World Bank Reviews Alleged Abuses by Cambodian Microlenders

(Bloomberg) -- The World Bank is reviewing a complaint by two Cambodian human rights groups alleging that microlenders backed by the development bank's financing arm have engaged in predatory debt-collection practices, including pressuring borrowers to sell their land.

The Cambodian League for the Promotion and Defense of Human Rights, or Licadho, and Equitable Cambodia accused the World Bank's International Finance Corp. of failing to adequately vet six microlenders before committing to lend $400 million to the firms in the past five years. The complaint, filed with the IFC's compliance ombudsman in February, alleged that money was used for projects that violated the bank's exclusion list, which prohibits investments that involve child labor or infringe on indigenous peoples' land rights.

“The IFC's reckless investments and lack of due diligence regarding its microfinance projects have destroyed lives and wrecked communities across Cambodia,” Naly Pilorge, Licadho's outreach director, said in a statement posted Tuesday on the group's website. “They must take steps to offer real relief to these borrowers.”

The announcement came on the day Bloomberg News reported that the IFC and other development banks have invested hundreds of millions of dollars of public funds into microfinance companies that charge high interest rates and engage in aggressive collection practices in developing countries including Cambodia.

Cambodia is one of the only countries in which microlenders require borrowers to post collateral such as land titles. Licadho has documented dozens of cases in the past three years in which women have been coerced into selling their land and homes to repay microlenders funded by the IFC. In a 2019 report, the group alleged numerous other human rights abuses linked to microfinance, including debt-driven migration, children being taken out of school to earn money and bonded labor.

A spokesperson for the IFC's Compliance Advisor Ombudsman, or CAO, confirmed that an assessment was underway “to clarify the issues raised in the complaint.” The CAO, the spokesperson said, has not determined the merit of the issues and isn't conducting an investigation of any microlenders at this point.

The IFC “will provide full support” to the CAO during its assessment, said Elena Gex, a spokeswoman for the development bank. She said the IFC “works with its clients to promote responsible lending practices in the microfinance industry.”

The IFC previously told Bloomberg it had received assurances from government regulators that there hadn't been any forced land sales in Cambodia. It said that it vets all recipients according to strict guidelines regarding responsible finance, particularly in overheated markets like Cambodia. “We have become much more selective about who we do business with in Cambodia” and have stopped funding some lenders, said Martin Holtmann, an IFC microfinance official, declining to identify which lenders were cut off.

Two of the companies cited in the Bloomberg story and named in the complaint are LOLC Cambodia and Prasac. In March, the IFC said it would lend Prasac as much as $50 million, according to the development bank's website. LOLC Cambodia has received tens of millions of dollars from the Microfinance Enhancement Facility, which counts the IFC as a major shareholder and co-founder.

LOLC Cambodia said in a statement that it welcomes IFC “to conduct an independent verification of these allegations and will provide our fullest corporation.” The company said it wasn't “involved in human rights violations including coerced land sales.” Prasac didn't respond to a request for comment.

“The IFC already has systems set up to prevent harm,” said Natalie Bridgeman Fields, founder and director of Accountability Counsel, an organization that supports communities harmed by international finance. “To meet its mission, and to respect the rights of communities, the IFC must not only follow its own rules, but also adopt a long-overdue remedy framework to address harm people experience when those rules are broken.”