With tears streaming down her face, 36-year-old El Sarifat describes how she is “terrified” of losing the modest wooden two-tier home she shares with 13 relatives. She returned to the house that perches on stilts over the Sangkae River, Battambong province last Friday after it was completely submerged by this year’s month-long flooding, which to date has left 134 confirmed dead.
But having weathered the impact of natural forces, Sarifat is now cowering under the threat of having to sell up the family home she’s lived in since 1979 to break free of an already suffocating debt cycle fuelled by multiple loans from micro‐banks and private moneylenders that this latest disaster has rendered unbearable.
Having spent the capital of an initial $500 loan from a microfinance institution (MFI) to set up her own fishing business, a fragile and sporadic revenue stream necessitated a further two loans to pay off the first.Enjoying this article? Click here to subscribe for full access. Just $5 a month.
Even before the floods hit, paying off interest and capital absorbed half the household’s income, leaving a paltry $60 a month to feed her large family. Severe conditions have cut off Sarifat and her family’s means of generating revenue for the past three weeks. The sizeable monthly interest rate of 3 percent (typically MFI loans are between 2.5 and 3.5 percent) is crushing her family.
“Our only hope was to delay payment until we could start fishing again. We went to one of the [MFIs] to ask to postpone the repayment schedule but the case was referred to the police. I was summoned to the station where I had to just take the officers’ abusive language and I had to promise to find other ways to pay. But there’s nothing we can do,” Sarifat explains via a translator.
As is now part of an established global trend, it’s the world’s poorest that are hit disproportionately hard by the effects of climate change and Cambodia is ranked in the top ten most vulnerable nations. Floods are part and parcel of the seasonal cycle here but Cambodia is increasingly susceptible to unseasonably heavy monsoons and an unfortunate combination of factors has made this year’s floods particularly devastating, affecting 1.7 million people and displacing nearly 120,000 so far.
In addition to the misery of loss of livestock, and destruction of crops and property, the monetary woes wrought by an acute vulnerability to financial shocks can leave lasting damage long after water levels have receded for Cambodia’s agrarian poor, often propelling households irretrievably into debt where short-term relief is sought through more borrowing at high rates.
There is a precedent for how this complex culture of money, which flows through an intricate debt network incorporating MFIs and private moneylenders, can be compounded by natural disaster. In the wake of the 2011 floods, the most severe in a decade during which 254 people were killed, a CARE report found that for half of all households surveyed further loans were a necessary financial lifeline. But plunging households deeper into risk of insolvency is commonly the first step towards an inescapable debt spiral according to Jan Ovesen, a leading Cambodian microcredit expert at Uppsala University, Sweden. “Once you’ve entered the vicious cycle of taking out a private loan to pay the MFI, and then take out a new MFI loan to pay back the private lender, it may be very hard to get back on your feet economically.”
Loans from private moneylenders come with much higher interest rates – as high as 65 percent – and are a common go-to for those facing insolvency at an MFI. They also fall beyond the remit of Credit Bureau Cambodia (CBC), the institution set up in 2012 to introduce tougher regulation to prevent over‐indebtedness and access to multiple loans through a credit-check system.
Once a borrower has fallen into the quagmire of multiple loans, or if profit isn’t being turned on economic activity, the likelihood of becoming over‐indebted or at risk of insolvency increases dramatically. This is a particular concern at a time of a force majeure, when additional loans are more likely to be devoted to tide over a family’s basic consumption needs than re-investment in entrepreneurial activities.