

Featured image caption: Farmers transplanting rice together in southern Cambodia.

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