BANGKOK — The internal watchdog of the World Bank’s private-investment arm found that Cambodian microfinance lenders harmed impoverished borrowers by pressuring them to keep repaying loans they could not afford, according to a report published Wednesday.
The Compliance Advisor Ombudsman of the International Finance Corp., or IFC, said in its report that Cambodian microfinance lenders paid insufficient attention to borrowers’ ability to repay loans and exerted pressure tactics aimed at avoiding default. The ombudsman said that in addition to concerns raised by 18 borrowers who filed complaints, it received reports from three other borrowers who said loan officers had suggested they sell their children to repay microfinance loans. None of the borrowers acted on those suggestions, the ombudsman said.
The ombudsman investigated complaints brought by 18 borrowers who had taken loans from six Cambodian microfinance lenders and said they experienced harm, including pressure to sell family land or pull their children out of school.
The ombudsman found that the IFC violated its own policies on environmental and social protection when it advanced more than $400 million in loans to those six lenders.
The IFC, in its own report also published Wednesday, rejected the ombudsman’s findings. The IFC argued that “risks and impacts associated with lending and debt collection practices” were not covered by its environmental and social protection policies. It defended its record in Cambodia, saying its support for microfinance lenders in the country had helped provide funding to around 400,000 micro, small and midsize enterprises every year.
“The complainants portray complex situations of economic hardship and multidimensional cycles of poverty that do not stem from a single source,” the IFC said. It said it would help the 18 complainants obtain debt relief within existing mechanisms under Cambodian law.
The IFC’s board, which represents its major shareholders including the U.S. government, said that “there has been no policy noncompliance under IFC’s Policy on Environmental and Social Sustainability.” It is the first time the board has rejected the findings of the IFC ombudsman.
The findings tally with issues raised by a recent Wall Street Journal investigation into the multibillion-dollar lending program, which was once seen as a cure for global poverty.
Backed by development banks like the World Bank and private investors, the sector has since extended hundreds of billions of dollars in loans to poor borrowers around the globe.
The IFC’s funding to Cambodian microfinance lenders represents a small slice of the broader World Bank Group’s support for the sector. A 2023 report from the World Bank Group said the bank and the IFC had invested around $30 billion in so-called financial-inclusion activities — many of them microfinance lenders — between 2014 and mid-2022.
Licadho, one of two Cambodian human-rights groups that filed the complaints on behalf of the 18 borrowers, said it was disappointed by the board’s decision.
“The IFC and World Bank have decided to ignore their sustainability policies when they are inconvenient, and instead brush under the rug a litany of forced land sales, violations of local laws and irreparable harms to Indigenous Peoples,” Naly Pilorge, the group’s outreach director, said in a statement.
The Cambodia Microfinance Association, which represents the country’s more than 80 microfinance lenders, did not have an immediate comment on the ombudsman report or the board decision. A spokesman said the association had previously found no misconduct by lenders following reports of multiple borrower suicides.