Cambodia: Emergency and Crisis Response Facility

Emergency and Crisis Response Facility

Cambodia

2022 - 2023

E&S-Category: FI

Status: Approved

Timeline

N/A

CONCEPT REVIEW

April 6, 2022

FINAL REVIEW

April 21, 2022

FINANCING APPROVAL

September 2022

LATEST FIELD VISIT

May 2023

LOAN CLOSURE

Total Project Costs covered by the AIIB

US$ 100 Mio

Safeguard Concerns

• In general, microloans in Cambodia have been criticized for their high-interest rates, use of land titles as collateral, lack of transparency, and abusive collection practices by microloan institutions resulting in debt cycles for many borrowers.
• The microfinance sector in Cambodia has been criticized for having insufficient regulations and oversight, which has allowed these unethical practices to flourish.
• Credible reports from CSOs, journalists and investor-funded research have found widespread land dispossession, loss of livelihood, health impacts, loss of land belonging to Indigenous Peoples, food insecurity, and child labor in Cambodia's microfinance sector.
• Despite years of widespread criticism, the AIIB has approved $100 million in financing for ACLEDA, meaning a recent total of $175 million for microfinance in Cambodia (see Cambodia PRASAC COVID-19 Response Facility).

Safeguard Concerns

• Other major investors, including the IFC, are more critical of the project and sector as a whole, having withdrawn financing proposals or launched deeper investigations.
• CSOs concluded that AIIB's due diligence process is inadequate to address these specific issues in the microfinancing sector.
• Land dispossession caused by Cambodia’s microfinance sector is depriving Indigenous Peoples of their rights to their traditional lands and access to resources, culture, and community. Land titles that illegally overlap indigenous lands are accepted as collateral on micro-loans, and over-indebted borrowers are then pressured to sell the land, sometimes to buyers outside the indigenous community. Reported abuses include the microloan activities of ACLEDA Bank Plc., which this AIIB project will be funding.

Resettlement

• Microfinance providers in Cambodia regularly require land titles to be pledged as collateral, a practice criticized as unethical and driving up homelessness.
• A recent study commissioned by the German Ministry for Economic Cooperation and Development substantiated years of reporting from civil society groups in Cambodia, finding that the country's microfinance sector has resulted in an "alarmingly high" and "unacceptable" number of debt-driven land sales.
• These harms are unreported under the financial institutions' existing environmental and social risk management systems (ESMS).
• Reforms are needed in Cambodia's MFI sector prior to any new investments to ensure borrowers' human rights are respected.

Further Information